Obama is Bush part 3

How Wall Street Keeps Dooming Itself

We should really look at the foxes guarding the hen house... Over the last 40 years, Congress has been controlled (at different times) by both major political parties. Both major political parties have controlled the White House. Both major political parties have controlled both Congress *AND* the White House.

They have never once run balanced spending. Yes, I am sure someone will whine that that so-and-so cooked the books and produced balanced "budgets" -- but no one ran balanced spending.

No one produced an energy policy beyond Jimmy Carter suggesting we all wear a sweater. No one properly funded infrastructure like railways and highways. Adjusted for purchasing power parity, the US spends more per student on education than any other country on Earth -- but I would suggest our schools do not reflect that. While administrators sit in newly refurbished offices, teachers are forced to buy their own supplies.

For this "public service", government bureaucrats (both elected officials and career bureaucrats) have enjoyed pay raises that exceeded CPI. While stated salaries are generally less than the private sector, productivity is WAY WAY less than the private sector -- adjusting for lower productivity, public sector workers get paid LOTS more than the private sector.

And that is before we take into account benefits that are much better than almost all private sector workers

These underworked, overstaffed and overpaid bureaucrats are the ones who are (and were) supposed to be regulating all these banks.

What right do voters have to whine about bank bonuses (which are admittedly obscene) when we have been tolerating the "pay for lack of performance" compensation of our so-called public servants?

Why Feds Shouldn't Regulate Insurance, Nor Own Insurers

daniel -- I suggested canceling the sales trips and replacing them with trips for actuaries or risk managers. The last thing AIG needs now is more sales -- it doesn't have the balance sheet to support more policies, and it clearly doesn't have the risk management systems in place.

Longer term though -- I was complaining about the over-emphasis on sales. I was very specific in saying that sales are not unimportant -- but that they are only PART of the business.

Too many inept managers focused 110% on sales and completely neglected everything else. This led to absurd levels of hubris on the part of sales staff, many of whom were glorified phone operators (many salespeople add lots of value, but during the "boom" many did not).

When a salesman "produces", how can you be so arrogant as to suggest that 100% of the credit should go to the salesman? If the firm has a reputation for not processing claims properly, clients won't do business. Clearly, some of the credit for the sale should be going to the claims processing people. If the firm doesn't manage risk well, than the firm will collapse and won't be able to pay claims -- so clearly, some of the credit must go to the risk management / actuaries. I could go on and on about other departments, but the basic message is this: it takes teamwork for a firm to be successful. Sales people often get very confused and think they are the whole team. During the boom, many big firms actually were so stupid that they labeled back office personnel as "cost centers" because they didn't bring in revenue like the head in the cloud sales force. If the rest of the team doesn't do its job, then you sales guys have nothing worth selling. The rest of the team must be recognized for its contribution as well.

It is ridiculous for talentless CEOs to fall over backwards for their top performing sales people -- but then not make a similar fuss over the top performing people in other departments. I have to keep saying this because the current thinking is so out of touch: if the rest of the staff doesnt do their job, YOU HAVE NOTHING TO SELL.

Sales people are simply worthless without something to sell. That's really just common sense-- but inept CEOs of late have forgotten. They focused 110% on sales and completely neglected everything else. Wall Street collapsed because moron CEOs forgot to reward risk management people. GM and Ford collapsed because they have neglected everything from cost controls to new product design.

Sales are important, and cannot be neglected... but so are many other facets of a business. The current crop of worthless CEOs forgot that. We have all seen sports teams where one player thinks he is God's gift to whatever sport -- coaches that are dumb enough to play along and neglect the rest of the team end up like AIG or GM or Lehman or Bear.

In the long term, there needs to be a balance ... but in the short term, most of these companies are going to have to over-compensate and over-emphasize risk management, and under-emphasize sales.

So short term: yes, cancel the sales trips. Long term, successful firms will recognize outstanding contributors throughout the firm.

Why Feds Shouldn't Regulate Insurance, Nor Own Insurers

Why do you think sales people are "producers", but actuaries are not? Why do the exceptional sales people get to go to a fancy vacation/conference -- but the best performing actuaries are simply told "Well, you are just doing your job"?

The U.S. over-valuing of sales people, and complete neglect of all other positions, is a big contributing cause of the current crisis. If Wall Street had placed equal importance on risk management as it did on sales, would they have caused the damage they did?

The Shallowest Generation (to quote another article on Seeking Alpha) has over-estimated the value of sales, and completely neglected everything else. Its not that sales are unimportant -- but they are only PART of the picture.

Wall Street failed because they thought sales were important, but risk management was not. GM (and Ford and Chrysler) are failing in spite of having a great dealership / sales network -- their products stink because the engineers were told they were unimportant.

Simple common sense here folks: sales people need something to sell. Period. No buts. The Shallowest Generation has completely neglected everything other than sales -- we are a nation of spin and promos, with no product substance underneath.

AIG should be canceling their sales vacations-- they should be giving fancy trips to risk modelers who can help get the company out of the mess the sales force created yester-year.

The best engineers / risk managers / product development staff in general need to be told, and SHOWN, that they are as important to a company as sales -- because they are. AIG and GM are textbook cases of what happens when sales are emphasized at the neglect of everything else.

Paulson/Bernanke: $700 Billion at 'Hold to Maturity' Pricing

There is no such thing as "hold to maturity price".

If Bernanke knows exactly which home owners are going to default and which will not, he should definitely tell us -- and more importantly tell us where he bought his crystal ball that foresees defaults but somehow fails to warn him about the credit crisis.

Unless you know who will/will not default -- you have no way of knowing if a mortgage is worth par or zero.

If he really did earn his PhD, than Bernanke knows this very well and he is deliberately lying to us. Shame on him

Fed Is Likely to Make Money from Its Bank Buyouts

Mr Delong:

If this is such a money making opportunity for the government, please explain why deep pocketed, smart, long term investors such as Warren Buffet, Texas Partners, Blackstone LP, Carlyle Group, etc don't leap in and buy these assets?

What do you **think** you know that all these other people don't?

Given the government's history of paying $100 billion to bail out Katrina victims without actually doing so, including warehouses that were still filled with ice for New Orleans a year after the storm was over... Given the government's long standing history of paying over a billion dollars for a single airplane, and $10,000 for a coffee maker... given that the government has had a **spending** deficit every single year for 40 years...

How do you figure the government is going to turn a profit on assets when smart money like Berkshire Hathaway and private equity funds can not?

There is a reason these people are billionaires and the government is in debt trillions of dollars...

It is really unhelpful when supposedly learned professors write ridiculous articles such as this one.

Solvency and Liquidity: Non-Identical Twins

fatcat -- you won't have a bank run unless your customers first think the bank is insolvent. As the author suggests, banks that play it "too close to the line" are the ones that often have "bank run" problems. Accounting is an art, not a science -- so claiming a bank cannot be "a little bit solvent". It has to be very very clearly solvent -- or else its not solvent. At or near the line is basically the same thing as below the line.

Airlines do not fly with barely sufficient fuel - they always have a bit extra "just in case". What if the airport is backed up and the plane has to circle? What if the weather turns bad and the plane is forced to divert to another airport? Clearly, having a little extra cushion of fuel is the difference between a *safe* airline, and an airline that is playing with people's lives. Customers are absolutely justified in not trusting an airline that refuses to have a cushion of safety.

Why would you trust a bank who's solvency is "right on the line"? What competent manager assumes the economy will never face a little bad weather? We have had recessions (and worse) for 6000 years of recorded history -- it is insane to figure another recession will never happen.

If a bank is solvent and has some extra "cushion room" to survive an economic downturn, then its pretty easy to quash a bank run. This has happened, and in each case the bank survived.

If a bank is operating so close to the line that markets question its solvency -- its exactly the same as a airplane with no extra fuel cushion. Its only a matter of time before there is a disaster -- when, not if.