If Bankers Were Firemen . . .
By Barry Ritholtz - February 17th, 2009, 5:30PM
Very amusing Pat Bagley cartoon, via The Salt Lake Tribune
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In any great organization it is far, far safer to be wrong with the majority than to be right alone. —John Kenneth Galbraith
Macro Notes
US$ rally continuesPeter Boockvar
Asian currencies continue to sell off vs the $ on the heels of the news yesterday that South Korea said they will look into hot money inflows stemming from the $ carry trade and the Bank of Indonesia said they are looking into the foreign buying of bills. This follows the news a few weeks ago that Taiwan was limiting foreign deposit holdings and Brazil was taxing foreign inflow transactions. As I mentioned yesterday, we may have reached a short term pain threshold in terms of $ weakness and foreign countries are fighting back as they certainly won't wait for...
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February 17th, 2009 at 5:35 pm
Nice. Societal awareness seems to be on the increase…
February 17th, 2009 at 6:05 pm
Now I’m really worried. Jim Cramer is out of his bunker for his show, and Melissa Lee is present to give him balast.
February 17th, 2009 at 6:55 pm
Barry,
Priceless cartoon from Iowahawk blog relative to our signed ‘Generational Theft Act’
http://tinyurl.com/c6d6uh
February 17th, 2009 at 6:58 pm
It is amusing. If everybody received million dollar bonuses, would we be any better off?
I agree that all of these professions tend to be underpaid. I work as a paramedic, which some people think is part of fire fighting. It isn’t. My patients are almost never on fire, but many do need medical care. Fire fighters have done a great job of fire prevention, so they need something else to justify their jobs, so they convince politicians to let them take over EMS.
Based on the history of fire departments running Emergency Medical Services, we should avoid keeping people from working outside of their areas of expertise. And as Nassim Taleb writes, economists should probably even be kept from working in their own field.
February 17th, 2009 at 7:03 pm
Pretty much.
February 17th, 2009 at 8:10 pm
I was just thinking today – the men and women making $15 $20 $25 per hour did not cause this crisis but they are the ones probably suffering the most. All of these Wall Street hotshots and CEOs should give all the bonus money back either to the US or their employees.
February 17th, 2009 at 8:52 pm
Look! Here’s Easy Al on CNBC. Stocks are cheap he says.
I sort of feel sorry for him but mostly not. Mainly it’s just a reinforcement of the status quo mentality of Wall Street: “Stay the course!”
(And don’t blame Easy Al — it’s obviously all Obama’s fault.)
February 17th, 2009 at 9:30 pm
Rogue Medic asks “If everybody received million dollar bonuses, would we be any better off? ”
I don’t know about that, but I know if firemen, scientists, and teachers got million dollar bonuses, we’d be living in ashes, counting on fingers and illiterate.
February 17th, 2009 at 9:36 pm
The FIRE economy really is an appropriate name.
I was thinking recently that if physicists were as successful in their applied science as economists were in theirs… we really would need more firefighters. Economics hasn’t been very useful as a predictive science; can it really be called a science if it isn’t predictive?
February 17th, 2009 at 10:10 pm
Since firefighters and teachers have union protected jobs at taxpayer expense, let’s just call it even. On the other hand, engineers probably could use a bonus after a couple decades of legislatures attacking their (free market) salaries on the behalf of corporate lobbies.
February 17th, 2009 at 11:25 pm
Sorry but I have to stand up and say that this misinformed populism has gone far enough. No one “should” or “shouldn’t” get paid X or Y. You wouldn’t want someone or some faceless majority dictating what you get paid, so why are you folks so capriciously making value judgments about the pay of others? It has to stop. The problem is excessive money growth and our policymakers’ tendency to rely on easy monetary policy. Wall Street and a handful of chosen institutions (Fannie Mae, Freddie Mac, the FHLBs) emerged as the chosen intermediaries through which the Federal Reserve, Congress, and yes, connected bankers multiplied Fed credit. The decision to risk moral hazard with multiple bailouts of financial institutions that took too much risk and should have failed (Latin America, Continental Illinois, the Hunts in the 80s, LTCM in the 90s, and of course the multitude of bailouts in this mother-of-all-crises) was a political choice. There are myriad issues besides moral hazard to consider as well: asymmetrical interest rate policies and an abandonment of the Taylor rule, manipulated inflation and growth statistics, the repeal of Glass Steagall in 1999 with Gramm-Leach-Bliley, agent/principal conflicts, the refusal to regulate the OTC derivatives markets, the unsound goal of increasing the rate of home ownership, allowing off balance sheet leverage, disregard for deficits both fiscal and in the current account…the list can be as long as you want it to be. But those bailouts (not to mention knee jerk monetary easing during Y2K and 9/11) stick out to me as the most egregious examples of ineptitude or evil, depending on your politics. Our policymakers could have let those institutions fail, and you know what, had they done so, maybe Wall Street bankers wouldn’t have made all that crazy money because financial conditions would have tightened (heaven forbid!). Our policymakers did not, however, let them fail, and they did not once consider the sanctity of the U.S. dollar as they committed the mistakes (or crimes, again, depending on your politics) listed above (Taylor rule et al). Greenspan, Bernanke, Geithner, Rubin, Summers, Clinton, Frank, Bush — these are the names we should be muttering under our collective breath as we sharpen our pitchforks. Wall Street employees are the distributors of the funny money, and some of them take large, exorbitant fees for doing so. I see nothing wrong with debating whether or not there are structural changes that need to be made to address how credit is issued/distributed to the real economy, and who should benefit and to what degree. But what I cannot stand is when I see, over and over and over again, how easily we are duped into focusing on the wrong villains, on the henchmen and not the bosses. Then again, are we in a democracy or not? Do we not elect these people? Who is really to blame? That’s right, we are. We all need to take a look in the mirror and realize we’ve abandoned our civic responsibilities. Or, we can throw in the towel, confirm the widely held belief that democracies do not work in large countries, and submit to the socialist/statist hell that produces arguments such as, “what SHOULD people in this profession make?” To summarize, and just in case my main point was lost on anyone, the father of this crisis is UNSOUND MONETARY AND FISCAL POLICY. The folks in Washington have made a straw man — an appealing straw man, perhaps, but a straw man nonetheless — out of the greedy and opportunistic but otherwise innocent Wall Street banker.
February 17th, 2009 at 11:45 pm
Firefighters and Police are hugely overpaid, and the pensions are ridiculously generous. Teachers are underpaid.
February 17th, 2009 at 11:55 pm
Who gave realtors a free pass?
February 18th, 2009 at 12:21 am
I don’t agree. This is a cheap shot. Most people I have known on Wall Street have honor, and don’t pursue means that destroy others. This takes the 1% of people on Wall Street who are unethical, and makes ordinary folks think they are the norm.
February 18th, 2009 at 1:37 am
Everyone keeps bitching about wall street firms and people that work there. What good does it do? If people really want to change things, fire their brokers, move their assets from wall street firms. There are plenty of alternatives out there off the street.
February 18th, 2009 at 1:47 am
@ David Merkel
So how then, did Hank Paulsen make it to Treasury secretary? I think he cashed out to the tune of $100+ million in so doing. And he got a chance to oversee the very work either done by himself or by those under his command and put the tab to the taxpayer. Now that’s something. And while I’m picking on Paulsen, wasn’t he one of the CEOs who went to the SEC in 2004 to have their leverage limit raised from 12-1 to 40-1? How impactful was that change to the financial meltdown? Call me biased, but until I hear something good about Paulsen, I think that $100+ mil he collected should be signed over to the soup kitchens and food pantries of America.
February 18th, 2009 at 4:12 am
hey if all it took was a measly mill’.
Meet the new teacher — he’s the Really Great Depression — he’s gonna cost you a whole lot more than a mill’.
He is here to teach you that cheap stocks really are cheap, that guys promising 5% steady can’t be trusted, that companies that hand out 100 mill’ bonuses really should be dumped, that rating agencies that collect fees from the companies they rate can’t be trusted etc etc.
Now if you had paid close attention to last teacher this wouldn’t be necessary.
February 18th, 2009 at 8:45 am
Right On, ndmaster!
What we really need is a TARP bank boycott. Move everything you have out of banks that are taking TARP money (esp. BofA, GS, MS, Wells Fargo, Citi). That way, they can’t extort us for more bailout money. If noone has accounts at these criminal banks then the gov has no way of justifying continued bailouts. We DO have the power to change our plight but we must act collectively in our interest.
There are plenty of credit unions and regional banks that did not participate in this house of cards that offer brokerage services and all your other banking needs.
If you are still banking with one of these criminal organizations, then I don’t want to hear you complain anymore about bailouts, since there’s something you could be doing to stop them.
February 18th, 2009 at 11:28 am
@Andrew11
“out of the greedy and opportunistic but otherwise innocent Wall Street banker.”
HAHAHAHAHAHAHA!!!!
February 18th, 2009 at 1:18 pm
With all due respect, if you change the word “Banker” into “Sub-prime home owners” or “american consumerism” you would get just about the same conclusion. Remember, it takes two-to-tango (in this case, a lot of party involved, RE agents, sub-prime home owners, bankers, MBS buyers, government, and so on). Bankers are just scapegoat because they are high-profile and easily visible. Pretty much like when an attorney wanted to get himself a promotion, he just shoot for the high-profile cases. It gets the highest visibility and approval.
February 18th, 2009 at 1:23 pm
I’d like to know where the Repukes bitching about the ‘Generational Theft Act’ were in the last eight years.
They greenlighted over $1 trillion in tax cuts geared toward upper incomes in response to the comparatively minor economic slowdown of 2001, and cheerled the disastrously expensive, and disastrous in many other dimensions, occupation of Iraq. In Repuke magical thinking ‘tax cuts pay for themselves’, so if we cut taxes to zero then tax revenues will go to infinity. And the $700 billion-a-year military somehow isn’t ‘big government spending’ but is funded by mighty warrior life-force lightning bolts sent from heaven by John Wayne and Ronald Reagan.
But now $800 billion spread widely around the economy in response to a massive financial meltdown resulting primarily from the right-wing ideology of deregulation and zero oversight is ‘generational theft’. These clowns need to exhibit some responsibility and shame for the disaster they cheered on, and just shut up and sit down.
February 18th, 2009 at 1:25 pm
Thatguy Says: February 18th, 2009 at 8:45 am
TG,
you’re suggesting Individual Responsibility? and Coordinated Action, thereon?
What do you think this is? America?
wisedup Says: February 18th, 2009 at 4:12 am
and, more seriously, as wu points to, the knowledgebase, is, already, extant. too bad we’ve been conditioned to receive, as opposed to, able to receive the conditions and act accordingly.
past that, this ‘toon is, in *Reality, little more than high-grade agitprop..
February 18th, 2009 at 4:12 pm
I was hoping MH. I was really hoping. But then we all know about hope…….
February 18th, 2009 at 4:15 pm
for MarkH, actually you’re wrong. The cartoon is merely emphasizing an extremely well-known management conundrum.
How do you ensure success? too strong? so -> How do you maximize the probability of success?
Success=Positive differential between positive outcomes and negative outcomes.
Sports teams, banking, the markets, all managers/boards, all have to solve the same problem.
I think the cartoonist is saying that giving financiers extremely large bonuses destroys their ability to properly weight the risks to the organization. The organization is no longer seen as worthy of respect or careful handling.
February 18th, 2009 at 4:58 pm
>> Who gave Realtor’s a free pass.
Who, indeed. The realtors are the epicenter of the bubble. They are worse than the bankers, brokers and financiers. The realtors were the hot air in the bubble. They were actively inflating it 24×7 with their endless prattle about housing values that only go up, they are not making any more land, it is the best school district, buy now or be forever left out, and on and on and ON ON AND ON AND ON.
The rest of the crooks went along, but it is the realtors that should at the top of the list of people to blame.
February 18th, 2009 at 11:39 pm
Note to Andrew11:
Wordy, but correct. More succinct: “If they can get you asking the wrong questions, they don’t have to worry about the answers.” – Thomas Pynchon
February 19th, 2009 at 12:53 am
wu,
this: “I think the cartoonist is saying that giving financiers extremely large bonuses destroys their ability to properly weight the risks to the organization.”– may be correct..
though, the ‘toonist goes on and says:~ “If ‘others’ were given the same mind-warping bonuses, we wouldn’t be in this mess”
so, I’m not sure I’d concur with the end message, of the cartoon, that you’re forwarding..
though, that’s the beauty of Markets: “Differin’ opines cause them to run the Equuines”.
February 19th, 2009 at 8:42 am
Mark, I understood the comment to mean “give the bonuses to X rather than to Y”
if we could really know what went on the minds of cartoonists would we really want to know?
February 19th, 2009 at 8:57 am
wu,
yes, of course, that thoughtstream was running between my ears, as well..
I’ve long thought that it’d be interesting to have the ‘toonist notate his vector– to give an idea as to where they were coming from..
though, more directly responsive to your Q, given the ones I’ve seen, and the few I’ve met, no, not really )