Executive Compensation: The Best Halloween Costume
Dressing up executive compensation as the salvation of regulatory reform is the best Halloween costume of the year.
Limiting executive compensation is a terrific way to appease the masses and make it look like you're doing something without having to embark on the hard work of true regulatory reform. Of course it bugs us to watch Wall Street honchos going back to business as usual, but let's not take our eyes off the ball here -- there are lots of scary issues that need attention and I'm not sure compensation tops the list.
Watch the PBS special Frontline:The Warning to see why regulation of the derivatives market is imperative and trumps compensation by a long shot when it comes to needed reform. You'll see how our heroine, Brooksley Born is shut down by the evil trio of Robert Rubin, Larry Summers and Alan Greenspan. Then there's the ominous conclusion that nothing has changed to avert future disasters. "It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
In addition to derivatives, we need comprehensive reform that addresses interconnected institutions and part of that process must include establishing a mechanism to unwind large financial institutions. Despite former Citigroup CEO Sandy Weill's advice not to get "caught up in a debate over 'too big to fail'" (subscription required), a year after the fall of Lehman Brothers, there's still no resolution authority in place to address large institutional failures.
This week, we might see some progress -- the House Financial Services Committee is going to discuss how to manage "too big to fail" organizations. (Sorry Sandy, some of us actually think that financial supermarkets like Citigroup need a better tool to weather a financial crisis than direct taxpayer assistance!) The model for resolution authority already exists: the FDIC has overseen 106 bank failures this year, without depositors losing a penny.
As long as we have mega-banks and scatter-shot regulatory oversight, the real issues within the financial sector will continue to plague the system -- and compensation limits won't address those issues.
Image by Flickr User amy b, CC 2.0
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G0LDMAN+WallStreet's Bangster returned from DE@D Rising out of Tombs! (link)
Cha!nsaw M@ssacre C0stume Ba11 in H@nk P@ulson's Honor for historic role in b1oody m@ssacre of America+Capitalism set to magic of M!chael J@ckson's "Thri11er:"
1. Hank Paulson= Leatherface s1icing up sou1s to feed WallStreet VAMP1RES. Paulson warned Bush of meltdown when hired because of his G0ldman role in creating derivatives bubble. Hank suckered Congress+Taxpayers into protecting his G0LDMAN buddies.
2. Arthur Levitt = Notorious bank robber 'Dillinger' said, "America's investors have been ripped off massively like a bank being held up at gunpoint." He Now defends G0ldman's High-TECH Nanosecond Trading.
3. Ben Bernanke = Bela Lugosi, as 'Count Dracula' in FED's shadowy castle sucking $23Trillion of blood from future generations of taxpayers, without oversight!
4. Lloyd Blankfein G0ldman's CEO = 'Giant Vampire Squid' wrapped around America's NECK sucking for all he is worth!
5. Tim Geithner = Damian, prince of darkness in 'The Omen' =the "Too-Greed y-to-Fail" Banks saw him as perfect TrojanHorse replacing Paulson to raid Treasury. He’s headed for huge bonuses from G0LDMAN.
6. Larry Summers = Hannibal Lecter in 'Silence of the Lambs' part of steady flow of EL1T1STS back and forth between Washington +WallStreet!
7. Mad Man Cramer = Jack Nicholson in 'The Shining' who doesn't want a deal with G0LDMAN, knows too much, been there, done that.
http://www.marketwatch.com/story/goldman-sachs-chainsaw-massacre-costume-party-2009-10-27
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PhilipTaylor: This is hilarious...I'm trying to come up with the cast for the unlikely-to-ever-be made movie version of the financial crisis...
Compensation limits are not the only regulatory limit that needs to be put into place, but it is one of the most important. When the CEO and the Board of Directors are free to rob the kitty for as much as they want, whenever they want, it is a sure sign that something is wrong in the corporation.
Der Spiegel recently reported that the CEO and members of the Board of BMW had recently agreed to limits on their compensation. If true, it is a model that all corporate big-wigs need to follow.
As a handsome 38-year-old stockbroker and bailout recipient, all I have to say about this is: "Yes [rubs hands together] just one comment, while the story about Britney Spears' daughter's latest pregnancy has 4,999,893 comments. My plan is almost complete."
"The masses care more about the NFL, NASCAR and cheese doodles than they do about the economy and their children's futures."
"Excellent."
I hope I didn't say that too loud. Someone might catch on.
Has anyone seen my brandy snifter? Or my mistress?
Oh, I forgot to mention the derivatives market the writer mentioned is worth $700 trillion worldwide.
Ahh, the delicious gravy train of bailouts will never end with that much in line.
Absolutely. And absolutely key.
By the time the financial system operates with genuinely adequate capital buffers for ALL derivative contracts and derivative-like geared up business, and compensation is set to FULLY reflect risks taken by those RESPONSIBLE AND ACCOUNTABLE for the business decisions, there will be no need for a pay-cap.
It will automatically lead to a situation in which it will finally be true what compensation consultants and other apologists have been babbling for decades: that compensation will represent the ABILITY to take calculated risk.
Unfortunately, we are gazillions of lightyears away from that.
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One can only hope, but I fear that DiogenesOfAlaska is correct in estimating when substantive reform occurs. Where's OUR Pecora Commission???
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