WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Tuesday it is “deeply offensive” to the public that financial firms recently on the brink of failure are able to pay massive bonuses to their executives.
While other members of the Obama administration have used similar language to describe Wall Street’s return to pre-crisis bonus levels, it is one of the strongest comments yet by Geithner, the administration’s top financial official and one of the architects of bank bailouts.
He said the government has a “deep moral imperative” to ensure that firms reform pay practices so they can no longer put the financial system and taxpayer funds at risk.
“I think it is just deeply offensive to so many people that these institutions — that were at the edge of the abyss, put the system at this point of vulnerability, caused enormous damage — are in a position where they are, or were, paying people that left them insulated from the consequences of those mistakes,” Geithner said at the Reuters Washington Summit.
He said the administration is having some success at getting its message through to financial firms, but said the reforms are just in the early stages.
“I think there actually has been very significant changes already in how people are creating compensating practices because of the thrust of these efforts and the experience of this crisis,” Geithner said. “And I don’t think they’ve gone far enough yet.”
Geithner’s comments come on the heels of news that Goldman Sachs (GS.N), which repaid $10 billion in government bailout funds a few months ago, is now on track to hand out more than $20 billion in bonuses, which could make this year a record.
High Wall Street bonuses have sparked public outrage as Americans face the highest unemployment level in 26 years — 9.8 percent — and programs to aid homeowners have been slow to take hold.
The administration has proposed a broad crackdown on pay, including giving shareholders more say on compensation packages, forcing firms to disclose more on their pay practices and encourage regulators to crack down more on any risky compensation schemes.
However, Washington has resisted calls from some countries in Europe to set fixed limits on pay and bonuses.
Geithner said that the Federal Reserve will propose its sweeping rules to reform pay at banks “relatively soon.”
The administration appointed a pay czar in June who is charged with approving or renegotiating the pay contracts for the top 25 earners at seven firms that have received “exceptional” taxpayer assistance.
Kenneth Feinberg, the pay czar, said at a conference in Washington earlier on Tuesday that there is a considerable gap between Wall Street perceptions on pay and Main Street perceptions.
“It is a formidable chasm that I’m not sure can be bridged, although the law requires me to attempt to bridge that chasm,” he said.
Geithner, however, said he is confident that government can prompt changes in pay so that Wall Street compensation is “fundamentally transformed.”
He said multiyear guaranteed bonuses that are independent of performance and other pay practices that reward enormous risk-taking will be gone.
“We’re going to make a big impact,” he said.
Reporting by Karey Wutkowski, editing by Anthony Boadle