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

[David Farber <dave () farber net>]

Begin forwarded message:

From: Rahul Tongia <tongia.cmu () gmail com>
Date: January 17, 2010 12:30:35 PM EST
To: dave () farber net
Subject: Re: [IP] INTERESTING Re: Banks Set for Record Pay - 18% over last year!!

[this is a resend due to possible email issues - thx]

Dave,

I wouldn't necessarily use words like "crime" - it's a manifestation of limited transparency, limited choices, and 
limited *employment* "liquidity" which leads to the high pay scales for the "geniuses" in finance.

YES, they have a contract with certain bonus claims.  Gee, manage/manipulate/achieve the targets for a quarter and get 
massive bonuses - cha-ching. What about long-term value? Sustainable growth?

The problem is, to me, very similar to medicine where we have super-super specialists in fields including cosmetic 
surgery (or even cardiac surgery) making 10x what a pediatrician or family medicine or even internist makes.  If you 
claim, oh, supply and demand, you're missing the complete lack of equilibrium at stake.  More than such a thing, at a 
SOCIETAL level, society needs more doctors of the latter ilk (not to mention nurses). But med students don't want those 
specializations in part cause the pay is low (and they have debt), and the "stigma" that they weren't good enough to 
get the super specialization residencies.  Will the market increase the salaries for the needed doctors? They haven't 
much in the last few years.  

The market does work for doctors in some ways - when a family member was choosing where to work after finishing 
residency, salaries for NYC were half those of rural America - supply and demand. But he was a specialist.  Incentives 
weren't quite as strong for the family medicine types of fields.  

SO, if society would be *better off* (net social welfare) with more general/primary care physicians, and we're not 
getting them, then we need to (gasp) intervene. Something as simple as interest free loans or partial debt forgiveness 
are some options.  

Thus far, I haven't gotten to the issue of whether certain finance jobs are worth the high salaries (including 
bonuses).  For those who think we need less of such jobs, maybe ending such bonuses is the market signal that will make 
sure less people go into that field.  One could counter that lower salaries would reduce the incentives for the best 
and the brightest to join that field.  First of all, I would posit that the people in such jobs aren't the best and the 
brightest society produces. Second, even if they are, their motivation is financial profit maximization (and 
self-earning, like all people). The system isn't set up to make sure that societal benefit aligns with such goals. 

Rahul

On Sun, Jan 17, 2010 at 10:12 PM, Dave Farber <dave () farber net> wrote:




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       
Archives         





-------------------------------------------
Archives: https://www.listbox.com/member/archive/247/=now
RSS Feed: https://www.listbox.com/member/archive/rss/247/
Powered by Listbox: http://www.listbox.com