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Say Nyet to the Pay Czar

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Common sense says financial leaders should be armed with some financial sense.

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We should have known this would end horribly. The first "red" flag was the administration inventing a job called Pay Czar.

There's a reason the communists whacked the last legitimate Czar and got away with it. The Red Army's horrifying power and sadism helped, but the real reason was the public figuring that Romanov's idiocy made it likely anyone else would be better.

Nicholas Romanov sent Russian troops to the front in World War I unarmed with instructions to use the guns of the dead Russian troops ahead of them. Pay Czar
Kenneth Feinberg is apparently set on fixing the markets by forcing banks to take half their pay in stock options.

You may remember stock options from the bubble days when everyone at Yahoo (YHOO) from the chief to the company chefs became zillionaires and retired in their 20s. That was about $300 in Yahoo share price ago.

So, in an allegedly coordinated effort, the administration has openly rigged the stock market, bought General Motors, used taxpayer dollars to fund Cash for Clunkers (a program which curiously labeled cars like my Hummer and other toxic fog machine SUVs as "efficient"), and is now mandating stock options instead of cash for highly paid executives at firms that willingly or unwillingly took the low interest loans -- which were largely responsible for killing anything resembling a free market in the US.

Professional short sellers have, in effect, been sent to the front unarmed.

Perhaps most appalling is that the stock option lunacy of the Internet bubble fixed itself. That's how free markets are supposed to work -- when appalling policies are standard, artificial value is created.

The inevitable crash of the phony values forces companies to self-correct. In the case of options, the public revolted, new hires weren't willing to accept scrip pay when previous hires were 80% underwater on their options and the boards were forced to make the companies grow up.

Any first-year business school student could explain the lunacy of stock options instead of cash. They dilute shareholders and lead to absurd excesses and unintended consequences like the first receptionist hired being worth $50 million.

The business world regards options as a dangerous experiment gone horribly wrong. The non-business world charged with creating Czars of all sorts (apparently "Militant Dictator" was trademarked) regards mandating an insane dilution level of option pay as a panacea for a market collapse which already happened.

If I had taxation with representation, I'd use it to pay for business people, or at least economists, placed in the role of aiding stock markets. Czar Feinberg was probably an excellent lawyer, but law is an entirely different field than business.

"Smart" isn't fungible, which is why you wouldn't let a brilliant waiter perform your brain surgery.

The administration hired a lawyer who doesn't remember business history less than a decade old, labeled him a Czar, and gave him free rein over pay levels in businesses for which he has never worked.

Spoiler Alert: This policy will end horribly unless it's somehow shoved in the crib by the lawyers we elect as senators, congressmen, and president.

How do I know? Because I actually worked in business and traded my way through the last options bubble.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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