U.S. cuts pay at bailed out firms

[explanade]

Not only do the rice traders make the most money, they raise costs for everyone else.

That's what happened when oil ran up to $150 last year and that seems to be happening again as oil is up to $80. If the economy recovers, it may be dampened by the rise in the price of oil and that rise may be due mostly to speculation.

 

[Independent]

Many good comments on this thread. I'll agree that limiting compensation is the "right thing to do" short term. None of these jobs would exist except for the fact that the taxpayers bailed out "the system". I expect that real "pay for performance" in many cases would have people repaying past bonuses, not getting new bonuses.

But, it's not an important part of the long term solution. IMO, MichaelB is on the right track:

This is what happens when banking and investment businesses mix.

Risk taking businesses that invest for themselves and others should be allowed to keep the results as long as only their money is at risk and they can lose as well.

Banking businesses that intermediate should not be taking risks with other people’s money. If the bankers want the money they should find jobs in investment businesses and hedge funds.

The best and brightest never have and probably never will be bankers. They always have and probably always will be doctors, lawyers and scientists.

“The banks will lose their best people” is BS, pure and simple. If there is a market that screams for greater openness and more competition, it is the job market for highly compensated individuals in finance in the US. Not just banking folks either – start with CEOs that have created this mess.

We need to distinguish between investing with your own money and investing borrowed money. If you are investing your own money (or the pooled funds of a group, as in a mutual fund), you probably aren't creating external risks. But, if you are investing borrowed money, your failure can set off a chain reaction that does a lot of damage beyond your owners.

So we need regulation for any institution or group that borrows money to invest - this includes traditional deposit banking, some hedge funds, securitization, some types of insurance and probably a dozen more things. They all need some capital regulations, and probably some level of transparency. This type of regulation reduces short term profits, hence there is well-funded political opposition.

One thing that helps is splitting the businesses by function, as recommended by Paul Volcker. Another is keeping the borrow-to-lend institutions small enough that we can let them fail, as recommended by Alan Greenspan (after he discovered that markets aren't always perfect).

I'm afraid that things like this will get ignored and short term compensation limits will be a smokescreen to hide the fact that we're ignoring them.

 

[ERD50]

Except I've never heard the term "invasion" being used to describe aerial bombardment of any kind or any other activity that doesn't involve ground forces attempting to take, and hold, land. Imagine my surprise to learn here today that Germany invaded Britain during the blitz, that the U.S. invaded Libya in 1986 and NATO invaded Bosnia in 1995.

Googling "invaded airspace" OR "invading airspace" brings up many examples. So if planes invade air space, and drop bombs with no ground troops involved, isn't that an "invasion"?

From wiktionary (bold mine):

invasion (plural invasions)

1. A military action consisting of armed forces of one geopolitical entity entering territory controlled by another such entity, generally with the objective of conquering territory or altering the established government.


armed forces

1. The military forces of a nation, such as the army, navy, air force, marines and, sometimes, coast or border guards.


-ERD50

 

[HFWR]

Nobody said this, and I think people might appreciate it if you didn't put words in their mouths.

I'm certain those "people" can speak for themselves.

In my view, conservatives have a tendency to appoint industry lackeys to key positions, more or less letting the fox guard the henhouse. On the other hand, liberals tend to take the opposite tack, appointing academics, lawyers, or "activists" with little or no real world experience. Thus, we careen from ditch to ditch, like a drunk driver. And the uncertainty this causes creates even more opportunities for those who would take unfair advantage to do so...

 

[ERD50]

Originally Posted by ziggy29 View Post
Nobody said this, and I think people might appreciate it if you didn't put words in their mouths.

I'm certain those "people" can speak for themselves.

Well they *could*, but then the thread just gets derailed by the back-and-forth justifications, apologies, or whatever. I'm with ziggy, putting words in people's mouths does nothing to add to the discussion, and is typically (IMO) a sign that the "word putter's" stand is a weak one.

BTW, I agree with the second part of your post - "careen from ditch to ditch".

-ERD50

 

[HFWR]

YouTube - Government is the Problem - Reagan

 

[Running_Man]

The results of this poll greatly distress me. We are speaking of a government moving into areas of which they know little, throwing money at a solution to save the "system", which it most certainly has not done as will become evident over the coming years and indebting a populace with restrictions and rules that will ensure the money thrown at the solution will bankrupt the country as a whole.

The anger at having to do this is allowing the government extraordinary power over controlling the value of American labor and the products and services they provide. When the deficits balloon and the taxpayers revolt over the unreasonable pension contracts negotiated in flush times, I wonder if the same percentage here will agree with cutting those pensions as well?

Governments have not, will not and do not know what they are doing other than trying to placate the majority of the population for the short term goal of personal enrichment both of their ego's and pocketbook.

GM, Citicorp and Goldman Sachs all should be out of business, the future carnage of necesary funding of keeping these rotting corporate carcasses alive by government regulation is not going to smell pretty.
In this country there is a growing lack of respect for rules and individual responsibility and this trend is worsening, overwhelmingly individuals are learning how to work the system best to their advantage and look for the government to constantly change rules for their inidividual goals. Punishing the TARP company executives is just another manifestation of this process. Where was the outrage of former presidents making 2.1 million to yap to these esteemed executives prior to the collapse?
CNSNews.com - Struggling Banks Paid President Clinton $2.1 million for ‘Speeches’

The amount that is made by the TARP executives is inconsequential, the decisions the TARP executives make are very important. To have them beholden to a current government administration is a very bad idea.

 

[explanade]

If those companies, especially GS, all fell, do you think anything else would have been left standing?

Andrew Ross Sorkin says GE would have been vulnerable too.

 

[MichaelB]

The amount that is made by the TARP executives is inconsequential, the decisions the TARP executives make are very important. To have them beholden to a current government administration is a very bad idea.

The amount made by “TAPR executives” is quite consequential – as they are (again) being rewarded for profits derived from taking risks with taxpayer money. There may be half a dozen people that really “earn” these levels of pay – the rest have a tight grasp on a fantastic gravy train. 200 years ago this was called “pirating, plundering and pillaging”. Now we side with the pirates.

Keep in mind – these banks are now making money by 1) borrowing fed dollars at almost zero rates, 2) paying less than 1% on call deposits, 3) investing in corporate bonds paying 4-7%, 4) trading (bonds, currencies, commodities, derivatives), and 5) revaluing all the lousy investments still on their books. Lending to business and consumers is down sharply. The fact that they are trading with 1) taxpayer money and 2) depositor (not investor) money should give everyone here chills.

If they don’t want to be controlled, let them pay back the money and increase their capital ratios. Then they are free to go and do again all the dumb things they did before. The hedge fund business is booming and the fees, although falling, are still attractive. Why aren't these superior financial beings relocating to the hedge fund world?

 

[ziggy29]

If they don’t want to be controlled, let them pay back the money

Some of them have tried but the government wouldn't let them.

 

[MichaelB]

Some of them have tried but the government wouldn't let them.

Only when the capital wasn't sufficient.

 

[Kwirk]

I support the effort but I think it's a mere nod in the direction of improved corporate governance. As far as I know corporate execs get to nominate the board members who will determine their pay packages. What could be wrong with that?

 

[kumquat]

Our borders have never been invaded.

I take it you weren't at Pearl Harbor on 12/7/1941.

I doubt if either of you were alive in 1812.

A bit of humour about it:
YouTube - War of 1812 - Three Dead Trolls in a Baggie

 

[Independent]

In this country there is a growing lack of respect for rules and individual responsibility and this trend is worsening, overwhelmingly individuals are learning how to work the system best to their advantage and look for the government to constantly change rules for their inidividual goals. Punishing the TARP company executives is just another manifestation of this process.

I agree with the first sentence above, but not the second. It seems to me that limiting compensation is intended to push for some measure of "individual responsibility". Without the limits, the execs make huge amounts of money when their gambling pays off, and, when they lose their bets the gov't bails them out and they continue to make huge amounts of money. At least we're trying to say that the execs can't completely avoid sharing the pain they've caused everyone else.

I'll agree (see earlier post) that we need long term reform and that's more important then these compensation limits. We should get ourselves into a postion where nobody is too big to fail.

 

[ziggy29]

Without the limits, the execs make huge amounts of money when their gambling pays off, and, when they lose their bets the gov't bails them out and they continue to make huge amounts of money. At least we're trying to say that the execs can't completely avoid sharing the pain they've caused everyone else.

Well, as I see it this is sort of a false dichotomy. I guess it logically follows once a financial institution has been "bailed out" because it was deemed too big to fail. But in reality, if a business makes bad bets, the business should fail -- not receive taxpayer largesse.

We should get ourselves into a postion where nobody is too big to fail.

Absolutely right. I don't like placing arbitrary limits on the ability of a business to grow and produce wealth for shareholders, but in reality if a business becomes so large and pervasive that its failure can seriously damage the entire economy, "too big to fail" becomes "too big to exist." Had this been the philosophy previously, we wouldn't need to even discuss bailouts. And if these businesses knew they wouldn't be bailed out, maybe they don't make such reckless business decisions.