biomedlives

A Solution for Wall Street Compensation

From the second of Carney's posts:
"Importantly, shareholders have very limited downsides when firms take excessive risk. Their losses are capped at the price paid for of the shares, which means that they will respond to any increase in the amount of reward received for a given level of risk by demanding more risk."
What? Losses of 70 to 100% and cuts or elimination of dividends, which investors in Citi, B of A, WaMu, Vineyard National,.... have incurred over the last few years, are hardly "very limited downsides."

High Frequency Trading: We Fear What We Do Not Understand

If the HFT traders are simply "collecting and analyzing publicly available information," why are news reports stating that these traders are paying the exchanges for the information?

How Were Canadian Banks Unscathed by the Crisis?

The argument that "The US government made me do it" doesn't hold water. The leaders of American financial institutions were paid big bucks to steer their companies through difficult times like the last few years, and they failed miserably. Note that some institutions, like Hudson City, have managed to come through in good shape so far, even though they were operating in the same regulatory environment as Citicorp, WaMu, Wachovia,...


On Jul 22 09:45 AM ilovesum wrote:

> the canadian govt didn't force the banks to take risky loans and
> allow subprime , teaser morgages etc , so it was the reasonable
> regulations that prevented it.
> nor did the canadian system force banks to take govt money(tarp)
> or buy failed banks at inflated prices (merril lynch) with a shotgun
>
> also the price of oil didn't collapse until 2008 which meant positive
> gdp and some economic activity. the usa had a meltdown in 2007 ,
> a year earlier .
> since oil is back around $60 the canadian govt is talking about a
> positive gdp for this year and economic recovery
> so yes, the canadian banks faired better than many others but there
> were economic and regulatory factors involved.
> sometimes its more a matter of avoiding dumb things than trying to
> fix them after and wonder why we did it in the first place

'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.

CEOs Must Bring Investors Along for the Ride (WSJ)

It amazes me that boards of directors are so concerned about paying CEOs well in order to motivate them but completely oblivious to the fact that cutting the salaries and benefits of people in R&D, sales, customer support, manufacturing will have a negative effect on the motivation and loyalty of the latter group. On the whole, the lower ranking people have a larger impact on the success of a company than its CEO does.

Let's Hurt the American Financial Services Industry

If there's a brain drain from the financial services industry, we may have fewer "innovations" like CDSs, subprime mortgages, and CD squared securities in the future. That situation would suit me.

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.
>

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.

The Wonders of Mark-to-Market: Simultaneously Well-Capitalized and Insolvent

I take your point about the havoc MTM has created. Nonetheless, I'm sense that banks are often unrealistic when they set decide their quarterly loan loss allowances. As the current crisis was developing, many were setting nothing or almost nothing aside, even though loan balances were increasing.

What to Buy: Debt

I still find it a problem to buy a specific bond, even when it's a sizable issue, from a discount or full service broker.

Why Is Everyone Blaming the CEOs? It's the Government's Fault

In this case, I presume you mean that the CEOs were supposed to be greedy on behalf of their shareholders. Through their stupidity or shortsightedness, they failed big time in that regard.

I suspect a lot of lenders were happy to make subprime loans, with or without pressure from Washington, when they recognized the fees they could earn even as they moved the loans off their books into mortgage-backed securities.


On Feb 15 12:54 PM Drew Horn wrote:

> Tom, right on!
>
> It is the job of business to maximize profits. In the movie, Wall
> Street, Gordon Geko said something like "greed is good" and explained
> that greed is only satisfied when something of value is delivered
> and we all benefit from that value.
>
> It is the job of government to regulate business in a way that ensures
> that greed does not hurt us. I see the current mess as a result of
> governments failure to look, see, and understand what was happening.
> Politicians (Barney and Chris) also interfered by requiring lenders
> to make loans to people to poor to repay them.
>
> Tom, if and when businesses are expected to regulate themselves,
> I will find another place to live. Business self regulation is illogical,
> cant work and if its tried, I will vote with my feet and move to
> another country.

Why Is Everyone Blaming the CEOs? It's the Government's Fault

It's not clear to me why Ken Lewis should be excused because he "foolishly acquired it [his bank's problems]." The reason I and the other long-suffering BofA shareholders pay Lewis the big bucks is to avoid foolish moves.

I would also say that "innovations" like credit default swaps, Alt-
A mortgages, and mortgage-backed securities (which completely separated the originator of a mortgage from the ultimate holder) contributed more to the current mess than the sins of Barney Frank, Christopher Dodd and, I suspect, a number of Republicans promoting the ownership society.

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.

Should We Relax Capital Requirements?

Right on! Leverage that was too high got us into the current mess.


On Jan 26 11:00 PM constructe wrote:

> Certainly not. In fact, banks have avoided capital requirements anyways
> by steering its customers into mutual funds etc. to avoid the fed's
> reserve requirement thanks to the abolishment of the Glass Stegal
> Act. On the other side, it can hide it's losses on off balance sheet
> loophole it made of the the years including hiding it's entire derivatives
> portfolio from view.
>
> I'd rather call for full transparency and tightening rather than
> loosening.
>
> All financial institutions should have moderate reserve requirements
> to cover possible future losses. We can not depend on brokerages
> to reserve enough themselves without regulation. Especially since
> they ask the US to pick up the tab when they go drastically wrong.
> That's why all the big ones have been virtually wiped off the map.
>
>
> All contracts including derivatives should have some collateral requirements
> and due dilligence. Who in their right monds would legitimately let
> Citibank write trillions of derivatives contracts on $10 or 20 billion
> in assets? Yet that's what they were allowed to do.