The good lawyers I have met have pretty much been motivated by a combination of money and prestige. They can all work at large law firms if they want to, only do otherwise to make more money or prestige doing something else.

These lawyers are the reason that SIVs, and other off balance sheet techniques are legal. They lobby FASB, the Fed, the SEC, the Treasury Department, Congress, and so on for favorable laws and regulations. They help structure transactions and reporting to take the maximum advantage of the favorable rules. Staff on the Hill and in regulatory bodies can’t compete with these people. This differential in pay and prestige is a major contributor to heavy use of legal tax shelters, legal avoidance of securities disclosure rules, legal off balance sheet financing, and so on.

Unless you offer good people jobs with an attractive combination of pay and prestige, you’ll have trouble recruiting and retaining people. It’s a competitive world and good people always have lots of opportunities.

Where in the regulations does it allow liar and no doc loans ? Where in the regulatory code does it allow off balance sheet vehicles, put in place for the purpose of assuming greater leverage than the regulations allow ? These are examples of criminal acts of fraud backed up by a slew unethical operating tactics designed to undermine the existing law.

The last eight years have been like Salinger’s “Lord of the Flies”. The actors know no bounds. Psychologists call it sociopathy and that is the main problem.

THe election of grifters like GW and Cheney was like throwing a switch, turning on grifters of every stripe. The country is sick with aristocracy disease.

How do we fix that ?

Thanks for your comments. To clarify a few point:

1. Anyone who is capable of understanding and therefore regulating complex instruments will have to have had real experience with them. You are not going to get, say, a four year person from the Street in a regulatory position for $100K. That’s less than the starting salary of a new MBA. They won’t have earned enough cumulatively to be indifferent to money. That isn’t to say you try to match the Street, that’s a non starter. but something incentive based (as the article suggested) would be a way to bridge the gap.

2. The bureaucrats in Singapore were hugely well paid, but they needed to overcome a tradition of corruption. Readers in Europe are welcome to correct me, but the elite bureaucrats are elite in terms of status, not pay, and therefore do not live at a different level than society at large. In France, they come from the best schools (historically, France did a very good job of identifying talented children from poor background and making sure the elite schools were indeed populated by the best and brightest; the Haute Ecoles were thus meritocratic. I am under the impression this is far less true than it used to be); in Japan, from Tokyo University law school. And in Japan the bureaucrats are poorly paid but held in the highest regard. Those jobs are coveted.

Most Fed regulators, like most fed scientists, become feds for reasons that have nothing to do with getting rich. They are paid enough to have a very nice comfortable lifestyle, in the approximate 90the income percentile for American families, and they derive their satisfaction from other sources than mere wealth accumulation.

There is another, more important reason to not pay feds much more than the 90th income percentile for American families, despite the disparity between that salary and the incomes for other top professionals in their field. Unlike the Brits and other Europeans, we should not want an elite federal bureaucracy. We should not want our public servants to lead lives divorced from the lived experience of the rest of the population. We should want our public servants to identify with the interests of the rest of us underpaid plebians and to to govern in their (our) interest and not in the interst of the regulated. Its a matter or republican principle.

BTW I’m a former fed lawyer, now happily earning much less as an academic.

A better idea is to ask Congress why they don’t allow the application of general accounting rules to every entity including themselves.

of course, these companies can only prosper to the extent that people must genuinely add value to earn money.

as these companies grow, then, they can be expected to work hard to see to it that politicians and regulators impose policies and regulations that make the economy increasingly inclusive and meritocratic (e.g., universal pre-k, properly regulating the financial sector).

q.e.d.!

From DJ:

“(Sen.)Cantwell said she was prepared to hold up the CFTC appointments – including the appointment of acting Chairman Walter Lukken to full chairman – until the CFTC acts.

“During the Enron debacle, we used every tool we could to get the (Federal Energy Regulatory Commission) to get them to do their job…and if that’s what it takes to get the CFTC to do their job, we’ll use every tool we have,” Cantwell said.

“I do not like the revolving door between these agencies and the industries. They are not supposed to be the fox in the hen house, they are supposed to keep the fox out of the hen house,” Cantwell added.”

a: “So why not lower the pay in the private sector?”

anon 8:08: I haven’t heard of any effective proposals to lower pay in the private sector for lawyers, bankers, traders, and fund managers.

Let me go on the record as saying that I have no problem with it either! Not that I have any personal motivation in the matter . . .

anonymous 8:08 is correct, the pay scale for certain regulatory agencies is higher than for the rest of the government, precisely to try and better compete with private sector hiring. Still, there is a “ticket punch” mentality, where people work for the regulators for a few years, then go into private sector and make a large multiple of their former government salary. That results in a shortage of experience, with the long-term employees being those actually enjoy the government work or (like myself) are hopelessly addicted to the regular schedule and generous time off, and unfortunately, a handful of those who can’t find work elsewhere (not many, but yes, there are a few.)

Regarding benefits, government workers do have more generous schedules and time off, and more job security, so their pay should be slightly lower. But still, the gap at this point is so large that it makes it difficult to retain good employees. Reductions in the pay of private sector jobs will help, but that gap is likely to stay for the immediate future.

For what it’s worth, some regulatory agencies have pushed for pay-for-performance systems linked with higher pay, but much of that has been blocked by the government unions, who see the reforms as a threat.

“It’s hard to see entry level staffers rising to mission leadership, so that most key public administrators are likely to be recruited from the industries they will supervise; that’s a problem, and hard to get around.”

I think some movement between industry and regulators is essential. It can be valuable to get insights from former insiders who know what is going on when the regulators aren’t looking; too many people who have only worked in government, and there are likely to be more “surprises.”

So why not lower the pay in the private sector?