Seeking Alpha

The FDIC will propose tomorrow that major bank execs have 50% of their bonuses deferred for at...

The FDIC will propose tomorrow that major bank execs have 50% of their bonuses deferred for at least three years to help curb excessive risk taking. After three years, the execs can receive varying amounts of their deferred pay depending on the performance of the company during that time.
Comments (24)
  • Tack
    , contributor
    Comments (12763) | Send Message
     
    Just more bureaucratic, do-gooder Government meddling to no good effect in the private sector, for banks or anybody else. More and more Government is never the way to go, but we seem immersed in an era that thinks more socialism is the solution, not the problem.
    6 Feb 2011, 01:20 PM Reply Like
  • Poor Texan
    , contributor
    Comments (3529) | Send Message
     
    Agreed. How can clueless bureaucrats write rules that will cover thousands of banks operating in different circumstances? Then again, they could just turn the whole FDIC over to a GS alumni. Of course, this could just be a rationale for the government to nationalize the banks.
    6 Feb 2011, 01:51 PM Reply Like
  • thotdoc
    , contributor
    Comments (1415) | Send Message
     
    What is your solution to banks taking excessive risks?
    Ideology without solutions that work to solve real world problems will not fix the mess we are.
    I do not like government intervention any more than you do. But, I can see problems that need solutions.
    I do not see a solution other than setting limits on people who cannot set limits on them selves.
    This solution sets limits without impacting the banksters ability to make as much money as they want. They just have to wait a bit to get it to make sure that they really made the money.
    6 Feb 2011, 02:17 PM Reply Like
  • Poor Texan
    , contributor
    Comments (3529) | Send Message
     
    Yes, this is the age old problem of how do you legislate (and enforce) morality. Some bankers will forego big risks as they feel they have a fiduciary responsibility for their shareholders while others are only concerned about how much and how quick they can accumulate wealth. afthought, later in the thread, talks about letting the banks fail when their excessive risks cause major losses but this punishes the investors more than the perpetrators. The hammer wants a firing squad but that won't fly either. The idea of delayed bonus compensation is good in theory but who writes the rules and will there be loopholes for favored entities. Wish I had a perfect solution but as long as members of the human race are involved, every regulation will be subject to abuse. After all, what are lawyers for?
    6 Feb 2011, 04:26 PM Reply Like
  • enigmaman
    , contributor
    Comments (2686) | Send Message
     
    What is your solution to banks taking excessive risks?

     

    restrict the banks ability to take excessive risks, if they cannot take the risk they cannot take the reward,

     

    The FDIC will propose tomorrow that major bank execs have 50% of their bonuses deferred for at least three years to help curb excessive risk taking.

     

    This ridiculous proposal will do nothing to curb excessive risk just delay executives taking the excessive rewards, time will not be a problem for them.
    6 Feb 2011, 06:12 PM Reply Like
  • worriedwart
    , contributor
    Comments (678) | Send Message
     
    1)If banks were not connected , in other words, operating like real business do, then when one fails ONLY THAT ONE FAILS

     

    2) Enforce laws instead of the bs regulations which only puts money into regulators pockets who just happen to be in Congress

     

    3) The banking system is based on the most simple of business, its in FACT #1 ABOVE

     

    4) the more regulations the more corruption occurs

     

    If a bank says they have x amount in reserves THAT IS THE JOB OF THE GOVERNMENT TO SHOW THE PEOPLE THAT THE CLAIMS ARE SUBSTANIATED
    6 Feb 2011, 07:38 PM Reply Like
  • AnchorMan
    , contributor
    Comments (115) | Send Message
     
    "More and more government is never the way to go"

     

    really? Ive worked in the banking industry in IT since 1998, and every year the amount of fed regulations we implement seems to increase, and yet we were an emergency TAX PAYER funded bailout away from complete financial collapse in 2008. And still you think LESS regulation would solve the problem? you cant have enough of it, and its not socialist to think that way. We will never have a pure free market system, get over it, its not reality and it will never happen.
    We had a relatively stable economy after the great depression until the 80's. Since then, our politicians have unwound all the post depression legislation that gave us a stable economy and we've had a recession every 5-7 years, and each one is worse than the last.
    7 Feb 2011, 12:09 AM Reply Like
  • coddy0
    , contributor
    Comments (1182) | Send Message
     
    thotdoc
    What is your solution to banks taking excessive risks?
    ======================...
    removing banks from public market
    cutting bunks into smaller banks
    selling smaller banks to private investors, who can afford to pay for at list 5% stake
    IMHO.
    Only True Owner has interest in proper assessment of risk vs. reward

     

    Fast trading investors are no substitute to True Owner and Government regulations is no substitute as well
    7 Feb 2011, 12:39 AM Reply Like
  • bdarken
    , contributor
    Comments (417) | Send Message
     
    Solutions:
    stop bailing them out.
    End freddy and fanny.
    Stop doing business with institutions you think are corrupt:
    (replace with: savings & loan; family; partnerships; credit unions et al)
    return to partnership structure rather than stock.
    Did I mention stop bailing them out?
    7 Feb 2011, 12:41 AM Reply Like
  • HiSpeed
    , contributor
    Comments (1063) | Send Message
     
    Not only should the bonuses be deferred for at least three years, but they should also be paid in company stock thus encouraging decisions to not myopically look at only the pending quarter, but years ahead.
    6 Feb 2011, 01:49 PM Reply Like
  • mikeybronx
    , contributor
    Comments (347) | Send Message
     
    Bank executive compensation is a topic in which the government should not attempt to regulate. However some controls need to be put into place that would adjust compensation so it reflects job performance. In business most positions are given perks and bonuses that are based on job performance, but to give executive bonuses without measureable production would be like givining professionally paid athletes massive contracts having no built in incentives. What is important to remember that further down the food chain bonuses become smaller and smaller to individuals whose total annual compensation IS based largely on bonuses.
    6 Feb 2011, 01:49 PM Reply Like
  • Afthought
    , contributor
    Comments (32) | Send Message
     
    It would make better sense to let major banks fail, thus the market would regulate risk. But since the major banks run the Treasury and Justice Departments, there is little hope of "market forces" naturally imposing the consequences of reckless management. Treasury (& the Fed) will finance failure while Justice will net little fish while sharks devour the commonwealth. When corruption is institutionalized as lobbying and campaign contributions as it is in the USA, the plutocracy is managed by oligarchs with loot from an indentured citizenry.
    6 Feb 2011, 01:59 PM Reply Like
  • viper32nc1
    , contributor
    Comments (95) | Send Message
     
    THE U.S. STOCK MARKET IS RIGGED

     

    Does the United States still have a stock market? Not really. In a real market, when there are more sellers than buyers, prices decline. And vice versa of course. That is called "price discovery"; or used to be. Since January of 2010 investors have withdrawn a net total of 81 billion dollars from U.S. stocks and funds, this week marking the 33rd consecutive week of outflows, while stock prices have staged a missile launch upward that started in mid-July. Floyd Norris of the New York Times confirms that outflows have remained at record high levels over the last four years. Some of the funds withdrawn resulted from industry insider selling, and much of that was re-invested in commodities and emerging markets. But a substantial amount, according to Charles Biderman, CEO of Trimtabs, was withdrawn by middle-class Americans to pay monthly bills.

     

    In an unprecedented interview on CNBC, Biderman stated that the Federal Reserve is no longer denying the fact that it has been rigging U.S. markets nor is the Fed making any effort to hide it. An unrelenting and counter-intuitive rally has ensued, with stock prices gapping up at 4:00 AM night after night and never looking back. Even before the Fed initiated its POMO (Permanent Open Market Operations) injections of outright treasury buys in a program euphemistically titled "Quantitative Easing 2" (a.k.a printing money out of thin air) the Fed's daily zero percent loans of taxpayer money to Goldman Sachs and J.P. Morgan were used almost exclusively to buy stocks - and then sell them again within minutes or even seconds. Investment banks use high frequency trading computers (HFTs) programmed to essentially steal money, one penny at a time, from any retail investor foolish enough to believe he could make money by trading or investing in stocks. Their computers, operating at speeds no human with a laptop could match, front-run orders, ensuring a profit on every trade. Wall Street investment banks have the right, unlike everyone else, to trade in increments of 1/1000 of a penny, allowing them to deny order fills by keeping the price 1/1000 of a penny below the bid. It is one of many questionable and even illegal practices engaged in by what the internet bears cartoons refer to as the "the Goldman Sack" and "the JP Morgue". The web cartoons have gone viral, as they say, and served to educate the uninitiated in the grand-theft-stock-market game being run by the Fed and the Wall Street gangs. The website ZeroHedge.com has, over the last year, published several articles by traders who have monitored ongoing price fixing and HFT computer games. Institutional broker, Gene Noser says that HFT trading systems threaten to destroy the entire capital market system. "[They] are unregulated, often under-capitalized, and provide no redeeming social function. As I see it, they exist to extract value from real investors one fraction of a penny at a time, over and over again."

     

    The upshot of all of this is that while the economy has seen virtually no benefit from the Fed's massive liquidity injections, Wall Street's top bankers continue to enjoy annual bonus payments in amounts ranging from 24 to 111 million dollars. Trading records show that "the Sack" and "the Morgue" have earned profits in almost every single trading day in the last three quarters. How can that be? It can be because those two banks are the market makers, setting the prices, and then betting on the very prices they themselves set. Las Vegas casinos are pikers next to these guys, since casino profits are limited by law. Not so for the Wall Street gang. The big money players are not buying common stocks these days in any case. They make private equity deals and trade off-market and off-hours in something known as a "dark pool", a cyberspace location I have always pictured as a black hole in space. As George Carlin famously said, "It's a club, and you ain't in it".

     

    From a technical point of view, traders expected a washout low in stocks last August. It never happened, as that was the moment when "the Ben Bernank" fired up his printing presses and digitally created billions of fictitious US dollars with which to buy stocks and bonds. The last time that a central bank in a western democracy printed money this wantonly was in Wiemar Germany. And most of us know how that ended: hyperinflation that produced the image of a wheelbarrow full of paper money required to buy a loaf of bread. In 2010 America, commodity price rises are showing up in higher grocery bills and gas prices, higher education costs and health-care costs, but so far nothing as dramatic as Zimbabwe's multi-thousand percent inflation. Could it still happen here? It could. There is a lag of 12 to 18 months for liquidity to show up in consumer prices, so we cannot know what prices will look like a year from now. Gold prices have risen steadily throughout the Bernanke liquidity rush, with silver showing parabolic gains over the last six months. Whether those price rises reflect a loss of faith in governments or a fear of inflation, the end result is the same. Our currency is being deliberately devalued, at a time when we are dealing with record job losses and wage depreciation.

     

    For the moment, the dollar is holding up because of Moody's serial downgrades of some European government debt, most recently Portugal's bonds. Euro problems could cause the dollar to rise by default over the next two to three months. But at some point attention will turn back to the Fed's POMO operations, and the dollar could suffer a precipitous decline with little warning.

     

    The POMOs are scheduled to continue with money printing of between one and 19 billion dollars - that is per day - through June of 2011. Where will the U.S. economy be when QE2 ends? It will be where it is now, as the Fed's money printing, while raising the costs of essential food and energy, has had no notable effect on job numbers or salaries. What it does do, with every uptick in the Dow Jones Industrial Average, is increase the wealth of those who are already wealthy.
    6 Feb 2011, 02:10 PM Reply Like
  • Fr33f0rm
    , contributor
    Comments (300) | Send Message
     
    The reason that the tax code is so screwed up is because the people that originally wrote the laws did things exactly like this. It's a good fix but we need structural changes and not just patchwork actions like this.

     

    If you design a way to limit compensation, people will find a way around it. If you design a control on a certain action (i.e. prop trading), people will find a way around it.

     

    Glass-Steagall was a brilliant idea from a time when politicians had to know something about something besides politics. Without structural reform these same issues will appear again and again....and the public will end up absorbing the losses for the largess of those that game the system.
    6 Feb 2011, 04:34 PM Reply Like
  • Hoopono
    , contributor
    Comments (218) | Send Message
     
    In an ideal world the boards of directors of the repective banks ( or other companies) would act in the best interest of the owners (stock holders) and FDIC would never need to interfere. Alas, that is not what we have. In fact the BOD are selected by the managers and stock holders have only the choice to accept or reject. Moreover, the majority votes are almost always held by other interests more aligned with management than the owners. Regulation is not a good solution, it is the only alternative many of us have.
    6 Feb 2011, 06:17 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4010) | Send Message
     
    Well said. As I was scrolling through the comments, I was thinking along the same lines, but you said it better than I would have.
    6 Feb 2011, 06:45 PM Reply Like
  • Tack
    , contributor
    Comments (12763) | Send Message
     
    No, as investors, you have another solution:

     

    Don't own the stocks of companies in whose policies or management you don't have faith. That's how a market system works. Nobody is forced to own shares.

     

    All the myriad regulations and misguided attempts to take over the rights and responsibilities of shareholders just further corrupts and diminishes the free-market system.
    6 Feb 2011, 06:54 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4010) | Send Message
     
    You miss the point. The boards should be the regulators. Otherwise, you are correct sir. Due diligence it the operative term.
    6 Feb 2011, 08:01 PM Reply Like
  • Tack
    , contributor
    Comments (12763) | Send Message
     
    Geoff:

     

    No, I don't miss the point, at all.

     

    The boards are elected by the shareholders, and if the boards don't perform requisite oversight, then, it's up to the shareholders to replace them, or, as a shareholder, one can relinquish that position by selling. This seeming alternative nonstop reaction to have nanny government rush in to make life safe for everybody 24/7, so they don't have to make any of the above decisions, but can just lateral responsibility off to some unelected do-gooder bureaucrats, is precisely the real problem. The recent trend toward empowering government to make every decision because people are either too stupid, uneducated or lazy to do so is the undoing of a free republic.
    6 Feb 2011, 08:55 PM Reply Like
  • Fr33f0rm
    , contributor
    Comments (300) | Send Message
     
    I think that your argument is a bit too idealized. Given that the majority of investors are people with 401ks and investment professionals have NO FIDUCIARY RESPONSIBILITY, there need to be some protections for investors in the system.

     

    The bottom line is that 401ks are, government-subsidized retirement plans and so most people use these as their primary retirement holdings. If the government is going to direct individuals into stock market investing then there HAVE to be protections in place
    7 Feb 2011, 05:29 AM Reply Like
  • inthemoney
    , contributor
    Comments (981) | Send Message
     
    > The bottom line is that 401ks are, government-subsidized retirement plans and so most people use these as their primary retirement holdings. If the government is going to direct individuals into stock market investing then there HAVE to be protections in place

     

    Exactly. This is where the actual culprit is. US government and financial interest sold the US population down the river a long time ago by pushing 401K plans. Now, since so much of US population is so deep in the stock market the treat stock market as a subsitute for the US economy and actually destroying the productive economy to save the stock market (with all the FED's funny money programs). They punish the savers and producers and reward financial industry at their expense. Little band aids such as imposing additional regulation on banks aren't going to fix the situation. The US govrenment needs to dissociate itself from the stock market and stop tinkering with the economy, let free market to work. What we have in the US is definitely not a free market.
    7 Feb 2011, 09:52 AM Reply Like
  • Neil459
    , contributor
    Comments (2644) | Send Message
     
    If the bank fails and is bailed out, then the top 5 executives are not allowed to work in banking (responsible for the public's money) for 5 years and fine them the equivalent of all salaries over $150,000/year for the previous 2 years. Nice and clear. Punish the people causing the problem and do not punish the people not causing the problem.

     

    The worst thing we can do is punish everyone because the bureaucrats want the illusion of control.
    6 Feb 2011, 10:18 PM Reply Like
  • davidbdc
    , contributor
    Comments (3141) | Send Message
     
    This is a stupid rule. I fully support limits being placed on banks so that they take less risks. But who really thinks this will cut down on risk taking? They will just come up with new pay policies like "we'll make your salary 1/2 of your previous year's bonus!!!" And magically they get their full bonus!!! And if they still happen to be around in three years they get even more!!!

     

    Put capital controls in place - make all markets transparent - heck, I'm even ok with some controls like forcing those buying future contracts in commodities to have the ability to take shipment.

     

    What would be really effective is increasing penalties for board members that allow excess risk taking and management to fleece shareholders. And even more than that would be to prosecute all the fraud that took place - nothing is a greater deterent than to see your peers being led away to jail for 8, 10 or 15 years!
    7 Feb 2011, 12:26 AM Reply Like
  • mikeybronx
    , contributor
    Comments (347) | Send Message
     
    The banks collapse following the realestate bubble bursting was certainly an eye opening example of poor judgement by the banks for ultimately accepting the mortgage notes and undertaking the debt. The finanncial institutions are guilty of not having in place a control that would have scrutinized the mortgage applications more closely. Many third party mortgage companies were at the core of this epidemic by haphazardly fudging realestate assessment to gain bank approvals. Though the 3rd party mortgage companies are not banking financial institutions they too need to be somewhat scrutinized and perhaps regulated. Mortgages are what banks do and to penalize the top executives for the entire mess is not rational, they are accountable for it happening on their watch but it was a practice that was accepted by the industry. At the time if there was no foul there was no harm. I happened to have lost a considerable amount of gains when AIG went down but i understand how it materialized. The bailout though hated by probably all saved me serious $$$$$, so for that i am grateful. In the future a deferred compensation package to top execs will most definitely keep them on their toes. As Davidbdc and others have said, maybe jail time and $$$ forfeiture next time around may be a needed penalty.
    7 Feb 2011, 09:43 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|