biomedlives

Goldman's Success: Put Down Those Pitchforks

1) "That subsequent action is regulatory reform—limitations on leverage, new rules on compensation, perhaps a bank tax to pay for oversight and future bail-outs, and so on." Regulatory reform is absolutely essential, but American financial institutions, probably include Goldman, are fighting it tooth and nail.

2) "First, a guarantee only costs if it's invoked, and it's rarely invoked because it's a credible guarantee." Whether a guarantee is invoked or not, it has value in the same way that auto or homeowner's insurance does. I still expect to pay the insurance company a premium, even if I haven't had an accident or a fire at home over the last year.

3) "And yes, there are billions in profits, but that was the idea all along." As Taibbi's rant points out, the real idea was to get the economy back on its feet, not save Wall Street from its
(largely self-inflicted) wounds.

Anyone have a recommendation on a good farm equipment store?

'Too Big to Fail' Should Not Exist

Until American wages are closer to those in developing nations, it will continue to be difficult for manufacturing in the US to be competitive in world markets.


On Jul 06 12:11 PM User 158164 wrote:

> Obviously the author knows absolutely nothing about the auto business
> or how this situation came to pass.
>
> I can hear the same arguments when the auto industry went through
> a massive consolidation in the 50's, When all the independent companies
> were gobbled up or run out by the big 2 (Chrysler and AMC were allowed
> to live to keep the regulators off of GM's backs) and anyone who
> didn't like it were told "it's market forces".
>
> The problem is it's not "market forces", it is 50 years of self desstructive
> trade policies that make it more and more difficult to produce goods
> in this country.
>
> We need policies that make American companies compedetive in the
> world market. Not protectionism, but a level playing field.

Why This Rally Is Unsustainable

I suspect Obama would be happier if this crisis had never happened and he could focus on other issues. Many of those complaining now about socialism and government interference are the same people who drove the financial system over a cliff.


On May 01 01:26 PM jack kreg wrote:

> NS, you need some help with clarity. but you really just missed the
> real issue, Obama's socialism will not work. Yes, printing and borrowing
> money will prop up failed banks and auto's, but a sustained economic
> recovery is not in our future.
> I expect high un-employment thru Obama's first term, easily over
> 10% for 4 more years. with that level of un-employment how can stocks
> appreciate? I think best strategy is for solid co's, international
> sales, and dividends. Possibly returning 4-7% annual. Much higher
> taxes on income and energy, both bad for jobs and the economy. <br/>I
> wish you would have offered a clearly written summary, but thanks
> for trying.

Why It's Better to Bail Out Borrowers than Banks

I have no sympathy for bank shareholders ( or bondholders, for that matter). It was a good ride while it lasted, but a lot of them would have been complete toast in the end without the TARP investments.


On Apr 11 02:22 PM E Nuff Sed wrote:

> The bail out (seekingalpha.com/symbo...) money is not free.
> The banks are paying a 5% - 8% dividend to the government who had
> just printed a lot of "free money" to liquidate/dilute the shareholders.
>
> I suspect when the dust settles in a few years the government and
> the tax payers will come out ahead and they would have saved the
> system as well. This is what happened in the 90's with the S&amp;L's.
>

Don't Ban Naked Credit Default Swaps if the Law Can't Be Enforced

It seems to me that it makes sense to require that CDS insurance be attached, inseparably, to a bond or other debt rather than allow it to be traded separately. Municipal bond insurance seems to function all right this way. If the bond or debt changes hands, the CDS goes with it to the new owner. That said, I don't find CDS insurance for bonds particularly useful. If you're looking for safety, buy a bond of J&J or another AAA rated company. Don't buy a CC rated bond and then buy a CDS for it.

It may be difficult for a supplier to a company in financial trouble to get default insurance, but companies that buy receivables are available to relieve the supplier of the risk (for a fee, of course).

A More Modest AIG Bonus Proposal

"Government has no place in the free markets beyond reasonable laws against unfair practice or fraud. " That view brought us to the current financial crisis.


On Mar 24 12:23 AM terryg8 wrote:

> I always opposed the TARP legislation for 2 simple reasons. First,
> Government has no place in the free markets beyond reasonable laws
> against unfair practice or fraud. Secondly, Government has a very
> poor record when it does get involved and most often makes the problems
> worse rather than better.
>
> We now have a nation up in arms about bonuses being paid to AIG employees
> that were under contracts that existed prior to the payment of any
> Government money to AIG. As a resolution to this outrage, we would
> now turn hundreds of years on contract law on its head and rescind
> legal and binding contracts because Congress is unhappy. If that
> is not possible, we will then use the tax code to punish one group
> and, in effect, still not honor the contracts. In case some of you
> might have forgotten what your parents should have taught you, “two
> wrongs do not make a right” and “the ends do not justify the means”.
>
>
> The fact is that we assumed many of the liabilities of AIG when we
> took an 80% ownership share in the company. Among these were the
> bonus structures, like it or not. We are stuck with much larger
> and more expensive things as well that will cost all of us dearly.
> It is possible, had we simply let AIG go to court and declare chapter
> 11 bankruptcy, that we could have seen these contracts addressed
> in a court of law although I think it would be unlikely that the
> court would have voided these contracts even then. In any case, the
> money spent would have been that of the stockholders and bondholders
> and not the US Tax Payers!
>
> We have been told that AIG was “too big to fail” but I must wonder
> if it is not too dysfunctional to survive without perhaps trillions
> of taxpayer dollars to bring AIG back to solvency. In light of that,
> these bonuses seem pretty small. In light of the actions and changes
> to our legal system required to get that money back, these payments
> are truly not worth the damage. If you must have some revenge you
> might consider having Mr. Dodd and Mr. Obama return the $100,000
> plus they both got from AIG executives in 2008 as campaign contributions.
> That is the thing that you all should really be angry about!
>

Why Are We Wasting Our Energy on the Bonuses?

We can argue about where the current financial mess ranks on the top 10 list, but I would put it very high on the list. In addition, I do place a large fraction of the responsibility on " bankers, investment bankers, hedge fund managers, and all the other Wall Street scalawags" for generating this mess under an administration that minimized regulation and largely gave markets free rein. Bad government policies played a role, but executives in financial institutions got big bucks to, among other things, insulate their institutions from such government policies. They failed big time.

On Mar 22 04:44 PM grbn wrote:

> you said "I cannot fathom the logic behind doing a witch hunt for
> the bonus recipients. "
>
> quite simply, it diverts attention away from the failures of Congress
> and plays into Obama's redistribution of wealth agenda. It sets
> up bankers, investment bankers, hedge fund managers, and all the
> other Wall Street scalawags as the evil criminals who are responsible
> for this so called economic mess. (not the worse economy since the
> great depression, but maybe since the failed Carter administration,
> but they won't talk about coward carter).
>
> So next there will be more government regulation and fees/taxes,
> and they're going to control salaries of all wall street types, not
> just those who accept govt. money. If they can keep the people angry
> they can destroy wealth.
>
> It's been clear Obama holds wall street in contempt and cares not
> if it fails.

A More Modest AIG Bonus Proposal

In the sentence "Moreover, even though AIG made mistakes in its underwriting of the risk (insurance companies do that from time to time), ..." the use of the word "mistakes" makes it sound as if AIG honestly made the best decisions it could with the available information and then found that the financial crisis, like an unexpected hurricane, hit it with a huge loss. In pursuit of short term profit, the people at AIG FP went way beyond a reasonable level of CDSs.

In addition, I reject the idea that AIG served some sort of useful role in providing the government with a backdoor means of propping up the financial system. The government paid through the nose for that role.

How We Could Let AIG Fail, Sort Of

Let's remember that the capitalists running AIG, BofA, Citicorp, WaMu, Bear Stearns,... have been lousy stewards of capital of late.


On Mar 21 12:26 AM Alexander_M wrote:

> tshk,
>
> *dripping sarcasm*
> Great response. The GRUBvernment is a great steward of capital.
> That statment is quite reassuring when you consider how "profitable"
> all the other institutions that they take over are. Look at Fannie
> and Freddie, models that the Free Market should all look up to.
> If only my company could burn through capital the way those morons
> do... it would be the model for all communist corporations to follow.
>
>
> Long live Stalin!
>

AIG Bonus Outrage Only Grows Worse

If AIG insists on retaining the idiots who created this mess, I hope they are spending 100% of their time cleaning it up and 0% creating new CDSs.

To prevent future situations like this one, where it appears that the people who create a financial mess are the only ones who can clean it up, I recommend a model from software development. Clearly describing a new piece of software, in the code itself and in separate documentation, is a fundamental principle of good programming style. If the original programmer steps in front of a Mack truck or takes a more appealing job across the street, another programmer can step in, read the description, and fix problems or make improvements in the future. I believe that financial institutions should require the same of their traders and loan officers.

AIG Bonuses: The Tipping Point Toward Decisive Action?

Amen - propping up institutions that are "too big to fail" needs to stop.


On Mar 18 08:09 AM elcopone wrote:

> Nice article and great points. I would add that this bonus scandal
> illustrates why the government should have stayed out of the system
> and let capitalism run it's course in Chapter 11.
>
> Also, what does it say about our government when AIG execs are more
> scared of lawyers opinions and their own executive's potential lawsuits
> than they are about the governments wrath?
>
> This "too large to fail" argument is getting really old. The cost
> of inaction must certainly be rivaling the cost of action (bailouts)
> at this point. And the real cost of the bailouts and whether they
> even worked is still a mystery. If companies got too large to fail
> then there needs to be better anti-trust laws so that company gets
> "too big too fail"

AIG Employees Not Too Happy with Persistent Death Threats

I suspect that a few competent clerks, the first 200 people in the Boston phone book (acknowledgement to William F. Buckley), or maybe even the chimp and the janitor could efficiently clean up the mess at AIG FP, at far less cost than if the idiots who created the mess did it.

Why Capping Pay Is Likely to Work

" You have no idea how hard these people work and the pressure that they are under." DESPITE ALL THE "HARD WORK", THESE PEOPLE STILL PRODUCED MASSIVE LOSSES FOR THEIR SHAREHOLDERS.

"Equity (how Sr. Mgt and even the rank and file has been receiving the majority of its compensation for the past few years) has been gutted. " WHO IS RESPONSIBLE FOR THE LOSSES THAT LED TO THE DECLINES IN SHARE PRICES?


On Feb 04 11:23 AM Think! wrote:

> Unfortunately, it is looking more and more like nationalization.
>
> Obama has opened up the gates of hell by feeding populist opinion
> in order to achieve his policy objectives.
>
> The American people are angry and "rich and fat" bankers look like
> a great place to blame, right? No realtor, mortgage broker, appraiser,
> leveraged borrower or home buyer has any responsibility for this
> mess, right? Let's sock it to those nasty bankers who have the nerve
> of getting paid part of their comp with bonuses!
>
> Capping comp in the short-term is probably ok but has risks. It
> has a lot more downside in the medium and long term.
>
> You arm-chair pundits don't have any idea what it takes to run or
> even be in the top 2 levels of management at a major financial institution.
> No, they won't be "giving you a call" because you don't even begin
> to have the skill set to get the job done. I have regular personal
> contact with the Treasurers, CFOs and CEOs of most of the top 20
> banks in the U.S. You have no idea how hard these people work and
> the pressure that they are under.
>
> If you drain the talent, then these organizations will truly be brain-dead.
> That is the problem. Removing all employee incentives will produce
> corresponding behavior. Equity (how Sr. Mgt and even the rank and
> file has been receiving the majority of its compensation for the
> past few years) has been gutted.
>
> How will you recruit, manage and motivate talent? "Be glad that
> you have a job" is a very-short term motivator. If there is no upside
> offered, there will be a brain drain from the industry.
>
> That will not be good for the institutions or the country.
>
> Try to moderate the emotion and maximize the strategic thinking.