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Geithner Says Government Shouldn’t Set Limits on Pay (Update1)
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By Rebecca Christie and Timothy R. Homan
May 18 (Bloomberg) -- Treasury Secretary
Timothy Geithner said the U.S. government shouldn’t set a ceiling on executive pay and instead should seek to ensure compensation packages don’t encourage excessive risk taking.
“I don’t think our government should set caps on compensation,” he said in answering questions at an event at the National Press Club today in Washington. “What I think we need to do is make sure we put in place some broad constraints on the incentives compensation systems create.”
Geithner’s remarks indicate the administration’s proposals may focus more on principles than on specific prescriptions for how financial companies compensate their executives. Federal Deposit Insurance Corp. Chairman
Sheila Bair made similar comments last week, while calling for broad application of guidelines to include traders as well as corporate chiefs.
The Obama administration is implementing pay restrictions on banks receiving government aid, which were set by Congress as part of this year’s $787 billion economic stimulus legislation.
The administration also is reviewing ways to toughen supervision of financial markets and companies to avoid a repeat of a crisis that has cost $1.5 trillion in credit losses since 2007. Geithner said incentives in pay packages contributed to the turmoil.
‘Broad Caps’
“We had a crisis magnified by the fact that people were paid to take a huge amount of short-term risk, and that’s something that’s preventable,” he said. “We shouldn’t be setting broad caps, I think we should be trying to get the incentives better.”
Geithner said the administration is in touch with California and other state and local governments that are having trouble balancing their
budgets. While there would be efforts to help those governments, he disputed the prospects of a “federal bailout” for municipal bond markets.
“I wouldn’t use the word bailout or federal,” Geithner said. “I would say we’re in close consultation with the people who are looking at ways to make sure these markets are working so that states and munis can meet their needs.”
The House Financial Services Committee has scheduled a May 21 hearing to consider four bills related to the municipal bond markets.
Budget Woes
Recently, such markets have seen “significant improvement” after a “traumatic adjustment” caused by the financial crisis, Geithner said. He said states now need to address their long-term budget problems, some of which predated the credit market woes.
The Treasury secretary also said that the U.S. economy has stabilized, even while many people may not feel a turnaround immediately.
“Unemployment is going to keep increasing for a while,” he said. “It’s not going to feel better for a long time for millions of Americans.”
The U.S. economy lost 539,000 jobs in April, the smallest drop in six months, as the worst recession in half a century started to ease and the federal government stepped up hiring for the country’s next census. Still, the unemployment rate jumped to 8.9 percent, the highest level since 1983.
The economy has lost 5.7 million jobs since payrolls started dropping in January of last year.
Geithner said his coming trip to Beijing is part of the Obama administration’s efforts to build ties with China, the second biggest U.S. trading partner and the largest foreign holder of U.S. government debt.
“We’ll talk about how they’re doing in strengthening their economy, shifting to a more balanced domestic demand-led growth, and they’re going to want to hear from us in terms of how we’re in getting our economy out of the crisis,” Geithner said.
The U.S. also will continue to encourage China to take a more active role in international organizations, he said. “We want them to have a seat at the table,” Geithner said. “We want them to feel invested in making the system work.”