Bankers have taken a beating in the last year or so, being blamed for the “Great Recession” and for receiving bonuses for work despite the fact that their companies received bailouts. A friend of mine even received a Christmas letter from a family friend who literally spent paragraphs defending herself and the banking industry — and then went on to talk about how they just bought their second home, an enormous beach house. I think that’s what they mean by the word “tone-deaf.”

President Obama said a while back that he didn’t take this job to bail out “fatcat bankers,” and seems to have had no problem assigning blame to them. But now it seems he’s reversed himself a bit. A Bloomberg article reporting that some CEOs of large banks took home over $10 million in bonuses includes this:

The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”

I’m shocked that Obama is shocked that some athletes are paid well but don’t perform up to his expectations. (Does he really want to talk about people not meeting up to the expectations people have of them? Really?) Is he shocked when some athletes who are paid relatively little have a great year? His shock shows a complete lack of knowledge of contracts, which perhaps should be expected given the penchant he has for ignoring them and his faux outrage over the AIG bonuses. These bonuses were specifically allowed in the stimulus bill, and have come about over time largely because of the different way that regular compensation and bonus compensation have been treated by income tax laws. So people on Wall Street take lower pay and expect higher bonuses, whether they performed well or not. In fact, they shouldn’t even be called “bonuses” because that’s not really what they are. They are a different form of compensation designed to reduce tax exposure. Most of us don’t understand the complexity of it so when people get ”bonuses” even when their businesses did poorly, it seems shady. But that’s not what it is at all.

For example, let’s compare the salary structures of NBA and NFL players. NBA players have guaranteed contracts, so if a player blows out a knee and can’t play again, the team is on the hook for the entire contrat. NFL players don’t — and the NFL Players Association is trying to get that changed. But until it gets changed, how do NFL players hedge that risk? They get large signing bonuses. True, some of these players won’t be good in a year or two. Obama would look at that situation and either say that the team’s owner was stupid for giving that player the money, or that the player was greedy and didn’t deserve the money. The fact that all of them get these signing bonuses would slip right past him. The fact that they’re not really bonuses at all — just a different way of structuring compensation – would be lost on him.

Apparently, President Obama thinks that only if you make it to the World Series should you earn a lot of money. That only if effort and luck all coincide to translate into the ultimate pinnacle of success should you be paid a lot of money. His shock displays not only a lack of understanding of contracts and their limitations, but also a complete lack of knowledge about uncertainty. If contracts were rewritten for all athletes so that players were only paid large salaries if their teams were successful, what would happen? They’d get bigger signing bonuses instead that were guaranteed, and the amount of pay they received would be largely unaffected. Players on a team cannot determine the fate of the entire team unless it’s in a sport that only has 5 people playing (the NBA) and you’re so dominant that you can carry your entire team, like Magic, Larry, Michael and Kobe have shown they can do. Players understand this. Owners understand this. They would make some alternate arrangement to get around it. But the smartest president we’ve ever had either can’t understand it or can’t appreciate it.

I find it hard to believe that this is the same man who loves unions so much and admitted to running all his important decisions by Andy Stern of SEIU (who for a while was the most frequent visitor to the White House until that information was made public). The effect of a union is that your salary is largely pre-determined and does not depend whatsoever on how well you actually perform. My salary at SCSU for the rest of my life is determined entirely by the union’s negotiations, whether I’m the best teacher here or one of the worst. When MnSCU decided a few years ago that it wanted to hand out a dozen or so Professor of the Year awards (along with $5,000 prizes), to reward hard-working professors who put extra effort into helping their students, what was the reaction? The SCSU Faculty Association Senate voted it down almost unanimously because they didn’t like the idea that having some people singled out for their exceptional performance would imply that these professors are actually better than others. Parish the thought!

The only thing certain in this life is uncertainty. President Obama needs to understand this and accept it, not try to fight it. Fighting it leads to micromanagement, where his Pay Czar will have to determine whether a $17 million bonus was “properly earned” because of a CEO’s ”savvy” business decisions, or whether it was “corporate greed.” And where his Secretary of Health and Human Services will send letters to health insurance companies who raise rates because their healthiest customers drop their policies due to the recession, raising the average cost of the remaining customers. These companies will have to justify every action they make so that some government official can determine whether this is a “justifiable” business practice or just an unhealthy quest for that ultimate evil: profit. So instead of markets and stockholders deciding issues of prices and pay, all of this will be determined by one person or one small government committee, who will no doubt reward those who contribute to them and punish those who disagree with them. They’ll give contracts worth millions of dollars to their spouses and friends, all the while telling us that they’re making better decisions than we could make for ourselves.

I guess it should come as no surprise that the most “intellectual” president we have ever had, with a cabinet with the least amount of actual business experience, would think that he can know everything perfectly and determine how businesses should make decisions better than they can. I wish he were a little less confident in his ability to make decisions and left more of those decisions to the little people who have been making them for centuries. If President Obama wants to tie people’s salaries and bonuses to their performance, I say we start by tying the pay of the president and Congress to their approval ratings. For every point under 50%, you lose 2% of your pay. 0% approval = no pay. It would certainly help reduce our budget deficit.