The proposal is a very good one, and it goes deeper than what it seems like on the surface. It is not the most sophisticated of political tools, but it is one that most people can understand and embrace. It may not be fair to other federal employees, but desperate times call for desperate measures.
The core of the problem is bad governance. For decades, people who have worked as federal regulators have only done so long enough to make their next career move: to work on Wall Street with ten times the salary. This makes regulators unmotivated and decreases the skill of the regulatory institutions in general because of poor staff retention numbers.
Also, financial regulation is simply a game of cat and mouse, where regulators try to keep up with Wall Street’s innovations, but always lose. The reason: Wall Street employs ex-regulators who know how to structure everything relating to financial transactions so that they will be kept under the radar.
The situation for federal regulators is very similar to that of Mexican policemen who can’t feed their families on their salaries and turn to the drug trade to make much needed money. I don’t think the families of regulators are starving, but when prosperity is put into a relative context, as it always is, they might as well be. The incentive to move to Wall Street is simply far too great.
People who work for the United States government are actually not that poorly paid from a comparative perspective. They get a fair salary and pension, a good amount of vacation time, good work hours and are allowed time with their families. In most respects, working for the U.S. government closely resembles working in a middle-class job in the EU, where all jobs, whether private or government paid, come with such benefits.
So, theoretically, I disagree with the fact that financial regulators should be paid much more than other federal employees. However, this is a crisis if gigantic proportions, and because Wall Street is the biggest part of people’s financial well-being, problems with fraud and schemes can rock the foundations of society.
I hereby suggest a few more details to the Shimon Peres proposal:
- give regulators who expose fraud and schemes a share of the fines in the eventual court settlement
- increase incentives for the already enacted whistle-blower compensation with respect to Wall Street firms
- consolidate all financial regulatory agencies into one huge agency
- consolidate all financial regulation into clear, simple, federal legislation (this is definitely easier said than done)
Moreover, I advise that the winner-takes-all voting system should be destroyed.