STEWART: And the America without the Wall Street address, unemployment is at 9.8 percent. And the "New York Times" reported today that, quote, "Pay cuts are occurring more frequently than at any time since the Great Depression." So it looks as if American taxpayers got stuck with the bill for an over-the-top party on Wall Street to which most of us were not invited despite paying for the cash bar.
And the picture is that simple, wasn't the government supposed to prevent this kind of Robin Hood in reverse situation?
Joining us now to help clarify some of this, we hope, is a man who knows much more about it than most people, certainly more about it than I do, Congressman Barney Frank, Democrat of Massachusetts, the chairman of the House Financial Services Committee. Mr. Chairman, thank you for joining us this evening.
REP. BARNEY FRANK (D-MA), CHAIRMAN, HOUSE FINANCIAL SERVICES
COMMITTEE: You're welcome Alison.
STEWART: What's your reaction to the Wall Street report?
FRANK: Well, it's not surprising. We have been pushing legislation. In fact, the House passed legislation in August. In fact, I have been kind of frustrated because in the focus on health care and climate change, people didn't notice this.
Let me go back and say in 2006 when the Democrats were still in the minority, we first began to push what's called Say on Pay and raise the question of the pay. And let me make this point at the outset. There were two problems with it.
First of all, it's very large - excessive, I believe, overall. But secondly, the way it's structured is even worse because it gives a perverse incentive. If you are one of the top decision makers there and you take on the risks and the risks pay off, you get a lot of money.
But if you take a risk and the risk blows up, you don't lose any money. In other words, we give people the ability to take risks with everybody's money but their own. And there's a wide agreement that this risk structure is one of the reasons that we get in trouble. People take too many risks.
So we tried this in 2007 and in August of this year, just before the congressional break. We passed a bill that had two aspects, one Say on Pay which we just referred to. Say on Pay says the shareholders should vote on what the top executives get.
The problem is it's now set by the board of directors. And the board of directors and the top executives are friends. They work together. The notion of one day a year they say, "OK, you'll be labor and I'll be management." That just doesn't work.
STEWART: They're just too cozy?
FRANK: Without question. And by the way, there has to be a good working relationship there, but they shouldn't be - avoid setting the pay so (UNINTELLIGIBLE). And I hope the Senate will adopt this - Say on Pay which says, and we tried to do this frankly in 2006 and 2007.
We finally have a president who's supportive. I hope we can make it more. The shareholders should have to vote. Some of these companies are paying far too much in total at the expense of the shareholders.
Secondly, we are instructed in this bill, all of the regulators of any financial institution, the banks, the bank regulators, the Security Exchange Commission, to put rules in. And we made this an order to them - do not allow the kind of bonus structure where they have an incentive to take a lot of risks because if the risk pays off, they make a lot of money and if the risk fails they don't lose anything.
And it's even been the case where if the risk appears to pay off within a short period of time, they make a bunch of money. And if it later turns sour, they don't have to give any of it back.
So that's not just a problem of equity; that's a problem of there
not being the right set of rules. And the last point I would make is this
I'm a supporter as many in the House are, of a surtax on very wealthy people.
We should probably be restraining this. But secondly, this is why a surtax on the very wealthy ought to go forward. This is a way in which we can make up for some of the problems of having to pay for health care. So this kind of extraordinary wealth, if those people were taxed a small percentage, they wouldn't notice.
STEWART: I wonder if there was a missed opportunity for the banks that took federal money and then paid it back. I wonder, why weren't they put on some kind of probation?
FRANK: Well, I don't know what you mean by probation. With regard to pay, they are under some restraints. We had this problem - when we passed the TARP, the Bush administration said, and I think correctly that we ought to do something or there would be an even worst economic bailout.
We said so the secretary of Treasury, we want you to restrain
compensation for those who get it. Unfortunately, it's very hard to make
people do things. The Bush administration refused. The Obama
administration, to his credit, has put in a pay czar and he has started to
put some restrictions -
STEWART: Is he effective? Is he going to be effective?
FRANK: Yes. He's a very bright guy and he is having an impact now.
As a matter of fact, Citi Corp ...
STEWART: How? I'm sorry.
FRANK: Citi Corp just sold one of its branches because they were about to pay a very large bonus to a guy and he wasn't going to allow it. But the point that I'm making is our legislation, the way it works is if they pay the TARP money back then they're free of the restraints.
I don't think the point is to only to those that got TARP money, many of which are paying it back. The point is that we have to put this on everybody.
STEWART: Everybody -
FRANK: And that's all legislation. And I'm hoping now - look, I wish
this hadn't happened. But it gives, I hope, momentum to two things we want
to do in the House. First of all, increase taxation on some of these
people, people making millions. By the way -
STEWART: OK. Tax the very rich and what's the second one? Because we're running out of time.
FRANK: The second one is to put rules in place and let the shareholder vote so they can hold down the total because it's coming out of their pockets and to have them regulated and say you cannot have these one-way bonuses. Heads they win, tails they breakeven, because that's leads them to take too many risks. Not only do they get too much money from a rational standpoint, but they take too many risks and that's what endangers the society.
STEWART: Too much risks. Congressman Barney Frank, Democrat of Massachusetts, chairman of the House Financial Services Committee. Thanks a lot.
FRANK: You're welcome.