Congress is mad as hell and not gonna take it anymore.
Bowing to populist anger, the House voted Friday to prohibit pay and bonus packages that encourage bankers and traders to take risks so big they could bring down the entire economy.
Passage of the bill on a 237-185 vote followed the disclosure a day earlier that nine of the nation's biggest banks, which are receiving billions of dollars in federal bailout aid, paid individual bonuses of $1 million or more to nearly 5,000 employees.
"This is not the government taking over the corporate sector," Rep. Melvin Watt, D-N.C, said of the House action. "It is a statement by the American people that it is time for us to straighten up the ship."
Aware of voter outrage about the bonuses, Republicans were reluctant in Friday's debate to push back, even though they voted overwhelmingly against the bill. They said severe restrictions should apply only to banks that accept government aid. The legislation's ban on risky compensation would apply to any firm with more than $1 billion in assets, including bank holding companies, broker-dealers, credit unions, investment advisers and mortgage buyers Fannie Mae and Freddie Mac.
The White House and Senate Democrats haven't endorsed the measure, leaving its prospects uncertain. The Senate Banking Committee planned to take up the proposal in the fall as part of a broader bill overhauling financial regulations.
"Obviously it has some important things that we think need to become law, and we'll take a look at the full bill," White House spokesman Robert Gibbs said Friday.
The legislation includes President Barack Obama's suggestion that shareholders get a nonbinding vote on compensation packages. It also would prohibit members of compensation committees from having financial ties to the company and its executives, as Obama wanted.
But House Democrats added a provision that would require regulators to issue new guidelines prohibiting pay packages that encourage "inappropriate risks" that could "threaten the safety and soundness" of the institution or "have serious adverse effects on economic conditions or financial stability."
Rep. Barney Frank, chairman of the House Financial Services Committee, said the extra regulation would ensure that bankers and traders who take big risks and lose on them don't continue to get rewarded anyway.
Without such restraint, "the company loses money and the economy may suffer, but the decision makers do not," said Frank, D-Mass.
Corporate pay became a hot-button issue for the public and Congress this spring when American International Group Inc. paid $165 million in bonuses to its employees after accepting $182 billion as a federal bailout. Among the employees in line for the rewards were those who worked in the financial products division, which underwrote the risky credit derivative contracts that nearly destroyed the company.
The House angrily responded by voting to tax away the bonuses, but momentum behind that legislation waned as Obama warned against vilifying Wall Street and investors who were crucial to restoring the economy.
Then, New York Attorney General Andrew Cuomo reported this week that large bailed-out banks, including Bank of America Corp., Merrill Lynch & Co., JPMorgan Chase & Co. and Goldman Sachs Group Inc., had awarded about 4,800 million-dollar-plus bonuses.
Citigroup, which is now one-third owned by the government after taking $45 billion in federal money, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo's office said
Since the new legislation would apply to companies not receiving bailout money, the effect will be to force "financial institutions who did not contribute to the crisis to pay for the mistakes of others," said Rep. Michael Castle, R-Del.
Rep. Jeb Hensarling, R-Texas, said a better solution would be to terminate the $700 billion bank bailout program established last year.
"If you quit bailing out risky behavior, Mr. Chairman, you'll receive less risky behavior," said Hensarling, R-Texas.
Republicans also cast the proposal as too liberal even for Obama.
Frank snapped back: "We are not taking orders from the Obama administration."
Also on Friday, a group of 11 bipartisan senators pressed Federal Reserve Chairman Ben Bernanke to name the financial institutions that have received emergency assistance from the Fed and disclose how much help each received.
The Federal Reserve has invoked its emergency powers to provide assistance to some banks but has not disclosed the details out of concern that the information might cause a run on the institutions.
The senators, led by North Dakota Democrat Byron Dorgan and Iowa Republican Chuck Grassley, said the information should be released now that banks are reporting profits and paying back the bailout money.