The Simple Accountant

Why Capping Pay Is Likely to Work

The type of individual who would be attracted to a senior management role at a major financial institution, in this era, is not going to be the person who is motivated primarily by salary. Having worked with CEOs and entrepreneurs, albeit at a smaller enterprise level, my observation is that the better ones are more motivated by the challenge, and the sense of accomplishment or adulation, than by pure avarice.

They see themselves in some sense as heroic figures, and that may not be such a bad thing given the present circumstance. Imagine the public acclaim that would go to the CEO who "turned around Citi" or "saved B of A." My sense of the zeitgeist here is that this is what people seek.

Turning Japanese: The Audacity of Reality (Part 3 of 3)

Very good analysis, for the most part, though some points are debatable, particularly the anti-SEC bits. Yes, they failed to do their job, but that doesn't preclude them from shaping up and getting on with it.

In terms of stimulus, we could look at the country as if it were a business firm. Parts of its capital stock are depleted and could benefit from being refurbished. This means that investment in growth producing capital goods is the order of the day. Spending for its own sake, as you point out, is part of the problem rather than the solution.

The important distinction that one hopes (I have little confidence) the authorities will keep in mind, is the difference between spending and investment. The "projects" detailed in the essay are too much of the former and too little of the latter.

Will the White House Bail Out Detroit?

The economic implications of the auto bailout aside, it is simply stunning that the executive branch is contemplating funding the initiative, in essence by decree, after the legislative branch has declined to do so. This pattern of cavalier disregard, even contempt, for democratic process is no small concern. When will we have crossed the Rubicon?

GM: Bankruptcy Is No Longer an Option

The auto industry problem has many facets but aside from the specific business problems of the individual firms, there is a basic economic problem of excess capacity.

The quick & dirty analysis in this articles correctly surmises that there is no saving the Detroit Three as they stand. Why not use the $25B loan guarantees to help capitalize private ventures, that purchases their viable assets? As noted, GM and Ford have some marketable newer vehicles like Fusion and Malibu and CTS, iconic cars like Corvette and Mustang, and heavy diesel pickups that will always have some demand.

After the asset sale, the bad managements and bloated structures and legacy costs and UAW are gone, as is much of the excess capacity. Equity holders are almost wiped out already, bond holders and pensioners will take a haircut, and suppliers will be left holding the bag. Bad outcomes but not catastrophic, and certainly better than keeping the old dogs on what would almost certainly be permanent life support. The industry goes forward with new ownership and a smaller footprint, but most importantly a chance to compete and survive.