While former private equity executive and Federal Reserve Bank Chair Jerome Powell takes aim at workers with a pledge to “get wages down” to combat inflation, he has declined to implement a law to reduce the skyrocketing paychecks of his former colleagues on Wall Street. He has also approved and financed a merger wave that critics say has inflated the cost of consumer financial services.
The 2010 Dodd-Frank financial reform law mandated the creation of a rule to rein in Wall Street bonuses. The rule is supposed to be developed and implemented by six regulatory agencies, including the Federal Reserve that Powell runs.
But as he has sounded the alarm about inflation and wages, Powell has so far has done nothing to help create that rule, even as Wall Street bonuses just hit an all-time record at $45 billion in a single year.
The Fed did not respond to a request for comment from The Lever.
“Excessive Compensation, Fees, Or Benefits”
Dodd-Frank mandates that a Wall Street compensation rule require banks to ensure that their executive compensation packages do not incentivize risky behavior, such as risky lending to hedge funds like Archegos Capital Management, which collapsed in March 2021 under the weight of hundreds of millions of dollars in loans from major banks like Goldman Sachs.
The law said the Fed and other agencies must craft a rule requiring banks to limit “inappropriate risks” that come with providing executives with “excessive compensation, fees, or benefits.”
At the time, Wall Street let its opposition to a robust rule be known. Before President Donald Trump deep-sixed it in 2017, Marc Trevino, a partner at Wall Street law firm Sullivan & Cromwell, told the Wall Street Journal that an expansive version of the rule would be “unfortunate and counterproductive.”
This past February, Sarah Bloom Raskin, President Joe Biden’s nominee to be the Fed’s vice chair for supervision, promised “to implement the law.”
Bloom Raskin withdrew her nomination amid opposition from corporatist Sen. Joe Manchin (D-W.Va.) and every Republican senator.
Powell’s Focus On A Painful Path
In response to rising inflation, Powell could crack down on Wall Street bonuses, call for the repeal of Trump tax cuts for the wealthy, demand the closure of the private equity tax loophole, or use the Fed’s power to block bank mergers.
Instead, Powell’s anti-inflation campaign has focused on raising interest rates to reduce the money supply — a policy that tends to increase unemployment and put downward pressure on rank-and-file workers’ wages.
The result is a much higher degree of misery for ordinary Americans, while the overall purchasing power of the country is reduced.
Powell and the senior Fed leadership have little connection to that suffering.
For much of last year, the Fed was consumed with a scandal in which Powell’s vice chair, as well as the heads of the Dallas and Boston Federal Reserve banks, were found to have engaged in insider trading.
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