What enrages defenders of capitalism so grievously is the callousness of the Grasso episode. Here is a talented trading expert who began at $82.50 per week and was now being offered almost $190 million, covering twenty years’ deferred benefits. He had the grace to return $48 million, though that gesture was absent of much meaning. If he was saying to his confederates at the New York Stock Exchange that that final $48 million was really more than he was worth, he’d have brought up the question, Was he worth the remaining $142 million? If the return was intended as a penitential rite, it would seem insubstantial. A Catholic priest can get away with assigning a penance of three Hail Marys to a confessed murderer, but Mr. Grasso was not dealing in symbols, but in hard cash. Now attention of course focuses on: How did it happen? The job of chairman and chief executive of the New York Stock Exchange is important and should be well rewarded. But as was somewhere remarked, the NYSE is on the order of the Fulton Fish Market. People go there to sell and to buy. The person presiding over the transactions hasn’t all that much to do that couldn’t be done by a computer. To the extent that it is an honorary job, then it should be paid an honorary stipend, something on the order of what the Poet in Residence at the Library of Congress is paid.
Who authorized this gargantuan compensation?
That becomes truly interesting, because the people who did so, all of them men (and women) experienced in handling money, claim to have been unaware of the size of the loot. Most extraordinary here was Mr. Carl McCall, chairman of the Big Board’s compensation committee, who was state comptroller and ran for governor of New York against Mr. Pataki. He says he was not aware of the total being paid to Grasso. He remembers only little clumps of money. He never stopped to add those clumps up to get the grand total. This is the gentleman who will serve as interim chairman of the NYSE until someone else is named, whose salary will be known not only to the former comptroller, but to the American people at large.
How does that money get generated? Well, by the members of the New York Stock Exchange. They exclusively finance the administration of the exchange and it can therefore be held that the privations incurred by paying $190 million are theirs alone, so what do we have to complain about?
There are two comments here. One of them practical, another, symbolic.
First, $190 million is not parthenogenetically created. Such money as the partners have to distribute is money held out from what stockholders pay when buying and selling. These are called transfer taxes, to be compared to sales taxes. When you buy a share, a commission is charged. One has to assume that such commissions would diminish in size as the overhead of the Exchange lessened. A case could be made that the salary paid to the chairman cost everyone who bought or sold a share, a penny. Or ten pennies.
The other aspect of the affair is the sheer smell it gives off. Critics of capitalism are always, forever, looking for scandalous behavior, and defenders of capitalism are always, forever, providing grist for their mill.
It can be argued that the manifestly successful chief executive of G.E. needed to be paid huge sums in order to prevent him from going elsewhere. That model isn’t persuasively invoked in the matter of a stock exchange. There the work is administrative and — a special irony — had to do with governance standards.
In order for a petitioning corporation’s shares to be traded on the NYSE, certain standards need to be met. The idea that the man principally responsible for the setting of those standards was being paid, this year, $1 million per month rather dilutes his credentials as a financial moralist.
The danger is always overreaction. There is nothing here that can’t be adequately cleaned up by replacing Mr. Grasso, and perhaps Mr. McCall. We don’t want a Sarbanes-Oxley bill which, trying to atone for Enron, complicates unnecessarily entrepreneurial life.
But the stock exchange has led with its chin, and we can hear the denunciations of what happened ringing from the rafters of the Democratic National Convention, just to begin with.