Five points:
1. I oppose retroactive changes. However, during the Congressional debates concerning TARP, the intent of Congress was unmistakable. Congress did not want federal bailout money used to finance bonuses, etc. Many in the Congress railed against executive compensation that they found "excessive." So, the matter is not as clear-cut as Mr. Kovacevich suggests. In fact, it is arguable whether the changes are retroactive or merely the specifics now being designed to fulfill Congress' originally-expressed intent from the time it considered and adopted TARP.
2. If Wells Fargo did not need the TARP money, it should not have accepted it. In hindsight, Mr. Kovacevich can argue that Wells Fargo could have raised private capital rather than take TARP money. The fact is, Wells Fargo went the TARP route. It did not try to raise private capital. Choices have consequences. At the present time, if Wells Fargoe does not need the TARP money, it should repay it at the earliest practicable time. My guess is that Wells Fargo wants to retain the TARP funds and limit Congressional oversight over how such funds are used at the same time.
3. When firms are not using taxpayer finances, government should refrain from interfering with such matters as dictating executive or other employee compensation. That's not a proper role for government. But when taxpayer funds are provided, like any other investor or lender, government can attach terms to how such funds are used.
4. The government's role on compensation should be limited to assuring that accounting rules are transparent e.g., stock options should be expensed, as stock options have a dilutive impact on shareholder wealth.
5. The race to the bottom in lowering lending standards during the latter stages of the run-up in the housing market and later the disintegration of numerous large financial firms' performance during the subprime mortgage crisis that evolved into a full-fledged economic crisis suggests that there were real risk management shortcomings in the industry. If the federal government is asked to inject funds or provide other assistance, it makes eminent sense for it to perform due diligence. The same holds with respect to exercising its usual regulatory obligations. Hence, even as Wells Fargo's CEO finds federal stress testing "asinine," it is a component of due diligence. Given that the financial firms' past disclosures failed to convey the magnitude of risk that was confronting them, the argument that the federal government should refrain from due diligence and instead rely on the firms' own assessments is suspect.
