INTERESTING Re: Banks Set for Record Pay - 18% over last year!!

[Dave Farber <dave () farber net>]

Begin forwarded message:

> From: Mary Shaw <mary.shaw () gmail com>
> Date: January 17, 2010 1:26:27 AM EST
> To: dave () farber net
> Subject: Re: [IP] INTERESTING Re: Banks Set for Record Pay - 18%  
> over last year!!

> Yes, but ...
>
> Let's step back from the details and ask whether, compared to other  
> professionals, these people are worth what they're being paid.
>
> Are the skills involved in manipulating financial instruments more  
> refined and more critical to society than, say, doctors, nurses,  
> police, teachers, ... ? Really?  By orders of magnitude?
>
> Something is out of whack.  We're not going to find or fix it by  
> microanalyzing bonuses vs salaries for huge total payouts.
>
> Mary Shaw
>
> On Fri, Jan 15, 2010 at 12:52 PM, Dave Farber <dave () farber net> wrote:
>
>
>
>
> Begin forwarded message:
>
> > From: Joe Faber <joseph.faber () gmail com>
> > Date: January 15, 2010 12:28:28 PM EST
> > To: ip <ip () v2 listbox com>, dave () farber net
> > Subject: Re: [IP] Re: Banks Set for Record Pay - 18% over last year!!
>
> > These are complicated issues that folks are trying to tie together.  
> > They involve not just home loans, but complex derivative products  
> > and trading strategies, financial speculation, etc.
> >
> > "Banks" didn't steal from the rest of us. A lot of them did  
> > underwrite loans that they shouldn't have. Some of this was the  
> > banks fault (e.g., lax underwriting standards at places like  
> > Countrywide and American Home Mortgage). Remember, it wasn't that  
> > long ago that most people felt they had a right to own a home.  
> > Whose fault is that? Mortgage brokers? Depository banks? Investment  
> > banks? Home owners with unrealistic aspirations? Let's not forget  
> > all the "no doc" loans in which 3rd party mortgage brokers  
> > blatantly lied to banks about the financial condition of the buyers  
> > so that individuals who would never qualify for loans wound up  
> > getting them.
> >
> > Now, let's talk about who's getting these huge bonuses for a second  
> > - in general the folks who are getting them are not the ones who  
> > underwrote the bad loans. And some of the large TARP recipients  
> > (like Wells Fargo) are not the ones paying out the outsized bonuses  
> > anyway... Yes, the investment banks packaged and sold CDOs (made up  
> > in many cases of lousy mortgages) - and there are many entities to  
> > blame for that (rating agencies, the original banks that issued the  
> > loans, investment banks, etc) - but a lot of the other bankers are  
> > being paid large bonuses because of things like the record  
> > corporate bond issuances this year, traditional M&A fees, and  
> > trading revenues  - elements that make up the basic blocking and  
> > tackling that investment banks do on a daily basis.
> >
> > In general, bonuses have traditionally made up the majority of a  
> > bankers' compensation because a) the business is highly competitive  
> > and employees are motivated by potential financial gain as opposed  
> > to simple altruism, b) tying pay to performance is better than  
> > having it completely disconnected from performance, and c) the  
> > value in financial services is not in things like patents or market  
> > share, but instead in human capital that is prone to walk out the  
> > door, d) investment banks have transitioned from partnership  
> > structures (where the partner share in the profits) to public  
> > companies - consequently, the majority of revenue and profits  
> > needed to be redirected from shareholders to employees. Any firm  
> > that continued to send the majority of profits to shareholders  
> > would be at a serious competitive disadvantage relative to those  
> > firms that didn't.
> >
> > Finally, if folks are looking for folks to blame (or at least deep  
> > pockets that profited tremendously while others suffered), perhaps  
> > spending a bit of time looking at hedge funds might be warranted.  
> > How or why did the price of oil get so disconnected from basic  
> > supply/demand fundamentals? How is it that Paulson & Co (the hedge  
> > fund, not Hank) could profit to the tune of billions from shorting  
> > banks (thereby further eroding the public confidence in banks and  
> > helping necessitate the public bailout in the first place)? Don't  
> > get me wrong, I'm not saying that the hedge funds who profited at  
> > the expense of "the rest of us" necessarily were breaking the law,  
> > but the situation is complicated and rife with conflicts of  
> > interest at the very least.
> >
> > In ponzi schemes, no one hesitates to blame the law breakers.  
> > Everyone can and should blame Bernie Madoff for what he did. But  
> > these other situations are not so clear-cut. Yes, there were lots  
> > of conflicts and poorly designed incentive systems, and many people  
> > made lots of money at the expense of others, but sorting through  
> > all the mess ain't easy, and neither is coming up with solutions to  
> > address the system's faults that have been identified.
> >
> >
> > On Fri, Jan 15, 2010 at 11:19 AM, Dave Farber <dfarber () me com> wrote:
> > >From: "Jonathan S. Shapiro" <shap () eros-os org>
> > >To: <dave () farber net>
> > >Cc: "ip" <ip () v2 listbox com>
> > >Date: January 15, 2010 11:11:49 AM EST
> > >Subject: Re: [IP] Re: Banks Set for Record Pay - 18% over last  
> > year!!
> > >
> > >
> >
> > They *did* steal from us, and it has nothing to do with house  
> > valuations or trend lines. It's very simple: the banks wrote bad  
> > loans in the full knowledge that they would be bailed out by the  
> > government using taxpayer money. That money ultimately comes out of  
> > your pocket and mine. I don't know about you, but *I* wasn't a  
> > party to those loans, and I certainly wouldn't have approved loans  
> > to people who self-evidently lacked the means to pay. When somebody  
> > contrives to reach into your pocket and take your money without  
> > your consent, what do *you* call it? I call it theft.
> >
> > You are correct that there are contracts requiring that the banks  
> > pay the participants according to certain formulae. And I'm happy  
> > if we do that, so long as we prosecute the parties involved. We can  
> > then seize the bonuses as income derived from crime, which is the  
> > treatment it deserves.
> >
> > The tragedy here is that when everybody is responsible, nobody is  
> > responsible, and nobody can be held accountable.
> >
> >
> > Jonathan
> > Archives        
> Archives        



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