Belling the Cat – Again?

In yesterday’s post I brought you the story of how the six largest US banks are planning to distribute $112 billion in year-end bonuses (or even more, if their year-end earnings are high enough), and how there’s nothing you or I or even the President can do about it unless we happen to be stockholders. In fact, there’s actually a lot more than you and I can do about it than the President can; we can buy stock in these companies and start agitating for a stockholder’s revolt (the President can’t; all of his investments are held in bind trust while he’s in office). You can view the story here if you didn’t yesterday, but the point is, even this does not explain what I mean by “belling the cat.” So let me clear that up…

For those who don’t remember, Aesop’s Fables include the story of a grand meeting of mice to discuss the scourge of their existence: the cat! After several hours of discussion and debate, a clever young mouse gets up and suggests that they put a bell around the cat’s neck, so they can always hear her coming and run away in time. The idea is met with great acclaim, until an old, wise mouse gets up and says: “That’s a great idea! But there’s just one problem: which one of you is going to volunteer to put the bell on the cat?” Upon which, the meeting rapidly adjourns…

In the case of the banks, I’ve already mentioned that none of the parties expressing dismay and outrage over these plans has any standing (legal or otherwise) to compel these corporations to give out more reasonable bonuses or do anything else; so long as no laws are broken the government can’t take any action, and these are private companies and therefore not accountable to public opinion. Only the stockholders of these companies have any control over the salaries and bonuses being paid, and there’s some dispute about whether they do either. But quite apart from that depressing fact, there’s the issue that for the most part, even the people who could exert pressure on these corporations don’t want to…

Elected officials, such as congressmen and senators, could in theory pass laws that prevent banks from paying this type of bonus. But those laws would be subject to legal challenge (there’s nothing in the Constitution that says Congress can legislate ethical behavior) and would also run the risk of the banks giving greater financial support to political opponents who are not trying to pass such legislation. Institutional stock owners (such as mutual funds) could form voting blocks and attempt to put pressure on the banks, but such institutions are themselves run by executives who would be subject to the same sorts of laws; there’s really no point in expecting them to take such actions. Wealthy private stockholders could band together and exert the needed pressure, and occasionally some of them do, but they’re more likely to demand a bigger piece of the action for themselves than to impose limits on behalf of the average American…

In fact, for the most part, the only people who could impose such restrictions are either bankers themselves or people who can not afford to make enemies of the bankers. Unless all of the rest of us band together and demand accountability from our political leaders (in terms of election reform and “clean money” laws) and our business leaders (in terms of stockholder revolts and other organized small stockholder actions), the people extending these bonus structures will continue to ignore both the government and the stockholders exactly the way cats would ignore a group of unruly mice voting to bell them…

And no one is likely to volunteer to get the job done, either…