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Barneynomics: Congressman Wants to Force Executives to Pay Companies for Losses

Want to see what populist-driven liberalism will do for the private sector? Take a gander at the latest comments from Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

 

Frank, who told CNBC Congress had been focusing on executive compensation prior to the federal government’s Troubled Asset Relief Program (TARP), since “TARP was an infield covering” as he put it, said it’s time for a punitive compensation system to discourage “excessive risk taking.” The Massachusetts congressman was asked by Dennis Kneale on CNBC’s June 10 “Power Lunch” how much executives should be punished if a company loses money in terms of compensation.

 

“In some cases, a loss,” Frank replied. “You start with the assumption that I have to get extra. And particularly – we’re not talking about everybody. We’re talking about the top decision makers in particular. Yeah, we’re saying that if you cost the company money, then you ought to be at risk some.”

 

Frank blamed vision of how the executive pay structure operates would prevent people from being rewarded for being overextended.

 

“It’s clear we have had excessive risk taking,” Frank added. “We didn’t just invent this. The fact has been for the past number of years we have seen companies get way overextended. And we have seen compensation packages that have rewarded people for getting way overextended.”

 

It’s not clear how Frank’s compensation would function should it be implemented with the Congress, which constitutionally controls the purse strings of the federal government. The Treasury Department reported the May shortfall was $189.6 billion – bringing the total deficit for the current fiscal year to $991.95 billion, fast approaching a record $1 trillion.

 

Frank has been criticized by many media outlets for not being more active to rein in the practices of the government-sponsored enterprises Freddie Mac and Fannie Mae, key players in the housing downturn that accelerated the deterioration of U.S. economic conditions. Questionable circumstances also surround the Massachusetts congressman’s involvement with Freddie Mac on a personal level.