Five Things: The Best and the Brightest
By Kevin Depew Mar 16, 2009 3:16 pm
The last thing we need is to unleash AIG's "top talent" on businesses that haven't yet failed.
Word on this heinous bonus situation began filtering out late last week. American International Group (AIG), which has so far managed to suck up more than $170 billion in taxpayer bailout money, announced it would pay nearly $165 million out in "bonuses" to the very same executives who ran the company into the ground. We own about 80% of that company, by the way. You and me. But so what?
AIG says this money was promised to these people last year. And in the Age of Self Evidence any promises made by bankrupt companies are legally binding. Regardless, AIG's government-appointed chairman, Edward Libby, is concerned that all this meddlesome compensation tampering by the people who own most of the company will make it difficult to retain the "best and the brightest."
“We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."
- Edward M. Liddy, government-appointed chairman of AIG, in a letter to Treasury Secretary Timothy Geithner
Which may be true. But still, the last thing we as a society need is for AIG's "best and brightest" to be cut loose and unleashed on other businesses that haven't yet failed. So, enjoy the bailout money, AIG, and keep the change.
2. Right Question. Wrong Inquisitor.
“Is this America -- when you do what your government asks you to do and then retroactively you also have additional conditions?”
Wells Fargo (WFC) Chairman Richard Kovacevich
Ah yes, those evil "retroactive additional conditions." How dare the government impose retroactive additional conditions! Where is the outrage?!
Everyone knows that, in a capitalistic society, only banks, like Wells Fargo, should be able to impose retroactive additional conditions; such as bumping up credit card interest rates on any of their customers whose credit score has decreased, or demanding additional collateral for existing loans, or raising ATM fees, charging more for paying bills with paper checks, increasing the minimum balance threshold on "free checking" accounts.
After all, imposing retroactive additional conditions is actually what it means to be a bank; that's essentially the business model. And just because the government has spent a little more than $1 trillion of taxpayer money in direct investments in banks and on purchases of corporate and agency debt, we shouldn't get the idea we can suddenly adopt the "retroactive additional conditions" business model.
Easy, killer. Only the "best and the brightest" have what it takes to run that show.
Is this America? It's a good question. But if it's being asked by a banker, it's being asked by the wrong person.
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Reply
2009-03-16 15:25:50
How did you spend your bonus?
A. Deposited it in my bank so they could boost their capital ratios.
B. Invested all of it in Bernard Stanford Securities LLC, Cayman Islands
C. Bought the market bottom with a very safe triple leverage ETF
D. Loaf of bread, case of beer, and a dollar leftover.
B. Invested all of it in Bernard Stanford Securities LLC, Cayman Islands
C. Bought the market bottom with a very safe triple leverage ETF
D. Loaf of bread, case of beer, and a dollar leftover.
2009-03-16 15:43:14
Simple solution
If you've got to pay people millions of dollars in bonuses so the "best and the brightest" won't be lured away by other firms, there's a simple solution to the problem.
If the government imposes an absolute limit on total compensation, strictly enforced, no one will be able to lure away someone making the maximum dollar value.
It would save American business hundreds of millions of dollars. It works for sports leagues, why not other businesses?
If the government imposes an absolute limit on total compensation, strictly enforced, no one will be able to lure away someone making the maximum dollar value.
It would save American business hundreds of millions of dollars. It works for sports leagues, why not other businesses?
2009-03-16 15:47:14
Right On!
I usually never comment when i agree with an article. So this is an exception. This article is dead on spot
Only thing points 1, 2 are exactly what i would have said albeit with some really colorful language!
Only thing points 1, 2 are exactly what i would have said albeit with some really colorful language!
2009-03-16 16:21:03
How did you spend your bonus?
boâ
nus [boh-nuhs]
ânoun, plural -nusâ es.
1. something given or paid over and above what is due.
2. something you get if you mess up an investment bank with 30 times leverage
3. something you get if you work for a ratings agency
4. something you get for overextending credit to people who cannot afford it
ânoun, plural -nusâ es.
1. something given or paid over and above what is due.
2. something you get if you mess up an investment bank with 30 times leverage
3. something you get if you work for a ratings agency
4. something you get for overextending credit to people who cannot afford it
2009-03-16 16:50:25
Simple solution
So you'd recommend the top limit as being like A-rod's $212 million, ten year deal ? eh-yah, I think a $22 million limit might work. lol.
No, seriously, the reason salary caps work for sports is, well, the league owns the playing field (the means of production, if you will). A ball player can't go somewhere else, play their game, and make more money - or they would. The NHL, for example, has poached the best Russian players; you can argue that these guys wanted to play against the best in the world, but it's really about the NHL being the highest-playing hockey league in the world, isn't it ?
(ditto, the Barclays EPL, the NBA, MLB...)
Put a cap on a hedge-fund manager's carried interest, and he WILL go offshore. Put a cap on Wall Street, and the actual best-and-brightest WILL move to the City of London, or Dubai (the men only), or wherever they have to go to get paid. I'd go further, and argue that of all the professions, the single one most likely to "keep score" according to how much was made.. is the financiers; it is what they do, after all, keep score with money. (not original to me - see "Adam Smith" (G. Goodwin), "The Money Game". Also M. Lewis, "Liar's Poker".)
No, seriously, the reason salary caps work for sports is, well, the league owns the playing field (the means of production, if you will). A ball player can't go somewhere else, play their game, and make more money - or they would. The NHL, for example, has poached the best Russian players; you can argue that these guys wanted to play against the best in the world, but it's really about the NHL being the highest-playing hockey league in the world, isn't it ?
(ditto, the Barclays EPL, the NBA, MLB...)
Put a cap on a hedge-fund manager's carried interest, and he WILL go offshore. Put a cap on Wall Street, and the actual best-and-brightest WILL move to the City of London, or Dubai (the men only), or wherever they have to go to get paid. I'd go further, and argue that of all the professions, the single one most likely to "keep score" according to how much was made.. is the financiers; it is what they do, after all, keep score with money. (not original to me - see "Adam Smith" (G. Goodwin), "The Money Game". Also M. Lewis, "Liar's Poker".)
2009-03-16 17:05:36
Bonus/Malus
Interesting idea put out by NYU finance professors is notion of Bonus / Malus where compensation is based on performance over 5 year period , with requirement to pay something back (a malus) if you under perform. Talk about a way to put pressure on traders who thought they could use the insurance company balance sheet to trade their book, the real net cause of the AIG finance company failure.
2009-03-16 17:15:12
Simple solution
First of all who would wanna hire these geniuses. And pay scales are ridiculously high in USA as compared to UK or Dubai.
And guess what...in Dubai if you turn in the kind of performance these "best and brightest" have at AIG it might not be out of the question is they get subject to public lashings on the you know what!
And guess what...in Dubai if you turn in the kind of performance these "best and brightest" have at AIG it might not be out of the question is they get subject to public lashings on the you know what!
2009-03-16 17:25:39
Simple solution
Aren't those caps for teams, not individual players?
So the Wells Fargo RetroActives (in black) could play the Goldman Sachs Slickers (in gold, natch) on a "level playing field."
And the American International (oxymoron) Group RadioActives (in glowing green, of course) could come in as a WILD-BONUS card.
So the Wells Fargo RetroActives (in black) could play the Goldman Sachs Slickers (in gold, natch) on a "level playing field."
And the American International (oxymoron) Group RadioActives (in glowing green, of course) could come in as a WILD-BONUS card.
2009-03-16 17:59:58
How do bankers not get the golden rule??
As in, "he who has the gold makes the rules"?
As a child, my father would routinely change channel on us kids to watch a program he liked. Someone on here may cry child neglect, but he was right. I was the kid watching the TV he paid for. His TV, his rules.
I learned ages ago that money given to you in large sums always came with strings. (Heck, even small small sums do...)
*sigh* It really must only require good hair, the gym membership, and the sense of entitlement to be an exec.
As a child, my father would routinely change channel on us kids to watch a program he liked. Someone on here may cry child neglect, but he was right. I was the kid watching the TV he paid for. His TV, his rules.
I learned ages ago that money given to you in large sums always came with strings. (Heck, even small small sums do...)
*sigh* It really must only require good hair, the gym membership, and the sense of entitlement to be an exec.
2009-03-16 18:20:54
Simple solution
Yes, they are per team. And baseball has no effective limits at all. So the analogy is not perfect.
2009-03-16 18:29:00
Simple solution
First, I think the evidence is pretty clear than compensation is not very strongly correlated with performance at the top levels. Lots of studies that CEO compensation does not correlate with share price appreciation, for one.
Second, the evidence is likewise clear (self-evident, even :-)) that the various corporate boards are unwilling or unable to represent the shareholders in this matter.
Third, if you aren't willing to give your employer your best effort for, say, $1M/year, I think there's something seriously wrong with you. Morality does matter.
Fourth, American executive compensation is a lot higher (3x?) than other countries. A lot of these guys are not going to be finding jobs paying NYC rates in the City.
Fifth, these 'best and brightest' would be replaced by the 'second best and only slightly dimmer'. The 2nd string might surprise you with their ability. In fact, the 2nd string might try harder, to reuse Avis's tag line. It's not whether or not someone made good decisions, it's whether or not their decisions are going to be, e.g., $21M/year better than the guy who's willing to work for "only" $1M. AIG etc. might actually come out ahead,much to the chagrin of the "Best and the Brightest". But, in the Age of Self-Evidence, they and their enablers would deny that, even if every economist on the planet knew it to be true.
Second, the evidence is likewise clear (self-evident, even :-)) that the various corporate boards are unwilling or unable to represent the shareholders in this matter.
Third, if you aren't willing to give your employer your best effort for, say, $1M/year, I think there's something seriously wrong with you. Morality does matter.
Fourth, American executive compensation is a lot higher (3x?) than other countries. A lot of these guys are not going to be finding jobs paying NYC rates in the City.
Fifth, these 'best and brightest' would be replaced by the 'second best and only slightly dimmer'. The 2nd string might surprise you with their ability. In fact, the 2nd string might try harder, to reuse Avis's tag line. It's not whether or not someone made good decisions, it's whether or not their decisions are going to be, e.g., $21M/year better than the guy who's willing to work for "only" $1M. AIG etc. might actually come out ahead,much to the chagrin of the "Best and the Brightest". But, in the Age of Self-Evidence, they and their enablers would deny that, even if every economist on the planet knew it to be true.
2009-03-16 18:31:42
Simple solution
Oh, one other thing:
If athletes were being ridiculously underpaid, someone would start a new league and hire away all the stars from the existing league. I suspect there is a limit we could set where the loss of executives to foreign countries would be small in number, and then it would get even smaller as the fact these guys are not really that much smarter than their assistants / deputies / what have you became evident.
If athletes were being ridiculously underpaid, someone would start a new league and hire away all the stars from the existing league. I suspect there is a limit we could set where the loss of executives to foreign countries would be small in number, and then it would get even smaller as the fact these guys are not really that much smarter than their assistants / deputies / what have you became evident.
2009-03-16 18:56:47
We're from the government
"But if there is a silver lining to the coming despair it will be the return of entrepreneurial problem solving."
Well, with all that entrepreneurial spirit being generated, maybe we'll have use for all those government workers the keep getting hired. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
Well, with all that entrepreneurial spirit being generated, maybe we'll have use for all those government workers the keep getting hired. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
2009-03-16 20:23:01
Survival of the fittest at work.
I admire the AIG guys, and their scum-bag compatriots in corporate America. 30 years of ripping off the stock-holders - IN PUBLIC - and now ripping off the taxpayer - WITH a Democratic President AND Congress, IN PUBLIC - and there's NOTHING anybody can or will do about⦠MAN, these guys are my HEROES!
For 30 years, too, the peasants have been spouting the "survival of the fittest" mantra as their ideal of `mmmrca, so I am personally enjoying watching the corporate Winners SHOW the `mmmrcan peasants - and the ENTIRE WORLD - who's got the cahonas in this country and WHO actually runs things.
IT IS FANTASTIC to watch. Long live the Reagan revolution!!
For 30 years, too, the peasants have been spouting the "survival of the fittest" mantra as their ideal of `mmmrca, so I am personally enjoying watching the corporate Winners SHOW the `mmmrcan peasants - and the ENTIRE WORLD - who's got the cahonas in this country and WHO actually runs things.
IT IS FANTASTIC to watch. Long live the Reagan revolution!!
2009-03-16 20:54:27
CEO compensation?
The USA business model;
Ordinary people in extraordinary positions making extraordinary decisions, vastly over their heads, where a rising tide raises all boats and the when the tide goes out the US taxpayers get soaked!
Most of these CEOs were "top performers", salesmen in their ordinary lives . . .
Where do I get off this train?
Ordinary people in extraordinary positions making extraordinary decisions, vastly over their heads, where a rising tide raises all boats and the when the tide goes out the US taxpayers get soaked!
Most of these CEOs were "top performers", salesmen in their ordinary lives . . .
Where do I get off this train?
2009-03-16 21:02:21
Simple solution
"Third, if you aren't willing to give your employer your best effort for, say, $1M/year, I think there's something seriously wrong with you. Morality does matter. "
I agree. I've thought we the government should cap CEO pay at say $1M/year inflation adjusted. How much money does 1 person need, anyway? The only exception would be if you started the company. You could only be a baziollare if you actual create a company that creates jobs and value.) I know someone would create a loop hole so it wouldn't work, but it's a nice fantasy.
I agree. I've thought we the government should cap CEO pay at say $1M/year inflation adjusted. How much money does 1 person need, anyway? The only exception would be if you started the company. You could only be a baziollare if you actual create a company that creates jobs and value.) I know someone would create a loop hole so it wouldn't work, but it's a nice fantasy.
2009-03-16 21:09:38
Survival of the fittest at work.
âI am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. No longer a government by free opinion, no longer a government by conviction and vote of majority, but a government by the opinion and duress of a small group of dominant men.â
- President Woodrow Wilson (regretting signing into law the Federal Reserve Act)
- President Woodrow Wilson (regretting signing into law the Federal Reserve Act)
2009-03-16 22:28:46
Now that is one of the best, brightest comments I have heard in a long time. It made me laugh out loud - as it is so true!
2009-03-16 22:30:53
AIG Bonuses: Penny Wise and Pound Foolish
Folks are busy scrutinizing hundreds of millions of dollars in AIG bonuses. Complete Red Herring.
What about the robbery of transferring tens of billions of dollars to Goldman Sachs, SocGen and others. And you will soon hear Goldman wants to return its TARP money - they are humming and doing very well. It pays to be well connected.
Else, you become Lehman
What about the robbery of transferring tens of billions of dollars to Goldman Sachs, SocGen and others. And you will soon hear Goldman wants to return its TARP money - they are humming and doing very well. It pays to be well connected.
Else, you become Lehman
2009-03-16 22:38:13
Simple solution
"Common Sense" award goes to... Simmons and Fitzsimmons!
could be the name for a good folk duo :))
could be the name for a good folk duo :))
2009-03-16 22:50:34
Survival of the fittest at work.
Unintended (?) long-term bad consequences from "well-intentioned" Congress. Aid to Families with Dependent Children (aka subsidising single mothers: 8% when started, now over 37%), Medicare/Medicaid (>30% of federal spending), Welfare (reform of '96 gutted in the new budget aka Mother of All Porkulus), COMMUNITY REINVESTMENT ACT, anyone?
2009-03-16 22:55:25
Survival of the fittest at work.
Pity that evidence of clear thinking wasn't present when he signed. Or when he broke his campaign pledge and took us into WW I. Or when he pushed for the League of Nations that would end war.
Ah, good intentions, such nice paving stones...
Ah, good intentions, such nice paving stones...
2009-03-16 22:58:46
Survival of the fittest at work.
Yeah. Reagan was right. This is ALL "those people's" fault. All of it. Why, if it wasn't for "THOSE PEOPLE" and how they ruined the MORAL FIBER of America's honest hardworking business men, none of this would have happened. "Those people" weakened the honest hard-working taxpaying business men of American - the best country in the entire world - until those THOSE THOSE PEOPLE got WELFARE and took all the taxes from the honest people of America. This is ALL THOSE PEOPLE's FAULT.
2009-03-16 23:17:24
Failure?
Kevin, you state that "We are living in a financial revolution precipitated by the failure of the prior model."
Are we? The model failed?
I'd say the model operated properly, but was strung out by a failure of enforcement of proper principles. That doesn't mean the model failed, but that the rules by which the model were governed simply weren't enforced properly.
The model, therefore, operated properly but just not the way that was expected.
Consider this:
Laws stipulate that theft is illegal. Yet almost daily people engage in theft - theft of services, theft of office supplies, theft of cash on illicit "expenses", etc. Most of this is theft that will go unchecked and unmonitored and some could eventually do in a company or two.
The system is operating properly, it isn't failing. It is the behavior of the individuals in the system that is failing. The system WORKS, but the individuals are abusing the system. There is a very subtle differentiation here.
Some would say this differentiation can be remedied ONLY by more rules and regulations. I say no. The problem isn't the system, or the rules and regulations. We have things that WORK...we just need better monitoring and enforcement.
Too often we, as observers, miss the real story in our attempts to explain what is happening. Debt rarely gets run up to the degree it's been run up to during this period. Usually the Fed will raise interest rates to put the brakes on excessive debt and general excess (typified by the Stanfords and Madoffs of the world) which are the results of demands for ever increasing returns on capital.
Increasing returns CAN exist - early in the process of growth. Eventually they peter out. Believing they can go on forever is misguided and shows a lack of maturity in understanding systems - and this is the flaw of the individuals who did this to the system. Their infantile understanding of finance and what it is supposed to do (provide capital to those who need it as opposed to just making people rich by any means possible) is the result of their skewed views of free enterprise.
Are we? The model failed?
I'd say the model operated properly, but was strung out by a failure of enforcement of proper principles. That doesn't mean the model failed, but that the rules by which the model were governed simply weren't enforced properly.
The model, therefore, operated properly but just not the way that was expected.
Consider this:
Laws stipulate that theft is illegal. Yet almost daily people engage in theft - theft of services, theft of office supplies, theft of cash on illicit "expenses", etc. Most of this is theft that will go unchecked and unmonitored and some could eventually do in a company or two.
The system is operating properly, it isn't failing. It is the behavior of the individuals in the system that is failing. The system WORKS, but the individuals are abusing the system. There is a very subtle differentiation here.
Some would say this differentiation can be remedied ONLY by more rules and regulations. I say no. The problem isn't the system, or the rules and regulations. We have things that WORK...we just need better monitoring and enforcement.
Too often we, as observers, miss the real story in our attempts to explain what is happening. Debt rarely gets run up to the degree it's been run up to during this period. Usually the Fed will raise interest rates to put the brakes on excessive debt and general excess (typified by the Stanfords and Madoffs of the world) which are the results of demands for ever increasing returns on capital.
Increasing returns CAN exist - early in the process of growth. Eventually they peter out. Believing they can go on forever is misguided and shows a lack of maturity in understanding systems - and this is the flaw of the individuals who did this to the system. Their infantile understanding of finance and what it is supposed to do (provide capital to those who need it as opposed to just making people rich by any means possible) is the result of their skewed views of free enterprise.
2009-03-16 23:38:33
Trends for 2009
I am a huge Minyanville fan and 5 Things is my favorite. I agree that Specialists win in 2009. So far so good for my own business which is small, nimble, and very focused. I've posted trends for 2009 on my own blog, Sparxoo, at the link below.
http://sparxoo.com/?p=17
http://sparxoo.com/?p=17
2009-03-16 23:51:02
Here's am objective for some entrepreneurs
Can some of these folks put together a new government that is based in reality. I am sure they will find a drastic need for one based in good values, common sense, and responsive to its citizenry. It is a shame the existing one has, like most other monopolies, has realized its customers have no choice.
2009-03-16 23:56:31
Gold
Don't worry, there's a Cub-like curse on the metal. I attempted to take a goat festooned with gold Mr. T medallions into the Nymex and was turned away. That gold will never see 1k no more!
2009-03-17 09:18:21
Rise of the Entrepreneur
This is very ironic, because I've been thinking the same thing. I've nearly completed my business planning for a franchise-type drive-thru convenience store that will be centered in the Midwest and South. I'm still in the early stages of raising capital, so feel free to contact me if you're interested in investing in McMethamphetamine's.
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