“One small source of optimism on this front came from last week’s announcement by Credit Suisse that it would move some troubled assets off its books and place them into a pool funded by employee bonuses (see below). Securitization, the process of pooling income producing assets and issuing layers of interest bearing liabilities against them, took flight until mid 2007. One of the flaws inherent in the securitization process is that middle men between mortgage borrowers (homeowners) and their lenders (the capital markets) didn’t have a stake in the risks they were bundling and peddling. By effectively shifting some of these troubled assets off their balance sheet and into the employee bonus pool, Credit Suisse has perhaps offered a clever (if only partial) solution to what currently so ails many financial institutions. The details (i.e. pricing at transfer) still need some work, but this solution essentially is the old TARP — writ small. Think of it: formerly “toxic” assets move off the CS balance sheet and are replaced by the cash once set aside for employee compensation.”

“Voila! CS cleanses its balance sheet and employees get a stake in a long term pool of assets for which “marked to market” means little. Aside from helping to heal the bank, Credit Suisse is in fact also helping to return some appreciation of risk among its senior employees by mandating the retention of said risk among those who previously received bonuses for creating these securities in the first place. It’s brilliant. The publicly funded TARP Wall Street once clamored for can now be a product of their own, private creation! Never has force-feeding senior employees a heaping helping of their own cooking been such a good idea. Of course, this laudable example won’t matter much unless other banks copy Credit Suisse and set about cleansing themselves in similar fashion. Then again, as the credit crisis of 2008 proves only too well, aping one another is a Wall Street tradition. Maybe there is hope yet!”

– Jack McHugh