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  • azalphainvestor azalphainvestor Aug 18, 2009 3:06 AM Flag

    More Business as Usual

    See if you dont agree:

    August 18, 2009

    More Business as Usual

    <As Wall Street returns to profitability, it is eagerly returning to business as usual. Most notably it is preparing to pay enormous bonuses, like those that encouraged the sort of risk taking that set off the financial crisis.

    That point was underscored in an article in The Times on Sunday by Gretchen Morgenson, which described a new study by James F. Reda & Associates, an independent compensation consultant in New York.

    The study used proxy filings to analyze the pay plans at 191 of the nation’s largest companies in the first half of 2009. Instead of seeing a greater reliance on long-term incentive programs, the report found that most companies have actually made short-term incentive pay a bigger part of the compensation package.

    The report covered 21 financial firms. Three, including Goldman Sachs, had reported no changes to their pay policies. JPMorgan Chase, in contrast, had put more conditions on pay, generally allowing the bank to attach more performance benchmarks and to impose a longer wait before pay is awarded.

    Ideally, banks would be free to compensate employees as they saw fit. But that must be accompanied by reforms that ensure that banks can no longer profit from primarily speculative activities or other excessively risky transactions — including regulating the opaque derivatives markets and imposing limits on the use of borrowed money to increase profits.

    The Obama administration unveiled a broad reform plan in June. But Congress has yet to tackle the most far-reaching issues. Meanwhile, despite the recent evidence to the contrary, Treasury Secretary Timothy Geithner told The Wall Street Journal last week that he did not think the financial system was reverting to past practice, adding, “and we won’t let that happen.”

    In the absence of comprehensive reform, however, rules are urgently needed to ensure that pay, at least, does not invite outsized risk taking. A recent House bill largely punted on the issue. The Senate has yet to act.

    Mr. Geithner seems to think that Americans begrudge Wall Street its profits out of ignorance of the importance of healthy banks. That misses the mark.

    They begrudge profits that come at the expense of others, like taxpayers, who do not share in them but are on the hook for the losses. Until the financial system is reformed — to ensure that the old mistakes are not repeated — they have every reason to be angry. >


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    • Canoodle.. Unlike you I dont delude myself. Unlike you I understand that things like the power at the NY Fed is actually diverse. If you knew much more about Geithner and his leadership of NY Fed, you would recognize that he attempted to reign in and did reign in some the excessive exuberance of debt. Yes in retro, I wish he would have done more. Im sure he too wishes he would have done more. The fact is he like something close to 95% of those involved did not see or understand the debt and housing bubble until it was too late. Few saw housing prices falling 30% and more. Foreclosures sure,maybe even in record numbers, but who saw the near freeze in international payments and credits. Who saw the near collapse of the our and the international banking system.

      Im not absolving anyone. Im being realistic and truthful to the facts. The facts are Tim Geithner tried to moderate. You dont seem to know or understand that fact.

      And just as Ben Bernanke did not see the ramifications of the Feds easy credit, he has done exceptional work keeping the system from completley collapsing. So criticize all you want. But be honest to the facts. Let us know who of national repute a. saw if coming and b. has the wherewithal to know and implement what is necessary today.

      It may not be popular to recognize that things could indeed be worse. Ill stick with Geithner and Bernanke.

      As for the demise of Glass Steagal, your analysis is non existent and refusal to recognize its demise was the result of overwhelming agreement that its usefulness had run its course is only too typical of you.

      I never believed that it had to go as a measure of modernization, but I understood those arguments. In retrospect I was wrong or naive, perhaps similar to Greenspan, as I thought there were sufficient other forces that would prevent the risk taking that ensued. Hopefully I and more importantly those in positions of economic power ahve learned the lesson well. Hopefully measures to prevent excessive risk and imbalanced risk to reward systems will be implemented. Hopefully we have learned a lesson about the dangers of unbridled capitalism. Hopefully we will not soon again fall into the trap of blaming regulation and underfunding adn disparaging regulators.


    • How can we allow Tim Geithner and Larry Summers to define the future of Wall Street oversight?

      He was head of the NY Fed for 5 years. Did nothing but let Wall Street do its thing. When it crashes - he says others, "the US taxpayer", have to bail it out.

      He's a tax avoiding citizen - so what's his reward? Obama puts him in charge of tax collections too.

      Summers was at the root of the Wall Street deregulation of the '90s that resulted in the Wall Street instability and Government inadaquate oversight.

      Their past acts define what is wrong in our society. We don't hold people accountable. We look the other way.

      It is time to hold Geithner and Summers accountable - and to some extent Obama who foisted these jerks upon us. There should be no reform allowed until we get the proper people in place. That means shipping out both Geithner and Summers who are at the root of today's financial problems.

      Otherwise we let the door open for the wolves to eat us.

      • 2 Replies to canucanoe1
      • Couple of things Canoodle. Ive mentioned before, but you seem to have trouble digesting and understanding these days.

        A. First and foremost, Geithners power and reach with the NY Fed was never as large as you seem to think. Most knowledgable accounts indicate he was concerned about the extent of the debt adn leverage of a good number of the institutions under his jurisdiction. Others simililarly powerful believed differently. And the number of others significantly outnembered him.

        B. Summers was neither the leader or original proponent of the elimination of the Glass-Steigal. He was one of the overwhelming number that believed the seperation was anchronistic and that 'supervison/regulation' and plain self interest would insure prudence. Recall that Chairman Greenspan was the 800 lb gorilla with more power influence than the next 50 business voices combined. This was a 'reform' with overwhelming and bi-partisan support. [And forgive me for reminding no one whines as much as you about the lack of bi-partisanship.]

        So try and get off your moralist moaning about Geithner. He's trying to make many of the necessary changes while at the same time keeping the too often shaky international financial system and the major US financial institutions from melting. Its a nearly impossible job and he's doing a good job.


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