Now, one of the success stories of the past six months is that we really have seen a stabilization in the financial system. It’s not where it needs to be, but people are no longer talking about the financial system falling off a cliff. We’ve stepped away from the brink. And that’s important, because what it means is there are a lot of companies right now that can go into the marketplace and borrow money to fund inventory, fund payroll, and that will help the economy grow as a whole.
The problem is, now that the financial system has bounced back, what you’re seeing is that banks are starting to make profits again. Some of them have paid back the TARP money that they received, the bank bailout money that they received. And we expect more of them to pay this back. That’s a good thing. And we also think it’s a good thing that they’re profitable again, because if they’re profitable that means that they have reserves in place and they can lend. And this is America, so if you’re profitable in the free market system then you benefit.
But what we haven’t seen I think is the kind of change in behavior and practices on Wall Street that would ensure that we don’t find ourselves in a fix again where we’ve got to bail out these folks while they’re taking huge risks and taking huge bonuses.
So what do I think we need to do? We’ve got to pass financial regulatory reform. And this is an example of where folks say, well, should the Obama administration be taking on too much? The fact of the matter is that if we don’t pass financial regulatory reform then banks are going to go back to the same things that they were doing before. In some ways it could be worse because now they know that the federal government may think that they’re too big to fail and so if they’re unconstrained they could take even more risks. And so there are a number of elements of financial regulatory reform.
With respect to compensation I’d like to think that people would feel a little remorse and feel embarrassed and would not get million-dollar or multimillion-dollar bonuses. But if shame does not work then I think one proposal that I put forward is to make sure that at least shareholders of these companies know what their executives are being compensated — and that may force some reductions.
For banks that are still receiving taxpayer assistance we have a set of rules that gives us some control on reducing unwarranted compensation.