Comments

Okay the obvious (obviously STUPID?) question:

WHY?

And how the hell do you discern who is a "key" executive. If an executive isn't "key" to the organization's ability to thrive, why are they even there to begin with? If you're not a "key" player, then as I see it "You AIN'T a player at all."

Guess I'll go read the article now, but I don't expect to find any answers to my questions. If after reading it I feel I was wrong in skepticism, I'll come back and humbly post a public apology. ;-)

Posted by Dan Gunter at June 24, 2009 4:37 PM

Value is driven by scarcity (perceived or real). Perceived scarcity got them the bailout money; perceived scarcity has them dishing it out to employees. It's sad and wrong, but nothing new.

Posted by Tom Asacker at June 24, 2009 4:59 PM

Unfortunately, that perception of scarcity is from a badly blinded point of view. What they see as "scarcity" I see as being "a threatened species." As in "natural selection," if you get where I'm coming from.

Posted by Dan Gunter at June 24, 2009 5:14 PM

This is not fresh news if you are in the industry. Bank of America employees got a nice bump in salary a few months ago and I'm sure it happened at other Wall St. firms as well. Wall St. firms lead the world in financial innovation and are the business of making money from money so they can pay themselves a lot of money. It is very naive to think these firms are unable to invent creative ways to keep compensation levels 'where they deserve to be in order to maintain our talent base'. This site is about innovation, thinking outside the box and many other nice catch phrases. TP.com readers should applaud the heads of Wall St. for their ability to adapt in a rapidly changing business environment. Perhaps a few even attended a TP talk, took accurate notes, learned a thing or two and put it into action.

Posted by Zircon-212 at June 24, 2009 5:35 PM

Barney Frank sent a letter to Fannie and Freddie asking them to loosen lending practices for condominiums. Let's do the same thing over and over again and expect a different result. The inmates are, truly and seemingly forever, running the asylum.

Posted by David Porter at June 24, 2009 5:46 PM

Zircon's post leads my mind to question a broader notion: if there is theoretically only so much money in the world, how can any group "financially innovate" in order to "make more?" Either we print more (devaluing it) or it moves from one pile to another. That would SEEM to be the two general possibilities. Yet we have invented a third: it's called make a lot of pretend money (value?) on the books, then when something happens to prove we don't really HAVE have that money to pay out on demand (or in a crisis) guess what happens? ("Hark, doest thou hear a loud crashing sound, the gnashing of teeth, wailing, and moaning? Alas, a beggar merchant approacheth the king asking for a handout...")

And we wonder where things like "artificial inflation," deficits, increased bankruptcy rates, recessions, etc. come from?

I am no economist. But it does seem to me that even financial markets and economies do not escape a simple universal principle. That is the premise of "homeostasis." Although that is considered a medical/biological term, it holds true. The system will seek to balance itself, regardless of what we try to do. Thus, if we force something to expand, at some point, it WILL contract (self-correct) whether we like it or not.

I maintain that the problems we're experiencing with our economy can be traced back to our incessant desire to try and cheat the basic laws of the universe. More specifically, we've created a lot of "artificial wealth" and the system is in turn saying "time to get real."

We stretched it hard, and like a giant rubber band, it's snapping back. And we're all getting popped right between the eyes for it. Well, all but a few of the geniuses on Wall Street and with the big financial firms that have done most of the stretching.

Posted by Dan Gunter at June 24, 2009 6:46 PM

Dan asks: "And how the hell do you discern who is a "key" executive."
Easy - they are the ones who with the (electronic) key to the executive health spa, the key to the executive parking garage, the key to the executive elevator, the key to ....

Posted by Mike L. at June 24, 2009 7:04 PM

Mike L., thanks for enlightening me. LOL. It also appears they're the ones with the key to the petty cash box (the place where the only REAL money is kept.) I guess everyone else is forced to try and barter their IOU's for even bigger IOU's?

Is that how the game is played? Is there a mutual (but not disclosed to we, the stupid public unworthy of such information) that nobody is ever to expect that a debt might be called in? At least at the casino they will give me real money when I turn in my chips. And I know that the casino is the only one guaranteed to make money in the long run. They don't make a B.S. promise amounting to "If we take in $1,000,000 we'll turn it into $5,000,000." Nope. They say "We'll pay back 99.9% of what comes in."

Funny... we call it gambling at a casino, investing with a financial firm, yet overall, the casino is more predictable (as a whole.)

Maybe Stephen A. Wynn would have been a better adviser to the government on all things financial?

Posted by Dan Gunter at June 24, 2009 8:21 PM

If you think this is bad, check out this from Huffington Post.
http://www.huffingtonpost.com/terry-keenan/lehman-lament_b_217662.html

The question is prompted by news last week that the very same cowboys who brought Lehman Brothers, and the rest of the world economy, to its knees last September have now been rewarded with the unthinkable--the chance to make billions on the very same toxic assets that blew up the firm in the first place.

Yes, you read correctly. Reports have it that Mark Walsh, the former global head of real estate at Lehman, will return with a team of his former Lehman colleagues to "manage" a big chunk of Lehman's crippled real estate portfolio. According to the Wall Street Journal: "They stand to profit if the portfolio of distressed assets--for which they once paid top dollar--recovers some of its value." Currently the toxic paper goes for less than 50 cents on the buck, so the upside is considerable.

Posted by Rodney Johnson at June 24, 2009 8:59 PM

David - I appreciate your words. Thank you. But we too are insane for continually electing these politicians, Republicans and Democrats alike as well as not demanding a complete overhaul in campaign financing. A lot of political decisions seemed based on self-interest, not that of the people. With regards to insanity, the same can be for this seemingly self-induced cycle of boom and bust that enables some on Wall Street to win big on the front and back end and most others to just lose big. TP's question is a good one: "And you?"

On Squawk Box recently Arianna Huffington asked Jim Grant, editor of Grant’s Interest Rate Observer, which companies should be allowed to fail he said Citigroup as it gets "corporate socialism" as Huffington called it. Grant said: "Citibank is a rogue bank. It has been on the verge in every credit cycle going back to ….the LDC crisis in the 70’s."

These guys are expecting just what they’re getting: to do the same thing again and again and get the same results repeatedly. Why would they want or expect anything different? They have done so successfully cycle after cycle. It seems quite insane for some (taxpayers) and very sane for others (corporate CEOs who get raises of 50% in an "undercapitalized" bank.) Nassim Nicholas Taleb says that we are "socializing losses and privatizing gains."

In another interview on MSNBC Grant compared Citigroup with the Fed: "If the Fed examiners were set upon the Fed's own documents-unlabeled documents-to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down. The Fed is undercapitalized in a way that Citicorp is undercapitalized."

Posted by Judith Ellis at June 24, 2009 11:32 PM

After reading the article I think this is the right thing to do.

As I read it they are not aiming to increace the final takehome pay - but moving a % of it from bonus to base salary. Now I guess you could argue in the present climate they will get more this way than they would have - I don't know the facts on this.

More bankers paid salaries as professionals rather than bonused to do the wrong thing is better isn't it?

Posted by PaulH at June 25, 2009 1:35 AM

Paul - I think this is the point. By moving it to base pay, they are able to say later in the year that they've toughened up on the bonuses by reducing the amount available and tightening the achievment criterion, thus reducing the overall level of payment. Then they trumpet their restraint and the example they're setting, while taking home broadly the same amount anyway!

And then, a year or so down the line, they say that competition for good people is tight so bonuses go up and this is fine because it's all performance related... but it's on top of an inflated base!

(Just like UK MP's: years ago, they inroduced a dodgy allowances system in lieu of a pay rise. Then when they got the generous pay rise to bring them up to a good level, they conveniently left the allowances in place to make the overall package stunning.)

Posted by Mark JF at June 25, 2009 2:56 AM

The question that still remains is core competency and overcompensation. Why are you seeking to hold on to talent that by all accounts is not talent at all? This seems like a game of charades, but nothing will change. Perhaps it is the structure that's faulty which includes risks in the system that can't be calculated, known as the Value-at-Risk (VAR.) Taleb has been railing against this for some time now. It seems to have a lot of risk and very little value. What Mark JF has described above seems like the biggest charade if I have understood his words.

Posted by Judith Ellis at June 25, 2009 6:26 AM

So the Financial orgs should just get rid of their staff and recruit from scratch? I get the need to change and not to repeat what has happened but loosing a large chunk of your staff and recruiting new people with perhaps limited experience does not fly as a business plan.

Posted by PaulH at June 25, 2009 8:05 AM

Any extremity for a business plan is ridiculous, PaulH, wouldn't you say? But perhaps many of these financial organizations such as Citigroup should have been allowed to fail that has needed consistent "corporate welfare" since the 70's. My greater point was regarding the system itself and not merely the staff. A great many financial organizations are not in such situations and they are doing just fine, including many credit unions. I wonder about their compensation and bonus structures.

Posted by Judith Ellis at June 25, 2009 8:26 AM

The majority of the employees at these organizations are extremely competent at their jobs and arguably are under rather than overcompensated. Split second decisions can make or cost the bank 10's or hundreds of millions. A skill set exists there that you do not fill with the average joe the plumber off the street and most certainly not with a government employee who took some university finance or economic courses. I am not defending some of the poor risk decisions that were made (under a government that encouraged development of these products)and led to huge losses and an unexpected snowball effect. In terms of excellence a skilled risk taker at a Wall Street firm ticks all the boxes. I'm sure I read in some of the long lists here that making mistakes is a good rather than bad thing. Wall St. will learn from its mistakes. If your 401K is now a 201K who is ultimately responsible for that? Employees at successful firms with stock prices that reflect that success were not complaining as their portfolios grew. The general public does not seem too bothered when the equity markets go up, but look for someone or something to blame when they go down. Like anything else in life it is about taking responsibily for your own actions. If your account is worth less or your house is worth less look in the mirror for someone to blame rather than pin it on a firm or industry you know nothing about.

Posted by Zircon-212 at June 25, 2009 8:28 AM

"Wall St. will learn from its mistakes."

OK, Mr. Insider, who knows about the financial industry, what proof do you have of this? I'd like a short list please, including dates and firms. Thank you.

Posted by Judith Ellis at June 25, 2009 8:35 AM

"A skill set exists there that you do not fill with the average joe the plumber off the street and most certainly not with a government employee who took some university finance or economic courses."

The mystic was created. As with anything, there are skill sets that are needed. But this stuff seems to have been complicated purposefully and risks added unnecessarily. Do you think it's rocket science?

Posted by Judith Ellis at June 25, 2009 8:43 AM

Proof of what? The fact there are decisions made by traders that yield firms obscene amounts of money. Trust me...traders learn from their mistakes on every trade they make or they would not be employed. A lot of markets exist that are zero sum gains. As (fill in your asset class...Oil is fantastic example) fell or rose last year there was somebody on the other side making just as much money as the other was losing. Banks have pulled out of the products and markets that have led to losses and cost them huge amounts of money. They then focus on other areas of the firm and come up with ways to make up the shortfall in revenue. Wall St. firms adapt in seconds not months or years. Its not like GM, Chrysler or Ford making a piece of crap car and deciding to keep the plant running for years. An employee at GS, BAC, MS, CS or any other financial firm who has a risk limit is paid on how much he makes with the firms money. If you are losing money on a position you either get out of the trade and figure out what position is going to make you money or lose potentially large amounts of money and risk getting fired. The mistake teaches a lesson quickly. The general public is jealous of the bond trader driving around in his shiny new Ferrari, yet cannot conceive how much money that particular trader made for the firm.

Posted by Zircon-212 at June 25, 2009 8:55 AM

Thank you. I understand your point, Zircon-212. The average worker on Wall Street probably works hard and is compensated for the money made for the company. Got it. There is also no envy on my part, now you must "trust me," of those who have worked for an honest living and have been compensated. But perhaps some practices like those of the "boy-plunger" are good for certain individuals, but not for the whole. It all feels like a high stakes craps game that bears itself out every ten years.

Jack Bogle makes a good distinction between investing and speculating that is appreciated. He asserts that we have been doing too speculating and not enough investing.

Perhaps the problem with brokers is this "second" adjustment about which you spoke seems to be largely based on a system of risks that no one could conceivable or accurately measure. There is also the lack of regulation for many of these firms that allowed for such large compensation that have been detrimental to the whole of the economy.

By the way, the list that I sought had to do with these large Wall Street firms and not the individuals within them. What have they learned? And why is it that we have to bail them out every ten years? Regarding the brokers within these firms, if a firm goes down the individuals would too, right? It would not matter about a broker's individual compensation at that point.

Posted by Judith Ellis at June 25, 2009 9:57 AM

I apologize for the personal nature of this post in advance.

A lot of the missing insight is available. As someone who was not at all surprised by the current economic downturn or by many of the attributed causes, and as someone who called the dotcom and telecom crash, and the problems with many of the associated companies...

I have never been able to rent out that particular expertise. There just does not seem to be enough demand, either beforehand or afterwards. It is filtered out on so many diferent levels.

I have heard Fortune 500 C-suite member and board members say that they can not find such expertise but when it is presented to them, they disregard it. It is simply not hired, probably because they are not valued.

Posted by Stephen Garner at June 25, 2009 10:47 AM

Key executives could be defined as those executives that are powerful or senior enough to determine their own scarcity and value.

Posted by Stephen Garner at June 25, 2009 10:48 AM

Again, maybe my questions sound stupid here, but I see a comment above about how traders, etc. make split-second decisions that make obscene amounts of money for the firms. That accounts for a PORTION of their decisions. And what portion LOSES obscene amounts of money.?

Let's think about this a minute...

Above is a claim that seems to imply that OVERALL the firms make huge profits because of these people and their decision making. Let's call that an "assumption" (not mine, but at least someone's.)

If these firms are indeed, as a whole, making "obscene" amounts of money, the little people investing that money should be making obscene profits. Assumption? If so, this assumption seems to be under question, because so many people are losing their investments. Which means the obscene profits must be getting channeled somewhere besides the pockets of those little people -- the outsiders that entrusted the firm with the money.

So where are we to assume the money is disappearing? Looks to me like it is disappearing in the form of either (A) bad reinvestments by the firm (which someone is claiming is not the case in whole) OR (B) OVERPAYING the people running the joint.

I can even fathom both (A) and (B) being true. Especially given that the big financial firms are going belly-up and begging for handouts.

I simply can't swallow being told how "valuable" and "underpaid" these execs are if they simply can't run a profitable endeavor. In any other business they'd be fired and blacklisted for such poor performance. On Wall Street, it's considered "playing the game." This ain't play money out of a Monopoly game box, folks. The huge profits appear to be totally fake, while the losses are very, very real. What's wrong with this picture? Stop trying to convince me someone is so valuable and deserving of a boost in pay until you are showing me some real black ink and CASH to go with it.

Sometimes I swear I would trust a dope dealer on the corner with my money faster than I would someone on Wall Street... at least when the dope dealer open his wallet, there's REAL MONEY... not just figures in a computer that nobody can really expect to call in if needed.

Maybe that's the core problem: we've built an economy on intangible (FAKE) assets, using pretend profits that can't be collected. Perhaps the most fake of all assets are these "key executives" that want pay increases now, instead of at least having the guts to say "Pay us a bonus based on the REAL performance of the firm AFTER the till has been counted."

Maybe I'm just on a frantic rant from the heat all week, but more and more I'm becoming convinced that our "modern economy" CAN'T succeed (or even survive) because it's not real. It's all hypothetical. That's a nice way of saying I think it's 99% bullshit. And it's starting to stink so bad I wouldn't even use it on my tomato plants.

Posted by Dan Gunter at June 25, 2009 11:49 AM

"Key executives could be defined as those executives that are powerful or senior enough to determine their own scarcity and value."

Beautiful!

Posted by Judith Ellis at June 25, 2009 11:51 AM

Ahhh, the beauty of being self-employed -- the only person on the payroll. I can honestly claim to the the most valuable person on the payroll AND at the same time admit to being the WORST person working for the company. No making comparisons. I just deal with the fact daily that I'm either taking the business forward or tearing it down. No finger pointing. No comparative analysis. No arguing who is more valuable than who.

I can live with being Chairman of the Board, CEO, Secretary, Receptionist, Janitor, Courier, Accountant... everything. And I don't struggle with it. Meanwhile, here are all these people fighting for a bigger piece of the pie while struggling (if not lying) just to justify their very existence.

I think I (the boss) will treat me (the grunt) to a cold beer in a lounge chair this weekend... right after looking at my checking account balance and being able to actually say with certainty whether my business is succeeding or failing with no ambiguity (if the balance is going up or staying the same = good. If it's going down = bad.

Posted by Dan Gunter at June 25, 2009 12:14 PM

P.S.: the above comment applies ONLY if I don't fire myself first. If that were to happen, then I'd just sit back and have two cold beers and not worry about any of it. The boss would be on his own come Monday ;-)

Hope everyone has a great weekend planned. I do.

Posted by Dan Gunter at June 25, 2009 10:32 PM

Is base pay being raised because they no longer get bonuses? How much should a banker make?

Posted by Cigarman11 at June 26, 2009 8:00 AM

Looking in from the outside...

It is my observation that unlike other sectors, investment bankers do not treat or consider their "bonus" in the same manner as people do in other sectors and institutions. In the later, it is often a sharing of the good fortune of the firm and the entire team.

Investment bankers consider their bonus more as an earned part of their compensation, more like a lump sum salary payment earned by their hard work that just happens to be paid after the end of the year.

Posted by Stephen Garner at June 26, 2009 8:23 AM

Finally somebody that gets it. Money is the product as well as the compensation vehicle. You hang on to the money over the course of the fiscal year so you have more product aka capital to access and then pay out the balance of compensation at the end of the fiscal year.
RE: cigarman.....how much is anybody worth in the work force? Is a burger flipper at the golden arches only worth minimum wage when the company makes billions. What is someone who hits a baseball consistently over the green monster worth? What is someone who flies around the world speaking to people about excellence worth? How about someone who takes news from around the world, sticks it into a nice package to be viewed over the internet and is able to charge for advertisin? Where are all the critics of how much employees at Google have earned in wages and stock/option appreciation? I believe supply and demand for those talents plays a key role. When governments step in to dictate what your role is worth or cap the compensation smart people who are used to working with money as their product find ways to pay themselves what the think they are worth.

Posted by Zircon-212 at June 26, 2009 8:47 AM

I am worth much more than I get paid especially if you assign a dollar value to jet-lag!

Posted by Tom Pan at June 26, 2009 8:51 AM

Chirp #17 is also incorrect. It is not just key execs at the top of the organizational structure getting a bump up in pay. The raises are across a wide spectrum and fall under the category of 'producer' at these firms. You could be the MD running the entire bond trading desk or a VP with only a few years experience trading currencies. Anyone whose compensation is a combination of base salary (traditionally on the 'low' end) and performance based bonus (something the government has arbitrarily decided is too much) will be seeing more money in their pay check.

Posted by Zircon-212 at June 26, 2009 9:06 AM

I wonder if the fact that "money is the product and as well as the investment vehicle" is what complicates this. The product that banks have is not their own; its other people's, as in other people’s money (OPM). Does this matter with regards to the concern of the general public, not to mention that we have to bail these financial institutions out every ten years while they get increases in pay and collect large fees on the front end and back end?

There are some seemingly good points with regards to the other professions and what each is worthy of. But with each of these the compensation and bonus is not based on OPM so the investment is not really the same in that as a management consultant, for example, I do not need regulation in order to safeguard the public’s interest, nor are the investment firms’ products and services direct. There is a direct exchange with the aforementioned professions and professionals and there are no bundling of burgers and baseball. No manipulation or manufacturing there that could cause a catastrophic crisis.

Many firms have long manipulated markets and manufactured numbers in order to justify salaries and bonuses. With regards to any raises "across a wide spectrum," if your firm is repeatedly in a crisis state, as many are on Wall Street like Citigroup, every ten years or so, and your use of OPM and SIVs could bring the whole world economy to a screeching halt, no combination "based salary (traditionally on the 'low' end) and performance based bonus" should be considered seemingly. In the case of Citigroup and undoubtedly others, you deserve no increased pay and no bonus. You have failed.

With a company like Citigroup so highlighted in the post, it appears that they are "undercapitalized." The product (OMP) and the structured investment vehicle, (the likes of Credit Default Swaps) seem not worthy of an increase of any kind, base or bonus for broker or executive. The fact that the money is held at the end of the year payout seems like a non-sequester if there is no payout to be had considering bad investments.

It seems akin to a waitress who gets a base salary (compensation) and depending on her service her tip (bonus) will be increased or remain the same. The main difference here is that firms got big fees, for example, before the crisis, a bailout, and now will benefit from an impossible valuation of their bad investment vehicle which they did not want to unload, waiting for the government to sure them up and sell these products (houses) aka investment vehicle aka Credit Default Swaps at a profit for them. And the government is railed upon? The government has been YOUR friend.

One other thing, the professions or professionals listed above would simply not be around after so many repeated mishaps in a seemingly never-ending ten year cycle supported by taxpayer dollars among not too many seemingly smart people. But maybe they are smart, knowing that huge fees will be garnered and they will be bailed out again and again and no one will go to jail, as the practices are unethical, though not unlawful. Yeah, maybe they are smart and we are stupid.

Posted by Judith Ellis at June 26, 2009 2:39 PM

Judith, perhaps we're missing the boat. Those of us that provide consulting services to businesses must add some sort of value, right? Thus, we need to all unite as an industry, appoint some lobbyists, and send them to Washington, DC begging. The economy has had an impact on all of us, too. The government should write a big, fat check to the consulting industry, with that check in turn being doled out to all of us in the form of a bonus. After all, the banking and finance biz can't deny that we're "key" participants in industry and commerce. Just because the whole economy has gone South, people are losing jobs, their homes, their nest eggs, etc. those things should not be used as evidence AGAINST us getting a windfall in the form of a government handout, right?

Let's take a summary survey of the landscape as it stands:

Banking and finance industry is shot to hell and the numbers prove it. The "key executives" doing the excellent work that helped that happen get to dip into government bailouts.

Meanwhile, consultants help businesses figure out how to weather the financial storm and try to stay afloat. Businesses cut their budgets and consultants take a hit. No bailouts for consultants.

Makes perfect sense, does it not? NOT.

Just off the cuff rants. And why does the thought of dealing with banks lately remind me of one of Johnny Carson's comments after a divorce: "Forget marriage. I'm skipping that step from now on. In the future, I'm just going to go out and find a woman I absolutely can't stand and buy her a house."

Move over Nevada... Wall Street is the new gambling capitol of the world. More like a black hole, as I see it. Money gets sucked in in and never comes out... unless you're a "key executive" at one of their firms... they carry "get out of the black hole with everybody else's money free" cards.

Posted by Dan Gunter at June 26, 2009 3:14 PM

"A business that makes nothing but money is a poor kind of business." Henry Ford.

Of course we can apply that to banking and Wall Street, but it appears Ford and others fell into the same category.

Posted by MikeC at June 26, 2009 3:49 PM

Dan - I hear you.

Mike C - That is a most excellent quote. Thank you for that timely reminder. It's good for all of us.

Posted by Judith Ellis at June 26, 2009 4:06 PM

My billable day rate for banks just went up 50%.

Posted by mike Neiss at June 26, 2009 5:28 PM

http://www.management-issues.com/2009/6/25/research/performance-related-pay-doesnt-encourage-performance.asp

Posted by Stephen Garner at June 26, 2009 5:48 PM

Tom,

Why do you care what people make? I realize from a PR point of view it doesn't look good but why do you care?

I guess bankers are today's favorite target.

Hopefully I'll hear about future excesses made by our government as it relates to taxes, national growth and debt.

Dave

Posted by dave at June 26, 2009 11:00 PM

I think we all need to read "Atlas Shrugged" one more time.

Posted by David Porter at June 27, 2009 9:08 PM

David - Ayn Rand's philosophy was so colored by her communist upbringing that this is important to recognize as her oeuvre is read. What a powerful ironclad mind she had! But it is also interesting to see how her unyielding notions played out in her relationships with others, including loved ones.

Hey, it's good to see that you have begun a blog. I have enjoyed your comments here and elsewhere and have learned from them as well. They are usually thoughtful indeed. Thanks, David.

Posted by Judith Ellis at June 27, 2009 10:15 PM

This is a fascinating debate. My thinking at the moment is what is a manager in a big finance org suposed to do (this is not a comment based on sympathy - more trying to understand how he/she will behave)

My bank has been bailed out. We have a massive performance and $ hole. Public opinion is against us. Non bailed out banks are offering big $ to my best staff to leave and join them. Do I sit back and just let it happen because I got it wrong? or do I do whatever it takes to retain those staff and survive. (and yes I know all of the arguments about right and wrong and long term and should we employ people who caused the problem etc but like many people I am looking to survive next qtr).

I am not talking about the rights and wrongs here - I am thinking about human behaviour - people often fight the hardest (and dirtiest) when their backs are against the wall. So how do we go about getting the behaviour we actually want irrespective of what's right/wrong or popular?

The is a satirical radio show in the UK called the Now Show - lovely line on hate figures this week - city boys, MPs and their expenses and the wonderful conclusion - why do we love having hate figures - because it is so much easier to do that than actually change anything.....

Posted by PaulH at June 28, 2009 1:46 AM

I am a CEO of a TARP bank. What would I do?

I think I would call the right person... not a corporate recruiter or such.

I would tell them I needed to find some people (not with the right credentials or a long banking history of getting wrong) but people who knew back then what we know now and, if supported and promoted, would have prevented this.

This means someone different - get over that quick and get access to them NOW.

Of course, I also think it is a pipe dream that they would do so.

Posted by Stephen Garner at June 28, 2009 10:50 AM

Simply Bonkers!

Posted by patrick at June 28, 2009 2:23 PM

On reflection.....

This is just re-cycling...

Re-cycling the profits...
Re-cycling the doom
Re-cycling the transfer of staff from one bank to the next old boys club...
Re-cycling my money
Re-cycling their pay packages
Re-cycling a myth

Maybe in a time of green policies and procedures these banking chaps should ba aplauded......

Have a whistful day...

canada viagra mastercard Posted by patrick at June 29, 2009 6:38 AM

patrick, I suppose being "environmentally friendly" is a matter of which environment you're watching from, doesn't it? LOL.

Posted by Dan Gunter at June 29, 2009 8:18 AM

Dan they are certainly taking care of their own environment with an intensity that if transferred to something that mattered would make one hell of a difference!

Again on reflection I doubt they'll have the energy!

Posted by patrick at June 29, 2009 9:00 AM

patrick - Both comments are most beautiful! Thank you!

Posted by Judith Ellis at June 29, 2009 9:31 AM

Interesting - an article that says base salaries across the board at the bank will be raised by up to 50% by taking the amount out of end of the year bonuses becomes "CitiGroup to raise base pay of key execs by 50%." Since everyone is so intent at punishing people, I'd be curious to know the total staff at Citibank (bankers, accountants, HR people, secretaries, janitors, etc), compared to the number of people directly involved in complex derivative trading and/or aggresive subprime lending, and who oversees them. Should all of Citibank be punished and replaced, even those divisions that performing very profitably and providing excellent customer service? Was "justice" served when all at Arthur Anderson lost their jobs due to one audit group at one office? Or was the public's desire for retribution met?

Posted by Bruce at June 29, 2009 11:50 AM

Perhaps the question is which causes the greater public harm, those in leadership or the others, and then a decision made? I think Bruce misses the point. It is not simply about retribution for its mere sake; it's about constitution, as in the constitution of many of these men who fill their coiffeurs playing high stakes games with OPM. It's about real reform.

We will by no means have this disaster turned inside out. Where does the largest part of the onus fall?

While the public was all too willing to indulge in reckless behavior in securing loans that were unsecured and not repayable, they would have not been able to do so without these banks and the government. If Citibank's profitable divisions are not enough to keep them afloat, the answer is NO, especially when there is a cycle of such repeatedly and the global economy hinges on such.

BTW - Bill Maher calls Citibank, "Shittybank."

Posted by Judith Ellis at June 29, 2009 12:28 PM

I'll use Tom Peters as an example. Say I go to work for Tom's company. I end up working in a little division of his company that makes huge profits for him. But the "losing" divisions of his company are losing money faster than the "winning" divisions can cover the losses. The company overall gets into trouble. Ends up in the red ink big time and is in danger of going under. Tom gets a venture capitalist to invest some dough in "revitalizing TPCo." Then dishes me out a $10,000 bonus for doing such a good job with my little division. I was a "key executive." I earned it. Oh, he actually just increased my pay by $10,000 so he wouldn't be seen handing me a bonus check the night of the annual Christmas party.

OR...

Tom COULD have said "Hey, look, TPCo as a whole is in deep kaka. You're a smart guy, Dan. Put some of that brainpower into helping me figure out what do do about this part of the company that's losing money." I help him -- by improving some areas of the company while shutting down some that never stood a snowball's chance at being profitable. The company becomes profitable again. He takes a PERCENTAGE OF THE PROFITS and pays it out to everyone for working so hard in the big turnaround.

OR...

Tom pays me that extra $10,000 and I stay in my current position. The company goes under. I find out later that when all the assets were liquidated, they were actually bankrupt by exactly the amount that my salary had been increased. But we're all out of work. We all lose our homes. No kids go to college. Tom loses his company. The venture capitalist loses his investment. But I can lay my head down at night, knowing that I earned that increase in salary, right? Wrong.

Oversimplified? You betcha. But I would expect Tom to be smart enough and his team would be decent enough to say "Hey, we're all in this together. We sink together or we swim together, because we ALL have something at risk here." So the principle behind my scenarios seems sound to me. I'd consider myself a selfish, greedy pile of feces. Maybe I'm being idealistic and we admittedly DON'T live in an ideal world. On the other hand, we do live in a world where we should have the intelligence to understand that if a company (or bank, or brokerage, whatever) goes under, we ALL go under and take other people's money with us. We shouldn't be planning on paying out bonuses. And we shouldn't be trying to save face by moving them from one column of the accountant's spreadsheet to another. If they were bonuses, then withhold them until you're out of the red. If they weren't really bonuses, then quit trying to mask part of a person's salary as a bonus, as though it was discretionary and dependent upon performance. The moment you justify changing a "bonus" to "base salary" that's the same as saying "It was really part of their pay all along."

Is that the kind of manipulation and cleverness that created this mess?

In my example above, if the company went out of business, I certainly WOULD be pissed if Tom stood up and told reporters "Well, it was the economy." I'd hope he had the guts to say "We screwed up." I say "We" because I'd be standing beside him (without an extra $10,000 in my pocket) knowing that we at least went down with a fight and we both threw AND TOOK our own share of punches trying to fight our way through the brawl.

Meanwhile, if these big money firms are really smart enough to figure out who deserves extra pay for making big money for them, why aren't they smart enough to see the warning signs that say there's serious trouble ahead in this area or that area and change course? viagra pack best buy

Posted by Dan Gunter at June 29, 2009 12:48 PM

Damn - now I have to go all day with the mental image I have of men with money in their coiffeurs.

Posted by Bruce at June 29, 2009 1:41 PM

Bruce, sorry. I like having some dough as much as the next guy. But I count myself to be among the actually fortunate ones: the ones who don't struggle to decide exactly how much "more than enough" is enough.

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Posted by Dan Gunter at June 29, 2009 2:01 PM

Damn - Now I will have to continue with the mental image I have of how these men get away with the money in their coiffeurs while snide responses like Bruce's speaks of the arrogance prevelant on Wall Street and our allowance of it through taxation.

Posted by Judith Ellis at June 29, 2009 3:06 PM

The Seven Deadly Sins (as per Gandhi):

• Wealth without work.

• Pleasure without conscience.

• Knowledge without character.

• Commerce without morality.

• Science without humanity.

• Religion without sacrifice.

• Politics without principle.

How many of these could be discussed at length in direct relation to the issues being identified as contributing to the current status of the financial industry?

I've noticed Tom steers clear of discussing religion. Fortunately, that only knocks out the one I see as the more remote stretch.

Posted by Dan Gunter at June 29, 2009 4:18 PM

Nothing snide Judith, but that slip (probably a spell check error) was amusing. Nothing wrong with having a sense of humor, even if it means chuckling at yourself. I do plenty of that all day as I create a lot of opportunity for it.

Posted by Bruce at June 29, 2009 4:30 PM

LOL, Bruce! Got it! By the way, I too am all for a sense of humor and flatly laughing at myself on a whole host of things. But when it comes to this stuff, laughing is the furthest thing from my mind. I'm not happy!

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Posted by Judith Ellis at June 29, 2009 5:27 PM

Tom Peters, or anyone else, does not have to say one thing about religion. In fact, living one's religion means more than anything. I happen to express all matters freely, including religion. I have friends who are agnostics (for a few years of my life as a college student I had indeed become an agnostic) and a few who are atheists. Our relationship is not about getting one to believe what the other believes; it is about expressing ourselves freely without ill feelings of the other. God is love.

Posted by Judith Ellis at June 29, 2009 5:40 PM

To some...money not god is love

Posted by Zircon-212 at June 29, 2009 11:29 PM

"To some...money not god is love."

Of this, there is NO doubt. In fact, we can make a god of anything, including inanimate objects like our houses, cars, money, etc. But it is the "love of money," (not money itself) that "is the root of all evil." Its premise is itself only, the relentless ruthless pursuit of it to the destruction and exclusion of all else including family, friends, neighbors, co-workers, country, etc. In this relentless ruthless pursuit of money "the eye is never satisfied" and destruction is the ultimate outcome.

Posted by Judith Ellis at June 30, 2009 5:35 AM

Citibank raises THEIR salaries by 50% and hikes OUR credit card interest rate by 24%:

http://www.ft.com/cms/s/0/e1d0c610-65c7-11de-8e34-00144feabdc0.html

Posted by Judith Ellis at July 1, 2009 4:54 AM

And those people that have chosen to live debt-free breathe easily in their homes...

Posted by David Porter at July 1, 2009 8:24 AM

The government potentially changes a law which would result in a cut into profits and the financial company quickly adapts to protect revenue. Last I checked Citibank was still a publically traded company that was supposed to act in the shareholders best interest(it so happens the government is now a shareholder as well). The increase represents an adjustment for risk on cardholders demonstrating difficulty in handling their current credit card lines(a similar example is a junk bond investor demanding a higher interest rate than on a bond issued by a financially sound corporation with a better credit rating). Executives are doing their jobs!

Posted by Zircon-212 at July 1, 2009 9:04 AM

And the reasoning behind the large increase in rates for people with credit scores above 850 (ie, demonstrating quite clearly that they can handle all credit) is?

Of course, they are not impacted that much because in general they do not carry a balance.

Posted by Stephen Garner at July 1, 2009 9:25 AM

Zircon-212 - Your entire statement is somewhat laughable considering the company we're talking about. Citibank itself seems like the greatest risk with some 34% to be acquired by the public. It's like we're raising the interest on ourselves. What fool would do that? The public’s interest must be considered here. That "publicly traded company" will soon include the people as its shareholders. Should the people's interest not be considered here? Citibank seems just too risky to keep bailing out.

Posted by Judith Ellis at July 1, 2009 10:58 AM

If one is a bad credit risk and faces higher charges on a Citibank credit card then I guess in a very indirect way that helps the government's stake in the company. If I was a shareholder(I am not) I would offer thanks to those on the poor side of the credit scale helping out my investment and at the same time be pleased management is adjusting for that risk. I would like to know what criteria you use in determining that Citibank is too risky. What exactly is 'too risky' and how does an executive decision to make up a revenue shortfall relate to an opinion of a company being too risky? Perhaps you can even forward the answers to Ben and Tim as I hear they are open to suggestions on getting out of this financial crisis. The stockholders own Citibank and its the government that is getting the minority equity stake rather than the other way around. One is free to short the stock if you believe its current value is incorrect because of the 'too risky' nature of its business and in effect hedge your long position as a U.S taxpayer. Alternatively one can also buy the stock and be on the same side as the U.S government. Of course it is even easier to sit on the fence making comments from left field.

Posted by Zircon-212 at July 2, 2009 12:13 AM

It's as simple as this: Any bank that is consistently undercapitalized that needs an infusion of capital every ten years seems not only too risky but would have been out of business a long time ago if it were not for the government that you railed on earlier as if there is no dependent corporate welfare relationship. Citibank would have been out of business a long time ago without the consistent infusion of capital from the government.

"Of course it is even easier to sit on the fence making comments from left field."

The problem with many people in your field is that they think that all of this stuff is some great mystery to the rest of us. Well, it may not be. What Citibank seems to be doing is creating a spread with the money that the government (each one of us) has given it and raising interest rates in order to create a profit for itself in bonuses and salaries having done zero to create it.

Perhaps for other companies on Wall Street the scenario that you have given above may be justified when considering various markets that produce products that customers buy whose value is known. But what we have come to know as the big casino on Wall Street is that there is little real value except for the savvy people who can get upwards of hundreds of millions legally out of the market by shorting it while countless others who believe in your fraudulent “products” lose everything.

In the case of Citibank, the game in this case that you have accurately described above should have been over a long time ago. Any consistently undercapitalized bank that is forever in need of a government bailout dating back to the 70’s should have been out of business. In fact, a bailout would not have even been given. That is the risk about which I spoke. In fact, Taleb writes about VaR, the system of determining value, as being too risky itself:

"Banks have the ingrained habit of plunging headlong into mistakes together where blame-minimizing managers appear to feel comfortable making blunders so long as their competitors are making the same ones. The state of the Japanese and French banking systems, the stories of lending to Latin America, the chronic real estate booms and bust and the S&L debacle provide us with an interesting cycle of communal irrationality. I believe that the VAR is the alibi bankers will give shareholders (and the bailing-out taxpayer) to show documented due diligence and will express that their blow-up came from truly unforeseeable circumstances and events with low probability - not from taking large risks they did not understand. But my sense of social responsibility will force me to menacingly point my finger. I maintain that the due-diligence VAR tool encourages untrained people to take misdirected risk with the shareholder's, and ultimately the taxpayer's, money."

He is the ultimate insider. We don't even know your name.

Posted by Judith Ellis at July 2, 2009 6:55 AM

"If I was a shareholder(I am not)..."

Why not?

???

Posted by Dan Gunter at July 2, 2009 7:05 AM

Thanks for that simple question, Dan.

The only reason Citibank can feel justified in raising salaries by 50% and increasing interest rates by 24% is that they are counting on the government to go along with them against our interest, as if we are not the people, and that the people would remain clueless and allow them to continue to do business as usual.

The "if I was a shareholeder (I am not)..." underscores how clueless both insiders and outsiders can be.

Posted by Judith Ellis at July 2, 2009 8:34 AM

Communal irrationality allows speculators to profit from markets and also makes life in general interesting. I do not recall Citibank receiving an infusion of capital from the government in 1999. Perhaps I missed something there. Why should Zircon-212 buy Citibank when an investment in the well oiled, publically traded U.K banking industry is available as an alternative. Perhaps Zircon-212 prefers to invest in California municipal bonds which I hear have excellent yields these days and should rally even more when the government steps in to guarantee the State's debt.

Posted by John Galt at July 2, 2009 8:59 AM

John - I like the opening and it is indeed so. But I'm afraid the game aspect referred to as "interesting" is only for a few, but the detriment for the whole is often nearly catastrophic. Look at where we are right now and have been before. I think the point made in the question "why not?" was that Zircon-212 already owns shares in Citibank via the government's interest. I don't think it was an effort to make a suggestion to buy this or that. I may be wrong about Citibank's acceptance of government funds in 1999, but I thought that I read that they indeed had. Do you know for sure? Were you there by chance? I will check it out though. But will you not agree that Citibank has been undercapitalized pretty consistently since the 70’s? Good point about California. I read this morning that the controller will soon issue IOUs.

Posted by Judith Ellis at July 2, 2009 9:37 AM

Zircon, are you a "conscientious dissenter? or live somewhere outside the U.S.? Otherwise, join us all in a trip to the country club, my friend, because we're all now investors in a bank. And General Motors. And who knows what else before it's all said and done. Funny, we shudder at the mention of words like "socialism" and "communism," then our government uses our tax dollars to essentially buy up big chunks of distressed business giants. A government that's forever operating in the red ink. Talk about "The Perfect Storm." buy viagra online worldwide

So who's coordinating all our tee times? The National Parks Service?

Whoa... here's a question to think about: if GM, Citibank, etc. make a miraculous turnaround, will my dividend checks be direct deposited, mailed to me as checks, or what? I sure don't recall signing any forms to select dividend reinvestment options.

Let's all show up at a stockholders meeting. If we the taxpayers own (what was the figure, 34%?) maybe we can just call our own emergency meeting right here? My point is I didn't ASK to invest in a bank, and I sort of question the legitimacy of all these bailouts. Three and half years or so years from now, we might see the status of these "investments" affecting the success of a lot of campaigns.

My apologies, friends. I just feel sometimes like I'm watching the ultimately misguided, reverse engineered, hostile takeover and I'm one of the venture capitalists backing it with my money being obtained via misappropriation of funds. If the turnarounds don't occur and the money is lost, will there be any arrest warrants issued for theft by conversion or theft by deception? Or will all the politicians in Washington, D.C. receive bonus checks for becoming "key investment facilitators?"

Maybe Bill Gates, Warren Buffet, and Simon Cowell will all buy out the whole distressed mess (government included) and bring in Steve Jobs and Tom Peters to revitalize the whole thing? License rights for a television show and let Donald Trump bring in some celebrities to try their hand at it? C-SPAN would probably be delighted to be the home of the world's biggest, highest budget sitcom (assuming they're not already.)

Okay, okay. I'm shutting up now. Mainly because I'm getting myself more frustrated just thinking about all this tomfoolery. (No reference to our illustrious and gracious host.)

!!!!!!!!!!!!!!!!

Posted by Dan Gunter at July 2, 2009 6:25 PM

http://news.yahoo.com/s/ynews/20090702/pl_ynews/ynews_pl425

Any complaints on the salaries these employees receive? Surely some of the pay levels can be considered excessive or greedy given the poor performance of the departments the employees run.

Posted by Vonn Kurtegut at July 2, 2009 11:49 PM

Vonn - Personally, I don't really know about the average for such positions in the government, so I can't intelligently respond to your question. I will agree, though, that from first glance these administrative jobs seem a bit excessive and with a quick Google search it seems like they are in line with past administrations.

The onus, however, rests with us to insist upon change. It is ultimately up to the people to make right in the government what is wrong; this includes salaries. One distinction between the government salaries and bankers, it that the former are not are not likely to get bailouts in billions or bonuses in millions for senior executives, nor is it likely that they will create spreads out of thin air, having done nothing to deserve it.

Many of these banks have not brought in many new customers but instead rely on fees and bogus instruments for short-term capitalization. This hike in salary and increase in interest rates seem like a spread to pay themselves. But I do think that the salaries of everyone in all branches of government should be looked at anew with respect to their staying on, re-election and performance. But these things as mentioned before are up to the people. We really need a true activist citizen government.

Presently, another thing to consider is that this administration has been in for six months. Perhaps it's a bit too soon to judge performance, especially considering the enormity of so many dire problems left by the former administration. Timothy Geithner, however, has concerned me from the start precisely in part for his cozy relationship with Wall Street and lack of prior oversight of the same. It is highly unlikely that one who has gotten us in this mess will get us out. Yet, he was confirmed resoundly by Republicans and Democrats alike. They know who butters their bread.

Here's a question for you: Would you have been willing to decrease the salary of the former Secretary of Defense, Donald Rumsfeld? Was his performance worthy of his salary? I would not have, although I think the ultimate decision to remove him was necessary and perhaps should have been done much sooner. Wisdom in these matters is necessary and not all cases are the same. I will concede, though, from first glance these administrative jobs, in this one and the former, seem a bit excessive.

By the way, it looks like President Obama decreased in salary significantly from $2.6 million in 2008 from the sale of his books to $400 as president as was the case for many others. Obviously, it's not about the money for many presidents.

Posted by Judith Ellis at July 3, 2009 8:14 AM

There is a big distinction between salary and income. What job is it that paid President Obama a salary of $2.6 million. It was clearly not from the Senate. People certainly liked to buy his books though. I believe America is all about getting paid as much as you can for what you do. This goes for union line workers all the way to the heads of major corporations.

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Posted by Vonn Kurtegut at July 3, 2009 8:41 AM

Vonn - You make a good point with the distinction between salary and income. But really, isn't it all work of some kind? The question still remains for the heads of major corporations receiving BILLIONS IN TAXPAYERS' MONEY, what have they done worthy of such an increase in salary paid in part by the people?

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I have said here before that I don't care about how much executives of a private company, major or not, makes. What I care about here is the people's interest. So, if they receive taxpayers' dollars they should be subject to strict oversight. If America's simply about "getting paid as much as you can for what you do," maybe this is the problem.

Posted by Judith Ellis at July 3, 2009 9:01 AM