CNN Financial News Producer
Officials in Washington today launched their biggest offensive yet in the war on runaway pay practices in the financial industry, targeting everyone from corporate executives to high-flying traders of complex securities.
The Federal Reserve proposed a sweeping review of pay policies at 28 of the nation's largest banks as part of an effort to make sure employees are not tempted to make the kinds of bets that could put their company at risk of going under.
The central bank said it also planned to review compensation practices at the thousands of regional lenders that make up the bulk of the nation’s banking industry as part of its standard review process.
Separately, the Obama Administration's so-called “pay czar,” Kenneth Feinberg, unveiled sweeping pay cuts for 136 top executives at the seven biggest companies that received a bailout.
Feinberg is demanding that AIG, Bank of America, Citigroup, Chrysler, General Motors, GMAC and Chrysler Financial slash compensation packages for their top 25 most highly-compensated employees by about 50%.
The bulk of those cuts will come from annual salaries, which are expected to fall 90% on average.
Today’s developments represent what is perhaps the most sweeping push yet by Washington to rein in Wall Street’s pay practices. But some compensation experts warn that the actions could have a disastrous series of unintended consequences, including the loss of top employees to companies that are not subject to government restrictions.
What about Goldman?
But the moves by Feinberg, appointed the Treasury's “Special Master for Compensation” in June, will not impact other financial giants like Goldman Sachs, JPMorgan Chase and Morgan Stanley - firms that are on track to pay out record bonuses this year.
Revenue projections for those firms keep rising, and analysts say bonuses will be back on track for another record year following a one-year nosedive in 2008. Goldman Sachs said just last week that it set aside $16.7 billion for salaries, employee stock options and bonuses. That works out to about $526,814 for each and every one of Goldman’s more than 30,000 employees.
How is this possible? Or for that matter even legal?
The more than 600 companies that have received capital investments from the $700 billion bailout are subject to executive compensation curbs, including limits on perks and golden parachutes.
Companies like Goldman and JPMorgan, however, have paid the government back the billions of dollars in taxpayer bailout money they received, so they’re no longer under the Treasury’s thumb.
Jobless claims jump
The number of first-time filers for unemployment insurance rose last week, snapping two weeks of significant declines.
There were 531,000 initial jobless claims filed in the week ended Oct. 17, up 11,000 from an upwardly revised 520,000 the previous week, the Labor Department said in a weekly report. The week included the Columbus Day holiday.
In addition, the number of people who continue to collect benefits for one week or more fell by 98,000 to 5,923,000.
So why are continuing claims falling while initial claims are rising?
That’s because about 7,000 people a day exhaust their unemployment benefits. In fact, more than 200,000 people will fall off the rolls in October alone - and 1.3 million will lose their benefits before year's end - if Congress doesn't take action.
And one month after the House passed a bill extending unemployment benefits, the issue is still being debated in the Senate.
Democratic leaders in the Senate introduced a bill two weeks ago to lengthen benefits in all states by 14 weeks. Those that live in states with unemployment greater than 8.5% would receive an additional six weeks.
Senate Republicans want to add several amendments, including one that would pay for the extra benefits with stimulus funds rather than by extending a federal unemployment tax.
Leaders in both parties are now trying to negotiate a compromise.
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