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My serious interest in financial markets is recent, so I make no claim to brilliant insights into investing or trading. I was able, however, to retire from a career in high tech while still in my mid 50's so I must have done a few things right. My strength, if I have one, is simply logical... More
  • Back to Basics 0 comments
    May 9, 2010 1:52 PM

    Several months ago in a period of two days I heard interviews with both Michael Lewis and Ken Feinberg. I have yet to read The Big Short but I did read the original article which prompted Lewis to write the book.  One of Lewis' points was that when the investment banks were partnerships they would have never have made the bets they made in the past decade as publically traded corporations.  Feinberg was 'guiding' executives of the now taxpayer owned companies to keep base salaries under $500,000, without much success. 

    I'm retired now but as an independent contractor at the top of my game in high tech I earned $250,000 a year for a few years. As an employee I would have earned about half that. I was a specialist in demand but even I thought that compensation outrageous. Like most people the thought that any employee (CEO included) could be worth more than $500,000, not to mention millions more in bonus compensation, is absurd to me. 

    The interviews with these two men got me thinking.

    What if the government was to impose extremely punitive taxation on any publically traded corporation where any individual's annual compensation package was over $1,000,000?  What if at the same time the government was to lessen or even remove taxation on corporate dividends?  It seems to me that together these two actions could restore a great deal of sanity to our world. 

    Investors would actually be investing in companies and would be rewarded when these companies profited.  Companies could focus on longer term goals, not the quarterly crap shoot.
    Investment banks and others that wanted to avoid the taxation could buy back their stock.  They could continue to reward themselves as they wished.  Then, like rock stars or pro athletes or hedge funds managers their compensation could rise and fall with their skills and talents.

    There might be other benefits to these changes. In fact one side effect to all this might be that social security could actually be replaced, in large part, by private retirement accounts which could greatly improve the US financial situation, an option now completely off the table in light of recent market events.

    Disclosure: No disclosures for this posting
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