Washington Post Columnist
Wednesday, February 4, 2009 11:00 AM
Washington Post columnist Steven Pearlstein was online Wednesday, Feb. 4 at 11 a.m. ET to discuss his column that focuses on people's sense of entitlement.
A transcript follows.
Read today's column: Stumbling on Their Sense of Entitlement.
For more discussion on the column, visit our On Leadership panel discussion, where experts and leaders explain why corporate and government leaders develop sometimes fatal blind spots -- and what they can do to change.A transcript follows.
About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.
Pearlstein was honored with the Pulitzer Prize for commentary for his columns about mounting problems in the financial markets. His award was one of six Pulitzer Prizes won by The Washington Post this year.
Read Pearlstein's latest columns.
Arlington, Va.: I understand that the federal government is considering giving a few asset management firms a role in managing very large portfolios of the "toxic" and questionable assets that need to be taken off the books of many banks. What standards or criteria is the government applying as it considers which firms get this business? After all, since so many financial firms contributed in some way to our current financial and credit mess, I wonder how the government will decide who deserves and gets the business.
Steven Pearlstein: Of all the parties that contributed to the financial mess, asset management firms rank pretty low on the villains list.
Seattle, Wash.: Are there any rules preventing the Obama administration officials currently working with the banks on the next phase of the rescue,from heading over to Wall Street and earning tens of millions, as soon as they leave the administration (as Robert Rubin and Rahm Emmanuel did during Clinton's time).
If not, it seems like an enormous incentive for the government negotiators to overpay for bank assets.
Steven Pearlstein: I think there may be, but I'm not very up on these rules I'm afraid.
Bowie, Md.: I am critical of all the stone throwers like Pearlstein; we can't see his closet. Nonetheless, are we to think of ethical behavior as an ideal or reality?
Steven Pearlstein: Nothin but skeletons, baby.
Clifton, Va.: Cabinet level officials like Geitner and almost secretaries like Daschle need to realize that their subordinates at most executive branch agencies in non-critical sensitive or critical sensitive positions would lose their jobs for owing even a thousand dollars in back Federal income taxes if they were not paying and their agency was aware of the debt. The same holds true for those holding a security clearance in executive branch agencies and the military where owing back Federal income taxes in any amount can out your security clearance and put your job in jeopardy. Even DOD contractors can have their security clearance denied or revoked for owing back Federal income taxes. As a DOD employee, I have never felt entitled to anything but competent management and I am still waiting for that after 20+ years.
Steven Pearlstein: I was unaware of those rules, as most people probably are. Amen on competent management.
District of Columbia: Is this finally a change of tone for you? After scolding people in previous chats to ignore executive compensation because it was small compared to the size of the stimulus problem, now you are saying people need to realize it is not their given right to earn exorbitant salaries? This is what the average person has been saying all along - until the "people in power" meaning anyone at these firms realizes the value of a dollar, they will never treat the bailout money appropriately. On the same line, when will someone actually limit more than just "executive compensation"? These banks are bankrupt! The people there are lucky to be employed. If they go somewhere else (and who is hiring on Wall St.), isn't that the ideal situation? Maybe the top talent can produce a better bank because they are motivated once again to EARN a living.
Steven Pearlstein: No, its not a change. I've been a long time critic of executive comp, particularly the overall level. But I'm also level headed enough to point out that just because a few million dollars out of $350 billion might have been unwisely diverted to bonuses, it doesn't mean the whole program is a failure, which is a conclusion many people have jumped to.
As to the fact that the banks are bankrupt, that's not true in most cases. And even bankrupt firms need to pay their people to get them to work. Would you say that firms operating under Chapter 11 bankruptcy should never pay sales commissions? Never reward the big sales producers with expense-paid vacations, even if they are a more cost effective way to motivate employees than cash bonuses? If the currency trading desk generates a billion dollar profit in a year taht the overall company loses money, are you saying the traders on that desk deserve no a cent in bonus? If you do, then I'd say you'd never run a business like these, because it would be in the interest of the bankrupt firm's creditors to pay these bonuses and commissions and offer those trips, within reason, in order to preserve the value of what is left of the company. And its not just I who think that, but most bankruptcy judges, since they have made the same decision.
Sorry for the nuance. I know it isn't as morally satisfying.
Little Rock, Ark.: Tax problems with these nominees are part of the entitlement issue. Talent (read money) trumps honorable behavior. Sports, entertainment, business, even religion, are other examples of where this mindset resides. Ideally, we could have both but man will give his moral authority away when confronted with mass thinking.
Steven Pearlstein: It is endemic, yes.
Kingsport, Tenn.: Excellent point, buy you know it won't happen. Just like the dependence on oil will never change until the market forces it down our throats. American entitlement won't change until the nation approaches bankruptcy. America's pillar is entitlement -- we have truly become a spoiled nation. We claim to be capitalistic, but entitlement surrounds us, from top to bottom, from corporate to individual, rich to poor. Today, every person feels he/she is entitled to much more than market forces dictate -- propped up by legislation and litigation. -Dan Street
Steven Pearlstein: ...approaching bankruptcy. I'd say we're getting pretty close.
Fort Myers, Fla.: Seeing the dismal 4th quarter results from virtually all the auto manufacturers and their suppliers, what do you think the future holds for further federal funding of them?
Steven Pearlstein: It's a grim story, isn't it. Further assistance may be inevitable.
Columbia, Md.: All that is history: How I wish that were true, Steven. I see no change coming because the same people are running the revolution. Used to be the first thing soldiers did during a coup was to take control of a country's main radio/tv station - that way you can control the information and the agenda. The old guard has done the same on Wall Street and Washington. If they drive the agenda of 'change', it will be 'change' on their own terms... Too big to fail, only man that can boost confidence on Wall Street, only man that can manage congress and the health care industry we are being told while we are instructed to overlook 'innocent' mistakes. Wo to those who drank the latest flavor of Kool Aid (change)
Steven Pearlstein: Hey, while we're on the subject, you should all check out our new website, On Leadership, at washingtonpost.com/leadership. There is a discussion there right now about the blindspots of leaders when it comes to things like Wall Street bonuses, or corporate jets, or the revolving door here in Washington. The responses this week from our panel of experts are really superb.
Rockville, Md.: Mr. Pearlstein,
Your article in today's Washington Post should be read by everyone over the age of 15 and memorized by decision makers across the country. Well done!
Steven Pearlstein: Thanks, jack.
Atlanta, Ga.: You are very correct. But the problem is...us. We keep electing the same people and expecting them to create miracles. We want all sorts of government programs (not me, actually, leave me alone...but most of us) - but we want someone else to pay for it - however, at some point, the people paying for it won't really care to work so hard, because, really why should they bother? We keep sending the same people back to Washington and we keep thinking they are going to change. We have the people who created the mess pretending that they want to clean it up. They do not want that. We have most of our elected representatives re-elected because they have created a system wherein there is nothing we can do -but- re-elect them (try getting on the ballot - or yet - check into the write in laws in the states). WE are the problem. We are not doing our due diligence.
AND - most importantly - we think that the feds can actually do something about these problems. They can't, for most issues. Education, health care, etc. We are a very incredibly diverse country - more so than any other one out there - and there is absolutely no way that solutions somewhere like New York would work in rural Mississippi. Or something that might work in Michigan would work in Arizona. It's screwing someone around. Does anyone even ever mention that?
Steven Pearlstein: Some interesting points there.
Laurel, Md.: Great column today. You summed up something I've been trying to put into words for weeks.
Two quick questions, one based on the column:
1. While I agree in principle, why should we pay less than union wages for labor and freeze state salaries when the big shooters at the top of the pyramid aren't asked to make any sacrifices?
2. Please explain how the bank bailout proposal currently under consideration does anything more than what Fannie and Freddie were accused of doing, which is privatize losses and socialize losses.
Thanks. As always, your column and chats are a service to those of us who are trying to make sense of any of this.
Steven Pearlstein: Shares sacrifice is shared sacrifice. I would say that the big shots you refer to have had huge cuts in their pay from admittedly absurdly high levels. Most of their pay is in stock and bonuses: most of that stock has gone down in value, the stock options are worthless and the bonuses have been cut back by huge percentages. Don't believe the NYT article: most of that $18 M in bonuses didn't go to top executives, but to front line traders whose units actually turned in profits.
Why should state employees take a freeze? Because the federal government is coming in and saving lots of their jobs, and that money will go an even longer way if expenses for employees weren't rising. They shouldn't be immune from sacrifice any more than anyone else.
As for paying below-union wages on projects funded with stimulus money, its simple: lower wages means that the money goes farther. More people employed, more projects done. Bigger bang for the stimulus buck. That doesn't mean union workers have to accept lower wages -- it simply means the incremental new workers created by the bill will be paid a bit less during this emergency. Shared sacrifice.
New York, N.Y.: Hi Steven, BoA banker here again. Thanks for taking my question.
I see a lot of discussion about Obama limiting executive compensation for banks that accept TARP/backstop/etc. assistance. To me, this seems to be slightly misdirected. Yes, you can limit exec comp, but they make up such a small drop in the bucket compared to the organization as a whole. And, as you mentioned in the case of AIG's bonuses a couple months back, it actually may be justified to give certain people a sizable bonus.
It seems to me that the real issue (beyond the emotional response) is a lack of transparency. Who is getting what bonus, and why? Do you think there would be value in establishing a sort of publicly searchable database of all people receiving a bonus, their salary, and a brief explanation of why they are receiving it?
Right now it seems like we have a sort of reverse collusion on Wall St. that allows banks to pay their employees under the threat of "well, other people will pay them if we don't." Maybe this would help stop this thinking.
Steven Pearlstein: A good idea there. Not sure you can publish the salaries with names attached to them, but yo can publish the salaries without names so you get a sense of the range. The names would violate people's sense of privacy, to which they are entitled, even if their firm does accept government money.
Raleigh, N.C.: Some people think that the preferred solution to the fiscal crisis is to nationalize the banks, to wipe out the shareholders before asking the taxpayers to recapitalize financial companies. But that leads me to a question...the U.S. continues to attract capital because we are deemed the most stable system in the world. Could nationalizing the banks cause a reassessment of that assumption? And could that lead to the U.S. being judged purely on the numbers, our GDP, our debt, all that stuff?
Steven Pearlstein: You are right: nationalizing could mean it will take longer to bring private capital back into the system once the crisis has passed. For that and a lot of other reasons, its best we try to avoid that situation, or come up with ersatz forms of nationalization that don't really bail out shareholders much but stop short of having the government own and run all the big banks.
District of Columbia.: A question and two comments:
First, what kind of "technology and new teaching techniques" were you thinking of to improve education? I don't see how you can improve on a dedicated teacher working directly with a small group of students. The online stuff just doesn't cut it.
Also, I see the sense of American entitlement seeping down even to twenty-something college dropouts, never mind organizational leaders, so I think we have already lost the entitlement culture wars.
Steven Pearlstein: You're 100 percent wrong about the on line stuff not working. Video and on-line teaching needs to be a serious component to higher education, as well as tutoring and small group discussions and labs and the like. Your reaction is fairly typical of that of the education establishment: there is no way we can be more productive and you have no alternative but to spend $25,000 per student per year and have that increase by more than the rate of inflation every year. That was the same line peddled by the car companies and their unions back in 1982. Boy were they wrong.
Annandale, Va.: Steve,
I usually agree with your column's viewpoint nearly 100 percent but today's contained a zinger I certainly don't like - your comment regarding state employees accepting a two-year freeze in wages. FYI all Virginia state employees are already in their second year of a pay freeze! No COLA, no step, nothing since 2007.
Robin, Professor, No. Va. Comm. College
Steven Pearlstein: Virginia underfunds, serious underfunds, its higher education system. A wage freeze two years ago was silly. But a wage freeze by state employees now in return for a massive federal bailout of state budgets that saves thousands of state jobs in Virginia -- that makes perfect sense to me. Sorry. The incomes of most private sector workers will decline during this economic downturn. Why should state workers not have to suffer the same fate?
Anonymous:Nationalizing could mean it will take longer to bring private capital back into the system. Did that happen in Sweden in the early 90"s when they nationalized their banks?
Steven Pearlstein: It's a risk, but not a huge risk. That's not the main reason not to nationalize.
Crookfield, Ohio: John Thain's salary, bonuses and expenses are more obscene than the "union rate" paid to workers that usually disburse their entire wages into their local economy. Do I really think Thain and his ilk worthy of such largess? NO. The destruction of a healthy middle class, by lowering their compensation packages, has ruined the financial markets and its ability to recuperate from slow downs and recessions.
Steven Pearlstein: This is just nonsense. Sorry. Nobody is suggesting lowering the union rate. I suggested suspending Davis Bacon for projects funded with temporary stimulus money. The middle class has more to fear from a prolonged recession, which the stimulus is meant to prevent, than from a temporary reduction in construction wages that puts more people to work. This idea that the unions created the middle class and the middle class is what makes America great is a union fiction most often used to try to protect the incomes of some workers at the expense of the incomes of other workers.
Ashland, Mo.: Could you tell me two or three things the new treasury secretary did that suggest he saw the current situation developing early and had recommendations that would have ameliorated it? Why isn't he part of the problem instead of part of the solution?
Steven Pearlstein: He did a number of things at the NY Fed to deal with problems he foresaw with credit default swaps and other unregulated derivatives. He also gave numerous speeches about the increased dangers of systemic collapse. Check it out at the NY Fed web site. He also worked with the industry to try to deal with some of these risks through improved clearing processes, which is very technical but has helped to avoid an even worse meltdown.
Princeton, N.J.: I agree that technology can really help in education and have been involved with some, BUT I think you will be unhappy when you find that it does not save much money, quite to the contrary.
Steven Pearlstein: I'm not so skeptical.
New York, N.Y.: In your column you note that President Obama is going down the road of expanding Czars, task forces, and special representatives to address key policy issues instead of letting the relevant government agency take the lead. Any idea how to reverse this trend?
Steven Pearlstein: Yeah, stop doing it, ask one of the relevant agencies to take the lead on an initiative and work with the appropriate secretaries, assistant secretaries and civil servants to do what you need to do. And if they don't perform as you like, fire their butts. There is nothing intrinsically superior about somebody working int he White House as opposed to an agency, if you run the agencies correctly. And if the agencies aren't run and staffed to produce the higher results, then fix that -- don't do a work around. The work around is more expensive and causes the original problem to get worse.
Prescott, Ariz.: After being really fed up the last couple months with all the entitlement you write about today, to the point that it is affecting my well being, I tried my darnedest to think about this positively. Here is what I came up with: We've actually came pretty far pretty fast, ethically speaking, about not putting up with this nonsense. Obama was having problems hiring a woman who didn't pay $1000 or so in taxes. Do you realize that eight years ago we elected a Vice President who, as a CEO, had "offshored" a great deal of Halliburton to the Cayman Islands and cheated the U.S. out of literally billions in taxes? That makes Daschle look like chump change. And eight years ago the president hired Elliot Abrams, who had been convicted of a felony, and there wasn't a peep of outrage. Nowadays I doubt that a jay-walker could slink through confirmation. What do you think? Am I grasping here in my attempts to be positive?
Steven Pearlstein: The alleged wrongdoing of the OMB nominee struck me as a minor misdemeanor. Don't know why she withdrew.
Manassas, Va.: Interesting article, but why not examine your own house (journalism) first before calling on sacrifice from others. Does Brian Williams or Katie Couric really need $5 million plus to read off a teleprompter?
Steven Pearlstein: No, perhaps not. And if NBC or CBS started to lose money it would, presumably , look real hard at some of those salaries and consider whether reducing them at the next contract would result in losing those anchors, and what that loss would cost versus finding somebody new who would work for less, etc. etc. Businesses so that all the time. It is another question to ask whether it is "fair" that they make $5 million and you (and I) don't--that's the way moralists like to frame it. But you have no reason to believe that the networks dont' behave in that rational, profit-maximizing way.
I'm not so skeptical: Well, look at the MIT example. Give me an example where it did save money and not lower quality.
Steven Pearlstein: Maybe the project was so hamstrung by old ways of thinking on the part of its faculty managers that it was destined to come out that way. Also, MIT and the elite schools are not where you want to focus this effort.
McLean, Va.: I totally agree with your assessment this morning. Daschle is, sad to say, merely a recent addition to the list of those who use government service as a basis for building personal wealth. To discover that Daschle had joined the chorus was disappointing for me because I had tended to agree with his initiatives in the past.
It seems consulting agreements and board memberships with private equity firms has become rather popular. With Daschle it is InterMedia Advisors LLC. I would venture a guess that the Carlyle Group paved the way in creating this particular business model that utilizes former government officials to press for legislation that "personalizes" cash flows from the Treasury.
Steven Pearlstein: Yes, Carlyle was a leader in figuring out ways for former public servants could monetize the value of their reputation.
District of Columbia: "Steven Pearlstein: Nothin but skeletons, baby."
Ha ha ha! This just struck me as especially funny, and it's one of the reasons I enjoy reading you. People say economists are humorless... they just haven't been reading the right economists!
Steven Pearlstein: Sir, I am NOT an economist!
Bridgewater, Mass.: "few million dollars out of $350 billion might have been unwisely diverted to bonuses,"
I thought we were talking 18-point-something billion? That's about twice the amount quoted a couple of days ago for mass transit in the stimulus package, for the entire country. A new electric grid for the country, schools, ...
And what do they do with all this money? Some goes to conspicuous over-consumption, sure, but with banks in the situation they are, thanks to these guys, they'll probably lend it back to the government and we'll end up paying them to borrow it. I just don't see the advantage.
Steven Pearlstein: As I said, that money was spread among thousands of lower level employees at hundreds of different firms located in New York, some of which received TARP money, others which didn't. It was a bogus story from which was derived lots of misinformation and faulty conclusions.
Los Angeles, Calif.: Regarding executive compensation for firms now dependent on Federal bailout funds, why not require a reasonable salary limit and allow for deferred compensation (e.g., bonuses) to be paid only after the firm repays the government funds? And cut out all of the extravagant spending as well (e.g., trips to Las Vegas or luxury hotels/spas, private jet travel, etc.).
Steven Pearlstein: Done!
Herndon, Va.: Steven, I very much appreciate your work and your balanced reporting on this crisis and issue. Your column this morning struck me as a commentary on ethics. The elective I took in the 1990s in college on the subject of business ethics, made the impression on me that the free market on balance rewards ethical behavior (as long as the perspective in analysis is large enough to capture the balance). Unfortunately, it also assumes perfect information by all parties. What we've seen is that, the information generation hasn't made information any more perfect, just more prevalent and in some case more open to manipulation. Our reaction to this, seems to be that we need more rules (laws) to assure ethical behavior, but rules do not equal ethics. It is as you say, a change in mentality. The question is not how do we create a rule to stop a CEO from getting $30 million a year, the question is how do we get the CEO to ask himself is it ethical for me to take $30 million, or for the board to say is it ethical to award $30 million, or the shareholder to say is it ethical for me to pay $30 million. The question up to this point has been, what will I get for my $30 million, and up until this past year, the answer was millions in return. (at its peak the DJIA double since I took that class). So how do you change everyones perspective? Unfortunately, the last time it took a Depression. I still complain that my parents got their pack rat mentality from their parents that survived the depression.
Steven Pearlstein: Markets, by their nature, aren't ethical. But societies do develop norms of behavior that are very powerful and help to limit the natural workings of markets. There was a time when executives wouldn't think of paying themselves hundreds of times what other employees make because it would have been socially unacceptable -- frowned on by employees, cutsomers and the community at large. That went away for some reason, and it would be nice to get some of it back. But it has to develop organically, not through some law or regulation.
Albuquerque, N.M.: Steven, guess what? After all of this is over, Mr. Thain will still be rich and I will still be poor as will the rest of us out there making little money. I saw this coming for years and I don't even have a college degree. What's up with the rest of these overpaid jokers? It is greed plain and simple and I just don't see that mentality changing any time soon. Do you?
Steven Pearlstein: I don't like the greed explanation, as readers of this blog are aware. It doesn't explain much to me.
Chevy Chase, Md.: Another excellent piece. I wonder, though, if you agree with my sense that this new-found fondness for morality and decency, and disdain for greed, will be short-lived? After all, we went through this before in the 1990s, with the S&L collapse. Underwater mortgages, cram-downs, unbelievable greed, failure of regulation and oversight. Does the name Carol Levitt ring a bell? No, of course not. We have short memories. And the fundamental American value, as expressed by Maerose Prizzi (in Mario Puzo's Prizzi's Honor): "She was a good American. She saw a chance to make a buck and she grabbed it." We don't actually mind all that greed and even a bit of gaming the system, so long as (a) we all get a shot at it (b) it isn't taken to an extreme and (c) it doesn't hurt anyone else. I predict that 4-5 years from now, it will be as though this never happened. In fact, I predict that in 4-5 MONTHS, we will see a tsunami of shopping. I just don't believe that the American people can resist buying a new Play Station, cell phone, humongous-screen TV, and mountains of other stuff, for more than a few months. We have no self-discipline, no memory, little self-awareness.
Steven Pearlstein: As I said, this is the opportunity we have been waiting for to changes those norms of behavior, those expectations, which are so powerful in shaping the political and business culture. Nothing last forever. But at least its a good sign that these things are changing, and that what was once ordinary and acceptable is no longer so.
That's all the time we have for today, folks. "See" you next week.
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