Greed is Good. Lax Oversight is Better.

Former Labor Secretary Robert Reich says the Obama administration "should stop worrying about Wall Street. Worry about American workers."

Every lost job has a multiplier effect throughout the economy. For every person who no longer has a job and can't find another, or is trying to enter the job market and can't find one, there are at least three job holders who become more anxious that they may lose their job. Almost every American right now is within two degrees of separation of someone who is out of work. This broader anxiety expresses itself as less willingness to spend money on anything other than necessities. And this reluctance to spend further contracts the economy, leading to more job losses.

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Compensation experts say

“Congress has gotten into the business of dictating executive pay now, and they shouldn’t be in that business. What they should be doing is turning the light on the [company board] committees.”

Boards of Directors, through their compensation and governance committees, are responsible for setting executive pay as well as their own. But much of the work is done by internal executive comp departments and external consultants, who frequently justify pay packages by linking them to the levels at "peer companies" of similar size or scope.

Even if Chairmen and CEOs aren't actively pressing for higher pay, there are plenty of influences within the company and among relationships on the Board that encourage these overseers to be good Germans. I wrote about this during the William McGuire options backdating furor.

The "market for executive talent" provides some of the rationale for out-sized pay, independent of performance. Then, as each board bumps up pay for anything remotely resembling average performance, the executive compensation tide rises for the next analysis by the consultants — and all yachts are lifted some more.

And, Board members who are active CEOs are subject to such reviews back home. So their actions as directors to raise executive pay indirectly benefit them, too.

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Frank Rich compares the parallels between General Motors and Wall Street firms like Citigroup, where former Treasury Secretary Robert Rubin took home $126 million in cash and stock for eight years as a Citigroup director, advisor and chairman of its executive committee. During the period when he combined oversight and management duties, the bailed-out bank lost more than 70 percent of its value.

Rich says "Detroit’s chief executive [Rick Wagoner] had to be beheaded so that the masters of the universe at the top of Wall Street’s bailed-out behemoths might survive."

Though [Wall Street character Gordon] Gekko’s most famous line is “Greed is good,” even more emblematic is his defiant summation of his brand of capitalism: “I create nothing. I own.” At least Wagoner, unlike the sultans of finance, created cars, clunkers though they often were.

But Rich also points out that GM was not just an auto company. It was part of "the larger financial culture."

GM's Board had overlap with boards of bailed-out banks. It financed its own auto sales through its financial affiliate, GMAC, which built large real estate sales and lending franchises that, through the late 1990s and early 2000s, helped hedge losses in car the business. Rich does not explicitly mention that a GMAC subsidiary, now called ResCap, was one of the major players in the mortgage securitization industry that contributed to the financial markets collapse.