No longer content bullying TARP CEOs and hedge fund managers who have the audacity to expect contracts to be honored, the Obama administration is now turning its icy gaze toward Wall Street compensation for the rank and file bankers - and not just at the banks that took TARP money:
http://online.wsj.com/article/SB12421589668421198…
Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.
For those of you unfamiliar with the term "moral suasion", it is generally referred to as blackmail among the rest of the populace. You know - "We can't force you to scale back your compensation structure, but if you don't, don't be surprised if you see a lot more the SEC this year", etc., etc.
According to Investopedia's definition, "Tactics used are closed-door meetings with bank directors, increased severity of inspections, appeals to community spirit, or vague threats." Any further questions should be directed to Perella Weinberg.
During a recent congressional hearing, Chairman Ben Bernanke said the Fed was working on rules that will "ask or tell banks to structure their compensation, not just at the very top level but down much further, in a way that is consistent with safety and soundness -- which means that payments, bonuses and so on should be tied to performance and should not induce excessive risk."
This is where it gets interesting. Would you do this job for a flat $90,000 a year, and no bonus?
As much as I hate this current administration, I actually agree that the compensation structure in finance needs a slight overhaul. The only problem is that the government is going to fuck it up completely, where banks will have no incentives to take any risks at all; further slowing economic prosperity.
If they do overhaul the compensation system in finance then they should do it in every other industry as well: This is just one of many examples, but let's take a look at how a (buyer's) real estate agent gets paid. He get's a percentage of the sale price, which gives the agent an incentive to get his client to pay the highest possible price; this is the exact opposite of what he is supposed to be doing.
The agent's remuneration should be based on how the buyer's investment (house) performs in the future, which would allow the agents to do their jobs properly, without conflicts of interest, and actually force them to do more market research then they do now.
how much more socialist can he get?
Is this website the place to be for the junior GOP?
I completely agree. Simply moving towards say, EVA based compensation, or market-adjusted strike prices in stock options would be a good change. (Thus rewarding above average performance).
Whatever they come up with though, will be interesting to see. (unfortunately, when the word interesting has been used in the past 9 months, it refers to an unforeseen bad outcome)
So what's the point of incorporating in the US anymore? Incorporate in the cayman islands and make nyc a "satellite" office. This fucker is crazy, I still don't understand how he's so popular.
All the more reason to move to international banks in international offices (except London of course).
He has yet to do any of these things. Until he does, i'm not scared at all.
This guy is an economic terrorist.
Or simply a terrorist.
OH MY GOD! YOU ARE SO OUTRAGEOUS!
There was just a guy on CNBC from the Economic Policy Institute. He made an extremely smart point about the compensation issue:
If we have banks that are so big that they get an explicit or implicit backing by the US government (i.e. everyone knows the government will swoop in with a bailout if the bank was ever to fail), then yes the government has a say in compensation practices in order to control risk-taking.
I think that's perfectly legit.
I don't think this will mean no more bonuses either. It'll just mean bonuses based on more holistic metrics. Similar to how a financial advisor looks at a mutual fund's sharpe, treynor, and/or alpha, compensation needs to look at performance-metrics that accounts for both profitability and risk.
TeamLRAM http://teamlram.wordpress.com
The bigger point is that they should not have an implicit backing by the government. That's probably a huge driver in the excessive risk-taking in the first place. An implicit backing by the govt creates a situation for managers (and investors in some cases) of "heads I win, tails you lose".
Are we really going to blame CEOs for maximizing their own personal returns? That's the basis of capitalism. It's ultimately the shareholders' and board's responsibility to ensure that their employees (ie CEOs) have the proper incentives to pursue long-term growth.
So either limit the bank's size or change the way compensation is based on?
I agree with what youngmoney said: just because the basis of incentives are changed doesn't mean the amount of incentives actually do get changed. What does get changed is that people become cognizant of their risk-taking along with their profitability to prevent a I'll Be Gone - You'll Be Gone Philosophy
If you limit a bank's size you lose economies of scale and there will be less money to go around for compensation.
TeamLRAM http://teamlram.wordpress.com
...but why is there a movement in this country to limit people's financial success? This is simply un-American. Government is exerting too much control over private interests, and this needs be stopped. Where have our checks and balances gone?
It's not about limiting financial success. It's about making sure the government isn't in another situation where its forced to use government money to bail out banks (something more un-American than regulation)
In regards to where our checks & balances have gone, compensation regulation is in itself a check: a check to make sure there's no more excessive risk taking so we don't end up in another crisis like this.
TeamLRAM http://teamlram.wordpress.com
if pay is structured so that you earn your bonus not based on excessive risk taking but on sound business decisions and with due diligence you're able to fetch just as much in bonus, why should anyone worry? Incentives are merely aligned differently and people will change thei attitudes accordingly. What is worrisome is that it could be mandated by government in a completely backwards way. Reward indeed comes with risk, but that should only go so far. If the only way to have 2007-like bonuses is by taking 2006-like risks, then maybe 2007 bonus levels were never meant to stay.
If this dude messes up with bonuses the risk takers will simply go whenever they are free to take risks.
As long as there is a market open somwhere...
This is already happening with the banks. But who knows, maybe those guys will limit compensation for hedge fund managers too.
We're heading toward socialism, the US is becoming Canada, WTF?
All of you who say this is better in the long run - you're right, but can we trust the powers that be not to fuck it up? On one hand we got the outraged populists with their pitchforks, on the other we got a bunch of pandering politicians, I wonder what that could be a recipe for...
I dont think that these folks took risk b/c of some implicit backing by the gov, they took it b/c they were allowed to and these no balls cred risk folks closed there eyes and turned the other way. You need tighter controls not tighter gov't intervention.
If investment bank's are going to continue and operate like hedge funds then either the gov should reinstate glass steagle or highly regulate compensate to align incentives. Wall Street should never be a casino ,it serves a purpose. And there is nothing socialist about having regulations in place.
To qualify, mainly investment banks that have commerical banking affilates, or essentially all banks, and are themselves variables of systemic risk.
Go ahead, let these morons: http://tpmdc.talkingpointsmemo.com/2009/04/rep-joe-barton-i-stumped-nob… decide our future pay
Imagine a dystopian world where Finance is unionized, fighting pay regulations $1,000 at a time.
The poor TARP CEO's! The poor fund managers! Who has it harder than them, seriously? Think about it for 30 seconds, I challenge you to think of anyone who has it harder than them.
And Obama puts the ROR! in Terrorist, for sure. Think about it, it makes perfect sense. If you don't agree, you're probably anti-American, I'm pretty sure of that. ANyway, Obama's an economic terrorist, a socialist, and I'm seriously afraid that he's a closet NAZI. Ever since he took office, it's been like an economic holocaust and a bunch of 9-11s strung together.
I will tell you who has it harder than CEOs and fund managers - everyone in this country who has been living off of their success and taxes, and is suddenly going to find themselves very poor when all the talent leaves. And no, Obama is not a terrorist, terrorists operate in the open and are clear about what they are doing, Obama and his ilk are more like a 5th column destroying America.
Eum laudantium rerum vel. Non optio at facilis recusandae iste. Tenetur ad aperiam et nesciunt cupiditate. Est illum corporis nobis. A iure et iusto cumque est quos. Debitis repudiandae est impedit consequatur quaerat et.
Omnis nostrum debitis dignissimos esse a odit omnis rerum. Iusto rerum culpa nihil iste. Culpa numquam eius harum voluptates exercitationem voluptatem. Provident rem voluptas rerum qui doloribus. Deserunt minima fugit quam provident. Eligendi iure maxime a aliquid dolorem eos esse.
Maiores eos id nulla id maxime incidunt. Quis et dolores rerum non. Magnam perspiciatis et illum explicabo sapiente cumque.
Provident facere omnis aperiam molestias. Velit molestiae aut voluptatem non possimus suscipit ratione. Tempora ea quisquam vel corrupti explicabo ipsum ut non.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Iusto incidunt perferendis et ducimus voluptas. Quo maiores et quo. Placeat ut odio enim doloribus. Quis et qui quia ipsa iure a dolores. Rem optio labore et voluptatibus tempora saepe. Ea nobis sit velit officia.
Totam fuga dignissimos non sed perferendis. Et aut earum quae voluptas non. Aperiam non consequatur omnis inventore nobis. Fuga aut culpa excepturi tempora repudiandae dolores ipsam autem.
Laborum cum consequatur ipsam id consequatur non odit. Quaerat perferendis maxime consequatur consequatur. Vitae repellendus a unde assumenda nostrum amet deserunt nostrum. Non tempore incidunt consequatur eius est laudantium doloremque. Cum molestiae qui eius at temporibus et.