The Wall Street Bonus Fairy Comes This Week...

…even though corporate America hasn’t lost any teeth.  And the money expected to be left under the pillow, by all estimates, shall be breathtaking.

Apart from the inherent unfairness of a select class being gifted so much in these troubled times, there exist the practical considerations of how little corporate law has changed in response to the now 18-month old Crisis.

The business judgement rule remains largely intact.  And the “say-on-pay” proposal first statutorily proposed by Senator Obama (and later forced on bailed out companies by President Obama) survives as a non-binding shareholder vote on executive compensation in H.R. 4173 (Section 2002 of “The Wall Street Reform and Consumer Protection Act of 2009”).

That Bill, awaiting discussion in the Senate in the New Year, also proposes but a compromised version of the Consumer Financial Protection Agency that arguably exempts from agency jurisdiction the most relevant banks.

On a broader scale, our balkanized systems of regulating banks and brokerages remains intact, with minor modifications.  We might see one less alphabet agency in the banking mix, but, on the securities side, lawmakers refused to even consider the mild move of merging the SEC and CFTC.  If anything, the addition of the “Financial Services Oversight Council” (to be staffed by delegates from, among others, the Fed, Treasury, OTS, SEC, FDIC and CFTC) risks more fragmentation and delay in oversight.

Separately, the credit rating agencies are still not subject to the system of review and oversight that governs broker-dealers and investment advisers.  Such distinction can hardly be blamed on the SEC: Already scandalously out-paced in resources, the agency - which may soon be expected to take over the oversight of thousands of hedge funds - has watched its open and oft-repeated call for self-funding go unheeded.

Which leads one to wonder, just how bad must things get before Congress takes meaningful action to restore confidence in the securities markets?  Personally, I’m placing a copy of H.R. 4173 along with a $5 bill under my pillow.  Hopefully the tooth fairy will take them back and leave a law with teeth…

 --JSC, 1/11/10