“There’s a huge disconnect between what the average American worker receives in terms of compensation and some of what we’re hearing about on Wall Street. We do believe that when the taxpayer monies are invested that compensation should be fair.”

-White House senior adviser Valerie Jarrett

>

Well, yes and no.

There is clearly a disconnect between Wall Street and Main Street. The compensation for making bets that payoff is outsized on Wall Street, thanks to the fact that a) Its OPM (other people’s money), and 2) it is a difficult job that few people do well; and 3) it is inordinately stressful.

However, remember there are several different aspects to Wall Street compensation:

1) Stock Options for C-level execs;

2) Commission for Sales people;

3) Bonuses for Traders;

My biggest issue is with the first item — Stock options. Why? Two major reasons: First, they get issued when stocks are up, and more are given when stocks are down.  Eventually, some slug of these options will hit pay dirt. Thus, stock option compensation works out to be a big payoff for Volatility, not Performance.

This includes the CEOs/CFOs/Senior Execs of companies that have been bankrupted/bailed out, and recieved insane windfalls for helping to destroy these firms. It makes no sense, shows that the Boards of Director and large shareholders are either corrupt, or clueless.

Second, as we saw in the 1990s, many CEOs and other execs received huge compensation for the simple act of being at the company during a raging bull market. There is no adjusting for how well the company did relative to the market, or to their peers in the same sector. That’s not pay for performance, its pay for good timing of when you start your job.

~~~

Here’s where you have to be careful not to paint with too broad a brush: The vast majority of people who work on Wall Street are ordinary hard working, albeit well compensated people. And taht vast majortity of these folks did not cause the problems.

Take for example commission sales: I have zero issue with that, regardless of what these employees are selling — Cars, Frozen Steaks, Institutional Sales, Mutual Funds, whatevers. The guys that can raise the money and close these deals should get whatever their employment contract states.

As to the P&L Traders whose bonuses are dependent upon profitability, as long as there is some appropriate w/h for future risk — meaning, they can’t bankrupt the company — than those contracts should be honored.

Take AIG for example: There were 400 employees who worked in the Financial Products division (AIG FP) that caused all the problems — out of 116,000 employees. We simply cannot blame everyone who worked there for what those 400 did.

The Bear Stearns hedge fund that blew up were a handful of people — so too were the Mortgaged backed traders there, as well as at Lehman Brothers. And the nimrods that caused Citi’s woes (and Merrill’s and Bank of America’s and CIT) were a tiny percentage of employees.

I have a suspicion that some of the anger over compensation is misdirected . . .

>

31paygrfx-lrge

Courtesy NYT

>

Sources:
Bankers Reaped Lavish Bonuses During Bailouts
LOUISE STORY and ERIC DASH
NYT July 30, 2009

http://www.nytimes.com/2009/07/31/business/31pay.html

Biggest banks in US reward stars with huge bonuses
ADAM GELLER
AP, July 31, 2009

http://www.google.com/hostednews/ap/article/ALeqM5hDoEn8Uu3hgHZTzv2bM03eLCUFCgD99PMIAG1

Wall Street Executive Pay Shows ‘Huge Disconnect,’ Jarrett Says
Nicholas Johnston
Bloomberg, August 1, 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aN.QDeYjf4qI

House Gives Regulators Incentive Pay Role; Senate Prospects Dim
Jesse Westbrook and Ian Katz
Bloomberg, August 1, 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPcjPb7SuWVw

Category: Bailouts, Employment

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

74 Responses to “Looking at Wall Street Pay”

  1. John says:

    Barry,

    Sales scums should not be able to earn anthing on any products or services they sell using lies or deception about performance, risk, etc.

    Traders should not be allowed to earn bonuses on anything that puts their company or the financial system at risk.

    As you have described, executive compensation everywhere in corporate America has definitely been abused as a result of short term practically riskless rewards. Among other reforms, there needs to be compensation based on the company’s long term performance, including being based on how well succession planning was done.

    Not only are members of the Board of Directors and large shareholders either corrupt or clueless when they reward people for destroying their firms, so is the federal government when they attempt to bail out any company without cleaning house.

  2. Yes, but that does not describe the vast majority of what goes on in terms of Sales scum. Most of my contacts are on the Institutional side, and its very arm’s length professional.

    I have this feeling we are not staying focused on the bad guys who were wildly overpaid for causing the meltdown.

  3. flipspiceland says:

    John is right and I would add that contracts or deals for sales commissi0ns should NEVER be contingent on closing a deal. The deal itself needs to be structured and scrutinized for risk to the company inherent in it.

    As we have learned to a disatrous degree i.e. Welch at GE turned the company into a Commercial Lending operation with enormous downsides , yet he has reaped hundreds of millions if not billions because his contract was predicated on very short term performance. I can run the half mile and beat all comers but any more than that and I finish last. That’s how these sales and CEO contracts have been structured in the past and that’s total bullshit.

    Wall Street pay needs to be structured on a step up basis by ‘pencil behind the ear’ accountants advising comp committees, setting sensible, reasonable immediate, medium, short and long term performance as the essence of the distribution of commissions and bonuses as well as outsized monthly compensation.

  4. many of these peep are paid like ‘hitmen’, b/c that’s, exactly, what they are.

    this phenomenon, though, is Not proscribed to, solely, the ‘Banking’ Sector.

    http://www.thefreedictionary.com/phenomenon

    see also: http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=economic+hitmen for starters..

  5. alfred e says:

    Funny how it works. Those outside firms tasked with setting compensation get hired year in year out based on their “performance”.

    Guess that’s like bond rating agencies getting paid by the issuer.

    Perhaps it’s not so much about conflict of interest as it is about how corrupt we’ve become, that we place more emphasis on the compensation than the integrity of doing the job as it should be done.

    And that there is no sense of fair or reasonable. Get what you can.

  6. stuki says:

    The whole charade about focusing on compensation is merely a politically convenient decoy. Please people, don’t fall for it!

    Shareholders of financial firms would immediately adjust their companies’ compensation policies if the downsides of keeping them the same would be borne by them, not socialized. Meaning, no bailouts, ever. Under any circumstance. And that means no indirect bailouts, as in dumping short rates to ridiculous levels force feeding liquidity, to let banks ‘earn their way out’, either. Those banks that took on too much risk, should simply go under. Those shareholders not vigilant, be wiped out. Those that lent this money, wiped out as well. Those who worked there, unemployed. And those who chose to move to a financial center to render services to those who worked there, again, wiped out. Then you would get more realistic risk assessments in the future. And you’d do so without robbing third parties, who are now losing out big time on opportunities to buy nice Rocky Mountain ranches and Florida beachfront on the cheap. As well as expanding their better ran banks into new markets that would, except for captive government, be much less contested. And doing so with newly unemployed, desperate and hence cheap, labor.

    The crime against decent America is the mindset that those who did not screw up should in any way be forced at gunpoint to subsidize those that did. And the whole ‘fair compensation’ gibberish debate is pumped out there to cover up this fact, by making it sound as if, despite robbing third parties, the politicos ‘really, really care a, you know…’

  7. Lil Leg Humper says:

    $100 Million Payday Poses Problem for Pay Czar

    http://www.nytimes.com/2009/08/02/business/02bonus.html?_r=1&hp

    In a few weeks, the Treasury Department’s czar of executive pay will have to answer this $100 Million question: Should Andrew J. Hall get his bonus?

    Mr. Hall, the 58-year-old head of Phibro, a small commodities trading firm in Westport, Conn., is due for a nine-figure payday, his cut of profits from a characteristically aggressive year of bets in the oil market.

    There is little doubt that Mr. Hall is owed the money under his contract. The problem is that his contract is with Citigroup, which was saved with roughly $45 Billion in taxpayer aid.

    Corporate pay has become a live grenade in the aftermath of the largest series of corporate bailouts in American history. In March, when the American International Group, rescued at vast taxpayer expense, was to give out $165 Million in bonuses, Congress moved to constrain the payouts, and protesters showed up at the homes of several executives.

    As it happens, one can see some of those homes from Mr. Hall’s front lawn in Southport, not far from his office. But his case is more complex. Mr. Hall, raised in Britain and known for titanium nerves and a collection of pricey art, is the standout performer at an operation that has netted Citigroup about $2 Billion over the last five years. If Citigroup will not pay him the huge sums he has long made, someone else probably will.

    The added wrinkle is that Mr. Hall works in a corner of the trading world that appears headed for its own infamy. Regulators are pushing to curb the role of traders like Mr. Hall, whose speculation in the energy markets may have played a major role in the recent gyrations of oil prices.

    That suggests that last summer, drivers paid more at the pump, at least in part, because of people like Andrew J. Hall. How do you hand $100 Million to a guy who may have profited because gas hit $4 a gallon?

  8. alfred e says:

    @BR: Sales scum versus institutional professionals? Excuse me.

    Kind of reminds me of the difference between mob bosses and hit men. I guess the hit men have blood on their hands, they’re guilty of the crime. The mob bosses are not.

    Ever heard of collusion?

    It’s those institutional professionals that set the sales scum up with their programs, and then turn them loose on the world.

    Yeah, sure not all the professionals are involved directly with how the sales scum are compensated. But they all sure are glad the sales scum are dragging the carcasses back to the cave. Otherwise they’d be on the street.

    Kind of like Greenburg. “I had no idea.” Right.

    ~~~

    BR: When you say sales scum, I think boiler room weasels putting grandmas last dollars into some pump & dump scheme guaranteed to fail.

    Someone who made a lot fo moeny isnt automatically scum. Someone who works in sales doesn’t automatically deserve our derision.

    You are conflating bad guys with ALL sales guys.

  9. Mannwich says:

    @alfred e: I’m not defending those “sales scum” but what would our economy look like if we outlawed all less than savory products that are currently being peddled on Wall St. and elsewhere? Would we already be at 30+% unemployment? I think you get my point.

  10. abcd says:

    Fallacy of compensation for performance occurs when firms get bailed out but “performance” still gets paid. A number of street traders had record years in 2008–but really what should you expect to get paid when your firm goes down the drain before it can cut the check?

    Enter the government, saving firms at the 11th hour….but the govt cut an erratic swath sparing some, while leaving bs/leh (as examples) to watch their hope of ANY compensation (or severance payouts) drop to nothing.

    If the government is going to backstop firms, and firms are going to accept govt support as option to going under, then compensation limits have to be enforced and accepted. If not, then traders still have to accept that their fate is tied not just to their own successes, but to the viability of their firm as well.

  11. alfred e says:

    @Mannwich: Interesting question.

    My last post was slightly snarky. I was taking BR’s description of them as sales scum and running with it.

    Actually I was defending them and trying to say the institutional professionals were as much to blame if not more.

    I used to like our company sales people. They brought home the bacon. Didn’t particularly care to get caught up in all the things they did. But a peek in the box once in a while wasn’t all bad.

  12. Understand my position: This isn’t about “what should be” or overpaid people or redistributing wealth — it is about where the compensation system leads to global risk and taxpayer subsidies. That is a very different issue than “Some people got paid too much.”

    Remember:

    1) NONE of these firms should have received one dime of bailout money. They all shoul have had an orderly liquidation.

    2) If you are going to give bailout monies to firms, than you should insist on some parameters, like limiting excessive pay. But once you do that, you run the risk of top earners bolting.

    3) When you save these companies — instead of reorg/bankruptcy — their employee contracts also stay.

    I continue to think that no bailouts/required bankruptcy would have been the way to go . . .

  13. alfred e says:

    More to the point, is it really in the best interests of society and capitalism for a person to rake $100 million in only one year by virtue of sucking money out of J6P’ s wallet to the tune of $4/gal gas?

    I think there are some really critical issues that have not been addressed here. Just as Enron was swept under the carpet after the havoc they wreaked in CA.

  14. Groty says:

    Morgan Stanley had revenus of $5.4 billion in 2Q, but set $3.8 billion for compensation. That’s 72% of revenue for employees while reporting a loss.

    I kinda doubt the pitchfork and torch crowd understand those economics.

  15. sorry barry, i think you’re missing the point when you talk about the compartmentalized nature of who caused the damage versus who should get paid…

    let’s take Lehman Bros for example…the sales traders who service hedge funds, for example, were probably WILDLY profitable even while the real estate and mortgage backed divisions were bankrupting the company on a different floor. That does not mean the sales trading people hadn’t benefitted from the prestige, revenue, access to clientele etc. that came along with having such massive mortgage/ RE operations. Same goes for profitbale ibanking division, you cant separate their profitability from the rest of the company as though they are not a beneficiary of the immense scale of the company.

    Therefore, to paraphrase Billy Joel, they should all go down together. You work a large company, you get the upside and the (very rare) downside, regardless of your desk’s individual merits

    TRB

    ~~~

    BR: If that is the case, than we can pretty much brand everyone who works in Corporate America. There ain’t a Fortune 1000 company that hasn’t done something horrifically immoral over the past 12 months.

    I want to keep the focus ont he actual bad guys

  16. willid3 says:

    stuki, last time i checked shareholders have no say in pay. the setting of executive has been done by 3rd parties who work for …the board who are picked by management. can’t see any chance of collusion there can you?

  17. I have this feeling we are not staying focused on the bad guys who were wildly overpaid for causing the meltdown.

    What about GS? Aren’t they the biggest abusers?

    ~~~

    BR: Hank Paulson certainly was. As CEO of GS, he led the push to raise leverage limits far beyond the 12 to 1 limitation.

    As tot he rest of the firm, they are relentless and profitable — but I don’t believe they were any more at fault than the rest of the street.

  18. willid3 says:

    maybe the best way to deal with bonus pay is to make contingent on a long term view. the higher up in management the longer the term. and while sales commissions seem reasonable how do we make it so that they aren’t leading the companies to their doom? maybe make it so salary+commission cannot be more than say 1 million dollars in any one year? but commission earned can be paid out over a longer period of time, so the sales associate still ends up with the fruit of the efforts? and the same for traders?

  19. constantnormal says:

    Barry Ritholtz says

    “) It’s OPM (other people’s money)”

    “2) it is a difficult job that few people do well”

    “3) it is inordinately stressful.”

    Oh, pshaw, Barry. Whotta lotta hooey.

    1) And they should be paid MORE, not less, for not having their own money at risk along with the customers? And should be rewarded even if they LOSE the OPM? [BR: No, I am explaining this: OPM encourages greater risk taking, greater gains and losses, explaining the outsized salaries]

    2) So are a lot of other jobs, including many that are much more difficult than running a bankster gangster operation. Is a neurosurgeon’s job more difficult? You betcha. And if a neurosurgeon, or ANY non-Wall Street worker performed as poorly as most of these banksters have done, they would be facing huge lawsuits along with the loss of their fat cat jobs. [BR: You are confusing the people who did their jobs well and deserve to be paid versus the neer do wells who brought the system to the abyss. My point is that these are 2different groups of people]

    3) Come oooon now, you’re telling me that it is more stressful to lose millions/billions of OPM, with no risk to one’s own livelihood or career, than say, working as an undercover DEA agent? Or a high school teacher in a bad neighborhood? Or a career military person patrolling streets in Iraq or Afghanistan? Or a ATC person, juggling aluminum tubes full of human lives? Or … (I can go on all day like this). [BR: I said it was “a” stressful job — not “the only stressful job!]

    Wake up and smell the coffee man — these Wall Street jobs are full of incompetent overpaid boobs who risk nothing but OPM for hugely rewarded compensation packages. The annual bonus for a single moron on Wall Street is sufficient for the average member of the public at large to retire for life on.

    I have a solution for outrageous compensation awarded to (I cannot in truth say “earned by”) employees of publicly owned corporations. Simply make gross compensation of more than X% of earnings illegal. Privately-owned businesses can pay employees anything they like, but publicly owned corporations need rules, and since the stockholders (most of whom are other corporations, and are thus disinclined to do what might be done to them) will not, it falls to other means to accomplish this.

    There are a lot of earned income formulas that make better sense, all of which involve locking up an income stream over time, and making future payments dependent on the future performance of the business. It happens like that in sales organizations all over the country every day.

  20. mark mchugh says:

    I spent 9 years designing cable TV systems. Our biggest customer was Adelphia. No one has ever insinuated that I was involved with the corruption that sent the Rigas’ to jail. Of course, no one offered to continue to pay my salary or save the best company I’ll ever work for from collapse….

    The Adelphia scandal was a pittance by 2008 standards. The government stole the company from the shareholders, moved the headquarters for no reason, and in the end, sold it for $18 Billion without ever explaining where that money was going.

    I keep checking for tears………….nothing.

  21. alfred e says:

    @constant: here, here!

    Meritocracy is dead. BananAmerica. It’s so nice for these fat cats to say how GS has a monopoly on genius. Most of those people are there because of who they know, not what. And certainly not because of their brainpower.

    Is there anyone that Little Timmie particularly impresses as being all that smart?

  22. Groty says:

    One more thing.

    Larry Fink’s Blackrock is going to make almost $60 million in the first year for “managing” the assets taken in by the Federal Reserve with the Bear Stearns and AIG rescues. Once the work to estimate value is done, what more is there to managing them? If they’re liquid, solicit the sell side for bids from time to time and mark them at quarter end? If illiquid, re-run your spreadsheets at quarter end to mark them? Seems like pretty good work if you can get it.

    Democratic bigwig Roger Altman’s firm, Evercore, together with AlixPartners, asked the GM trustee to hose taxpayers to the tune of $130 million for advising GM during its restructuring. Oh, and Evercore thought it deserved a $30 million “success fee” for advisnig on the sale of assets to the government….even though the government essentially dictated the terms.

    Good luck persuading taxpayers they are getting a fair shake on these deals.

  23. constantnormal says:

    Understand, I am not saying that profits should be limited at publicly owned corporations. But today, in corporations all over America, and Wall Street companies in particular, the profits that rightly belong to the stockholders are being stolen via ridiculous compensation packages. And these would be compensation packages that reward the perps that are losing the stockholder’s money, even while the stockholder is being punished by the drop in the share price.

    Does the old saw “But where are the customers’ yachts?” have no meaning on Wall Street?

  24. constantnormal says:

    Ummmm Barry, regarding the other folks at AIG, outside the FP business unit, in all those insurance businesses … it seems that those insurance businesses aren’t doing so well either …

    http://www.nytimes.com/2009/07/31/business/31aig.html?_r=1&hp

    … so they should be getting bailouts to pay bonuses, “retention” or otherwise?

    Outside the financial industry, that’s simply not how things are done, even where they are getting bailout money. If you check the bulk of the salaried folks in GM, including high-level salaried who regularly get “bonus” income, I think you’ll find it has vanished. In most companies, however, when times are tough the bonus money vanishes, from all levels except the senior staff. And some companies are honest enough that management takes the hit as well (just not very many, here in the Land of the Fee and the Home of the Knave).

  25. constantnormal says:

    Torches and pitchforks? I gotcher torches and pitchforks, right here.

  26. Marcus Aurelius says:

    We have people who work at less selfish and greed-driven jobs every day — people who make a measurable impact on the quality of life of others (as opposed to blood-sucking leeches on the face of humanity) — who legitimately deserve to be paid more for their contribution. To pay a Wall Street “worker” $1M annually (regardless of what magic they claim to do) is more than irresponsible — it’s criminal (especially in light of the fact that it’s ALL OPM).

    953 people who make $1 mil in annual compensation at GS? There’s no fucking way that bullshit can be justified. What they do is of little or no value (in fact, it’s at great cost) to society.

    $1M in commission (or bonuses, or stock options) by a legitimate business? Selling what? Space shuttles? Miami condos? Guns to 3rd world countries? Crack?

    Certainly it’s nothing legitimate.

    Every goddamned one of them should be in prison under the RICO Act.

  27. DL says:

    If a CEO asks for, and receives bailout money, the managers of that company, and for that matter, the employees of that company should be made to feel as uncomfortable as possible. If that means that some contracts have to be annulled, so be it.

    If there’s no price to be paid, the pigs will be back at the trough before long.

    ~~~

    BR: Which contracts? Who decides?

  28. nemo says:

    “The compensation for making bets that payoff is outsized on Wall Street, thanks to the fact that a) Its OPM (other people’s money), and 2) it is a difficult job that few people do well; and 3) it is inordinately stressful.”

    I can understand rationales 2 and 3, even if I don’t think much of them. But I don’t even understand rationale 1. What does it mean, the payoff is outsized because it’s other people’s money?

    Does that mean that the payoff is highly leveraged, because you’re riding on the back of other people’s money? Does it mean there’s a lot of money being bet, because it’s other people’s money? Does it mean there is a lot more responsibility riding on the bet because it’s other people’s money?

    Even if it means one or all of those things, I still don’t understand why it justifies such absurdly outsized payoffs. And none of them justifies outsized payoffs in a year when our tax dollars had to bail out those overcompensated gamblers. If they lose big with OPM, shouldn’t they lose big with their own money as well?

  29. mark mchugh says:

    News flash: You’ll never get the bad guys as long as the “vast majority” are allowed to remain fat, dumb and happy…….I mean prudent…..super-smart and stressed-out.

  30. Mannwich says:

    I say bring back the millionaire tax. Tax Wall Street bonuses over $1MM at 90+%.

    ~~~

    BR: You have a better chance of selling it if it were a small surcharge — 5% on all income over $5M — and it sunsets after 7 years.

  31. Christopher says:

    I don’t like the idea of govt dictating private compensation….under any circumstances. I know….is it still “private”?? That gets to the root of so is fucking wrong with TARP and other bailouts.

    I would not be opposed to a “Bankster Tax” on bonuses….out of spite mostly….it’s not like the extra revenue wouldn’t eventually pissed away by Uncle Stupid.

  32. DL says:

    The issue of Andrew Hall, the “fat cat” commodities trader who is under contract with Citigroup, is relevant here.

    $100 Million Payday Poses Problem for Pay Czar

    ~~~

    BR: I would pay him. And the mere fact that this has become such a large and public issue makes it it VERY likely he will leave — open his own shop, and not have to deal with public scrutiny. He didn’t receive bailout money, why oes he need this?

    Oh, and it will be that much less profit for Citigroup, which is owned in large part by the taxpayers.

    Reminds me of the Harvard faculty complaining about all the money the endowment managers were making. So they left for private sector, and the new guys lost billions. Nicely done!

  33. Christopher says:

    That’s a lot tuna.

  34. mark mchugh says:

    I agree 100% with constantnormal on this one….go explain it to the NYFD….

    ~~~

    BR: Work 20 years, retire on 75% pay for the rest of, your life. Its a dangerous job, but its a good deal.

  35. CuriousCreature says:

    @Barry
    I gotta tell you BR I think you are way off base here. I do believe that the total organization should be held responsible for the decisions of the few. That’s business. Stress? Gimme a break. Your local fast food worker lives a more stressful life.

    If the company fails so profoundly that they present a systemic risk to the ENTIRE FINANCIAL SYSTEM, then pardon me for saying….

    They don’t deserve a dime.

    The public has had enough.

    Curious

    ~~~

    BR: We agree — don’t bail them out.

    But now that we did, you gotta live with the laws — and that means honoring contracts.

  36. cvienne says:

    The Citigroup guy…

    Using American Taxpayer money to speculate on oil prices (which results in prices at the pump back into the high two dollar range – when there is clearly an oil glut)…

    …and then gets rewarded with a $100,000,000 bonus…

    Wow…now that’s a real American hero!

  37. Mannwich says:

    @cvienne: Sadly, in today’s Predator Nation, otherwise knowns as the U.S., he’s a “real American hero”, a reverse Robin Hood, if you will. That’s what happens when a culture worships and idolizes the pursuit and procurement of uber-wealth (and fame) over all else. In our culture, it doesn’t matter how one gets rich. It’s that they got rich, period. Never mind the fact that it’s stolen wealth. Sad times indeed.

  38. franklin420d says:

    Mannwich Dude this is the time to buy high and sell low, the average American can not on their own turn the economy around, but if we allow our monies to be pooled together and offered to the banking industry through goverment intervention then after this money gets trickled down the average American will benifit.

    America can once again get behind the process of borrowing money and creating wealth.

  39. Northern Observer says:

    This subject is tough. It is hard to know when someones large earnings are legitimate or a sign of organized looting. While I was thinking on this difficult problem it occurred to me that this run away compensation problem did not occur in the pre-Kennedy tax cut era, where income tax rates went right up to 90% for the tippy top. Now that is an efficient mechanism to keep compensation under control. I am not familiar with fair compensation on Wall Street but it occurs to me that an increasing punishing income tax rate for incomes over say 20 million a year would do wonders to reduce looting by CEOs and managers of corporate earnings. Maybe 20 million is too generous. I’ll leave that one to you.

  40. Pat G. says:

    Well, yes and no.

    When I see an any exec (any occupation) getting millions of dollars in pay and various packages while cutting costs (creating unemployment) because they have driven their company to the brink of financial ruin for personal gain or due to their mismanagement/incompetency and they are receiving taxpayer money, I get really upset. So, I agree with you…get rid of the stock options. Then tie pay (in the form of cash only) based on some sort of percentage calculation based on some sort of performance calculation of that company BUT cap it as an example; to what the President gets. They outta be able to “squeak by” on that.

    “There is clearly a disconnect between Wall Street and Main Street. The compensation for making bets that payoff is outsized on Wall Street, thanks to the fact that a) Its OPM (other people’s money), and 2) it is a difficult job that few people do well; and 3) it is inordinately stressful.”

    Now, here’s my problem with this. Outsized is not prudent. The fact remains that it is OPM and that trust should be respected, not violated. Heard of the Peter Principle? When someone marches to the top of the food chain and can not perform they need to be replaced. This could be measured to some degree by the performance of the company. Not everyone who gets to the CEO level is CEO material. Remember, we have a leadership deficit in this country not only in Washington. Stressful? So is being a cop, a fireman, EMT, a soldier, working in a hospital, an unemployment or welfare benefits caseworker, member of a fishing crew in the Bering Straits or a myriad of other jobs. Do these people make the kind of money that a CEO level type makes? I don’t think so. And what could be more stressful on a working basis than facing the possibility of losing your life when you are engaged in your occupation?

  41. JustinTheSkeptic says:

    “shows that the Boards of Director and large shareholders are either corrupt, or clueless.”

    BR, how could it be the latter? Change needs to happen, if only to mix it up a little. We understand that the monied class is always going to have an advantage and I hope someday my children’s children will be amongst them, but for the betterment of the system…let it be a jubilee year!

  42. the bankster says:

    Institutional sales main function is to flip fiduciaries against their clients, all under the guise of “relationships,” and monetize their firms’ conflicts of interest, mainly by pimping quasi inside information to clients who pay you back with flow. That and perserving an antiquated, opaque and expensive distribution model. The rest is just lagniappe.

    Traders bonuses dependent on pnl? Please Barry. That’s true for some, but there are dozens of traders who have blown up multiple times (some whose lifetime pnl is well into the 100mms negative) who still bounce from shop to shop collecting huge bonuses. Depends on who you know, which frat you were in, and how low your handicap is.

    As for recent losses being generated by a small percentage of the employees? So what. Every Wall St. blow up, we are told, is the fault of a “few bad apples.” Generally the few bad apples are indulged by all the other apples. And managment doesn’t ask many questions of the winners either. That way they can take the upside and maintain plausible deniabilty on the downside. Every trader, desk, division, ceo, and firm has an option on its own pnl. Losses? They’re someone else’s problem.

    And be careful before you blame only The 400 at AIG. Today’s NYT suggests the possibility of much more firmwide malfeasance.

    ~~~

    BR: Read the article carefully — the AIG FP products were jammed into the Insurance portfolios.

    This is a huge conflict of interest, and certainly does not reflect conservative investment management suitable for an Insurer

  43. philipat says:

    I totally disgree with you on this one Barry. You issue stock options that only vest after 5 years. This is also, then, a retention tool as well as an incentive. The bottom line is we need to better align compensation with shareholder interests. And if after 5 years the stock price has not risen, then clearly the management is not doing the right thing for shareholders and by extension doesn’t deserve additional compensation.

    Incidentally, not only should Glass-Stiegel be unrepealed, also IB’s should NOT be public Companies. Then they can take all the risk they want and pay all the bonuses they want without the public having any legitimate concern.

    ~~~

    BR: We actually don’t disagree at all

  44. km4 says:

    well that;s the financialization of US economy for past 25 yrs and it’s not sustainable….

    “From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent”. – Simon Johnson The Quiet Coup

    1. this 40% number is no longer tenable although Obama and his Wall St bought and paid for economic team are doing their best to try and pump up great chunks of the Big Shitpile that’s essentially worthless unless the peak real estate values of the bubble can be miraculously restored.

    2. there will be no return to normal for US economy – those days are over !

    at least Robert Reich is honest….The X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t “recover” because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.

    3. most Americans should be recalibrating their dream

  45. holdsteady says:

    Barry, I have to agree with you — I work in technology, and I’ve worked at a number of different positions at a number of different institutions: a research lab for a chip design company, a software development firm, and currently for a well-known investment bank (excuse me, bank holding company). I’ve never worked more hours under more pressure in my life, and at the same time, my salary is much less than what I used to earn in other positions.

    In order for the amount of work that I put in to be worthwhile for me, and to draw someone with my skills into the financial industry, there needs to be some expectation of a payoff, and that payoff is the bonus. I understand that there is always the risk that my bonus will be zero, and that’s my employer hedging it’s risk, but at the same time, when things are going well, I expect my long hours to be rewarded. If there wasn’t a reward for the work they wouldn’t be able to hire people in my field, it really is that simple; we’re a nerdy lot and going from research to financials is akin to selling your soul. I know that the group that I work in certainly wasn’t involved in the current mess and certainly doesn’t deserve to get paid less than market rate for what they do.

    So, while I do understand some of the anger about compensation, and I do agree that in some cases it is misdirected, at the same time, a substantial portion of that money simply goes towards addressing the difference between an employee’s salary and the market rate for the amount of work that they put in.

  46. wally says:

    “The vast majority of people who work on Wall Street are ordinary hard working, albeit well compensated people.”

    Hard working? Doesn’t matter. So are all the victims who will be taxed for years to keep those well-compensated peoiple in their jobs. Or who are getting laid off.

    There is no justification on earth for companies that lost 80 billion to be paying out bonus money of 40 billion from the futures of people who are earning ordinary incomes.

    ~~~

    BR: You should be angry that they were bailed out. That is the key here

  47. Andy T says:

    in re: Andrew Hall the commodities trader fellow….

    As a former commodities trader, I can tell you that there are VERY FEW individuals worht that kind of cash….there’s a few guys at Goldman’s oil and gas desk that are very good….there was an HO guy at MS that was very good….and John Arnold (the youngest, richest guy in the America) is clearly worth that kind of coin as he made it himself.

    Perhaps Mr. Hall is truly gifted and talented, but I would like to point out there were EXTREME contango opportunities last year to anyone with some cash and storage (like Citi) and that a MONKEY could have made money with the right tools (Cash and Storage) in that environment.

    I would also suggest that as soon Mr. Hall is paid the bonus, he will EXIT Citi….

    Generally speaking, good traders DO NOT LIKE publicity at all….this guy is history as soon as the $’s hit the bank account.

    I’m not saying he’s not entitled to the cash as a contract is a contract, but I’m guessing he’s probably not worth it. Citi is quite frankly a poorly managed firm.

  48. theorajones says:

    Gotta echo constantnormal on points 2 and 3.

    On point 1, these guys are ludicrously overpaid, and “OPM” is just a way of stating the obvious: that this is just a bunch of guys on the inside taking care of each other. They’re like every other insider class throughout history–the eunuchs at the Chinese Imperial court, Louis XIV’s courtiers, etc. These guys have a good deal set up, and by paying each other enormous sums of other people’s money, they justify paying themsevles a lot of money. It’s not complicated.

    They get this opportunity because they are at the choke point where large pots of other people’s money get spent (yes, investment is a form of spending). And without exception, those piles of money are either large sums from fantastically wealthy individuals or large aggregates of small deposits of people who are very busy doing other things. The further up that chain you go–the bigger the piles get–the less oversight you have from anyone who actually needs these things to be profitable in order to feed their children, and at the same time, the more siphoning off a percentage translates to a truly spectacular standard of living.

    I don’t know what the solution to that problem is. But it is a problem, and the solution is certainly not pretending that Wall Street money is awarded through some kind of economic relationship system that’s based on merit and specialness of the people being paid. Wall Street has an economic system much more akin to an economic rent. Lots of things add together: information inequalities, straight licensing and regulatory issues, enormous barriers to entry (I can’t just walk down to Wall Street and jump onto the exchange), absentee owners of money. Put them all together and Wall Street functions mostly as a rentier state, not an open and competitive market. Seriously, if the Goldman Sachs computer nonsense doesn’t make this clear, I don’t know what will.

    Step 1 to dealing with this problem is admitting that it exists. Regulating the behavior of individuals on this market means realizing that you are dealing with a rentier economy, rentier incentives to behavior, and a rentier mentality from the players.

  49. Andy T says:

    to further add on how difficult it is to be a really great trader…it’s extraordinarily difficult to ride a winning position. Most people cut their winners WAAAAYYY to short. I am so disgusted with myself for missing so a big chunk of this move…..was reviewing some comments from March 8th in relation to some working I’m doing right now….

    From March 8th, 2009, a few days after the big low….
    ~~~~~~~~~~~~~~~~~~~~~~~~~~
    “For the Bullish Case, friday just completed a “zig-zag” B wave from 944 to 666 (within the major degree Wave Four) that finished at a fairly exact 1.382*A=B in both price and duration. If this be the case, then we should witness a very strong move higher in short order. It should NOT look “choppy” or “consolidative”…it should really thrust. If this case is correct the market will “slice” through the 716/746 zone like a hot knife through butter. The minimum target would be 792 for .618*A = C. The maximum target…GULP….would be 995 for a 1.618*A=C…..”
    ~~~~~~~~~~~~~
    “I also like to think about things this way: “What price action would cause the most harm to the most people?” Markets tend to follow that path….

    I would suggest that a 45% rally into a May peak (euphoria and bottom pickers rejoicing), followed by a summer collapse to new lows (Holy Shit! I knew I shouldn’t have bought stocks again!!!! Puke out) might be sufficiently damaging to trading accounts of most people…..That’s not my forecast…just thinking about various ideas….”
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    “There is a lot of tension built up in this market. Taking a look at the Weekly RSI…you definitely now have some clear RSI divergence. Usually the “third of the Third” down will cause the most oversold reading on RSI, which it did in October. The next waves down should cause bullish RSI divergence, lower prices without setting lower RSI readings. This is clearly happening right now on a very large level. This is one of the signals you would want to have present before putting in a longer term “bottom.” ”
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Wish I could follow my bigger picture advice better….I guess I’d be looking at the $100M paydays of Andrew Hall. Ha.!

    As Ed Seykota might say: “We all get what we want.”

  50. hrux says:

    AT & Cvienne- If you have not checked out Dan’s (Daneric) blog, it is one of the best for Elliott Wave Analysis.

    Appreciate your thoughts on his latest analysis.

    http://danericselliottwaves.blogspot.com/

  51. Jason G. says:

    I honestly don’t understand how these companies still pay any bonuses when they have no profits. No company I have ever worked for did that — bonuses were contingent on your individual performance as well as the company’s overall performance. It sucks when someone else drops the ball, but that also kept me in other people’s business making sure they were making good decisions.

    I take all this confusion over bonuses as Allen Greenspan’s Flaw that he discovered recently… the people working for these financial service companies have no interest in the shareholders who own the companies. Specifically, I’m referring to the people who create the compensation plans.

    As I read recently… blaming this stuff on greed is like blaming plane crashes on gravity. Surely it is a significant factor in the carnage, but it’s not like the people who designed the plane were unaware of gravity…

    So, why are shareholders and managers pretending that gravity doesn’t exist?

  52. JustThisOneTime says:

    “We simply cannot blame everyone who worked there for what those 400 did.”

    I’m not blaming anyone, but if their employer can’t fund performance bonuses without US taxpayer aid, they shouldn’t get bonuses, and they should probably see the paycuts in their base many of us in the real economy have seen.

    Proximity and group responsibility are real issues here, as The Reformed Broker 538p and Curious Creature at 803p noted — if these people don’t want their performance bonuses influenced by the results/f*-ups of the larger employer they work for, they should be working on their own and writing their own PAC/lobbying checks to insure they get the bailouts that fund those bonuses.

    Here’s the flipside of that argument — as a US taxpayer who has never worked in the financial sector, I should not be blamed — nor taxed– for this clusterf*ck. But the reality is I am, and I am much further away from Ground Zero than than all the 115,600 non-Financial Product “good guys” in the other parts of AIG. From where I stand — F them, including that martyr who whined in the Times Op-Ed section.

    “Here’s where you have to be careful not to paint with too broad a brush”

    Better — Here’s where you have to be sure you paint with an appropriately broad brush

    If we had nationalized and re-capitalized these f-ups from the start we wouldn’t have to waste our time on this BS. [BR: Agreed!]

    I feel better now, which will last until I see my out year tax rates

  53. Andy T says:

    hrux:

    Thanks for that link again. His shorter term chart on the SPX is something I picked up on as well…that we may have started some sort of impulsive move with an a small “expanding triangle”….

    His overall count is basically mimicking Prechter’s overall count, which may or may not be right. I have some doubts about it as I discussed in my last report. It doesn’t really matter, though. The bottom line is we’ve got a pretty severe down leg coming, but it should begin with at least a 60 min. “five wave” lower….something that has not transpired yet on this whole advance from 666. I’m still waiting for one….and the moment I see it….you can be assured I will say something referencing the event….

    best. AT

  54. bonderman says:

    I suppose my age is showing but when I graduated with a degree in Business Administration (the B-school was just beginning) the Word was, “No one should receive compensation greater than 20 times that of the lowest paid employee” (excuse me…associate). Quaint but it had a point. Everyone worked together to create a successful organization…or not. Stardom had not yet hit business. It worked surprisingly well.

    Then we slowly got used to the idea that there were Rainmakers, Star Traders, Pitchman, celebrity CEOs, and dare I say, a lot of lesser lights with a flare for intimidation that we called Shitheads.

    In the Age of the Star CEO, boards have generally been selected by the Chairman/CEO who carefully picked candidates because of some notoriety gained in another unrelated field and who could be easily intimidated/conned/coerced.

    GS, for all the brilliance of many of its members is displaying a very tin ear on the comp question and that is exactly the excess, paid for by taxpayers, that give Barney Frank and Chris Dodd just the target they need to deflect taxpayer anger away from their own nonfeasance. Congress will have its way…that’s the American Way. And we will all lose again.

    I wonder what the late Peter Drucker would say about all this?

  55. alfred e says:

    @bonderman: What a way with words. And on target.

    Where does it all end?

    Well, the capitalistas won’t clean their act up. So I guess we can expect some more legislation.

    I am reminded of a very old saying.

    “You can’t legislate morality”.

    We’ll see.

  56. V says:

    The whole finance industry has become oversized relative to the real economy. As I see it the reason for this has been the effect of artificially low interest rates and inflation, meaning rather than being able to stay on par with (or slightly ahead of inflation) with cash at bank, everyone is forced by the government+fed reserve to become speculators.

    As a result we have this enlarged finance industry who think they deserve such high rates of remuneration. The majority of whom basically are paid to lose money, but just do it at a slightly slower rate than the next guy.
    Can anyone with a straight face honestly say that this industry allocates capital efficiently?
    It’s one giant casino.

  57. Expat says:

    Andy Hall has been making gazillions for years. A few interesting anecdotes:

    Andy is one of the few traders in the market (and certainly at banks) who is on a inverse sliding bonus scale. Most traders get smaller percentages after certain profits (e.g 12% of first ten million then 8% above that). Andy, on the other hand, has a scale that increases as he makes more money. Phibro, the company Andy works for, has been in and out of the markets for years, expanding in booms and severely contracting during busts (their own, not the markets). Almost all the VAR has been on his book alone. That said, he has balls of steal and is pretty damn good at what he does, but in the oil market being good is a self-fulfilling prophecy; just let the market know what you think and the sheep push your position up for you.

    Second story, which is much more interesting and shows the kind of management that got Citi into its troubles. A few years back the senior management of fixed income (energy, etc.) decided that it was time to expand the book and take a bigger role in the world of oil. They decided that Phibro and Andy would be part of that plan ( a senior exec was heard to say that oil was peaked out at 60$ and since Andy was mere bull trader, he was washed up anyway). Phibro was owned by Citi, but Andy was totally independent, simply enjoying the immense benefits of the bank’s backing without being a team player (toss in a good dose of jealousy from the bosses who were earning perhaps a tenth of his bonuses, mere millions instead of tens and hundreds of them). Three top execs got into a Citi limo and headed north to Phibro’s offices, ready for bear, ready to tell Andy it was Citi’s way or the highway. Halfway there, after talking about how much money he made for the bank and worried about killing the golden goose, they had the driver turn around and head back to Manhattan. Andy did not even hear about this “visit” until a few weeks later.

    The fundamental problem with traders making so much money is the possibility they will lose that much and more. If they want to do it with their own (or stockholder) money, good for them. But Citi and the others are doing it with taxpayer money. NYC, Congress, and Wall Street are rubbing their hands with glee, safe in the knowledge that the good old days are back. NYC gets its taxes. Congress gets it bribes. Wall Street gets the bonuses.

    It’s not good for America as the collapse has shown. This obsession with making money is perverse. Our economy makes nothing but money which sounds wonderful but hides a horrid reality; we don’t make much else. As soon as our bits of green paper are recognized for what they really are, we are screwed. Of course, the rest of America already is so I guess it’s too late.

  58. stuki says:

    @willid3,

    Were it not for direct bailouts and indirect Fed meddling, bank shareholders would learn about appropriate compensation schemes the same way seals once learned about survival in a cold climate. Those among them that allowed policies contrary to their own interest, would no longer be bank shareholders, just holders of worthless certificates of ownership of now defunct banks.

    The pertinent issue to focus on is the bailouts and Fed meddling. And distracting people from doing so, is what all the Washington gibberish about salaries and bonuses are ultimately about. Sadly enough, it even seem to be working.

  59. Mike in Nola says:

    Much of this problem would be self regulating if the free market were allowed to do it’s magic, including imposing liability on those who cause problems:

    1. Take down companies instead of subsidizing them. If the zombies had been been dismembered, there would have been even more massive layoffs from Wall St. as the many money-losing divisions went out of business.

    a. Investment bankers would be only too glad to have a job and there wouldn’t be all this bs about needing to pay outrageously to attract the best people. Supply and demand would work like it does for lesser mortals.

    b. We wouldn’t hear stories about traders wanting their contracted-for bonuses because there wouldn’t have been anything to trade with. GS making huge amounts trading? There wouldn’t be a GS and whatever remained of its trading division would have strict leverage limits.

    If the above had happened, the S&P would be at 500 and few would be clamoring to buy stocks, requiring cuts at the brokerages and, again, forcing down pay. Also, eliminate arbitration clauses and impose fiduciary obligations on brokers so that they have to act like all other professionals. Uncovering any directives like those discussed here requiring brokers to keep clients out of cash because it doesn’t generate fees should be the basis for a lawsuit against the brokerage.

    2. Stop the enforced contributions to Wall St. pay from 401k and similar scams. The retirement system has become a game of which salesmen can wine and dines executives to get ahold of the plan and then see which mutual funds will give the biggest kickbacks for the privilege of getting a cut of the employees’ money on which the funds can levee fees. It’s more about subsidizing Wall St. than about allowing people to save for retirement. In fact many companies now force people to contribute to 401k’s and be ripped off. Whata racket. Impose a uniform limit on all 401k fees to something approximating that of a good etf, as we seen that mutual funds almost never do better than etf’s over the long run. Impose some form of conflict of interest penalties preventing 401k salesman from giving anything of value to anyone at a company for its business, including indirect gifts. This would greatly enforce lean and mean management with lower pay on all the levels that now get a rake off since the only difference between the 401k managers would be their performance.

    3. Impose some separation (haven’t figure out the mechanism yet) between mutual fund management and 401k managements. I hadn’t thought of it before, but someone here pointed out the reason mutual funds did not excercies their power in shareholder meetings was because they were afraid of losing 401k business. I can see how Fidelity would have a clear conflict on this point.

    4. All CEO contracts would have clawback provisions which would reduce/ eliminate/clawback payments if it was shown that the CEO’s actions caused harm to the company or shareholders. Allow shareholders to enforce these provisions.

  60. We are in complete agreement on 1, 3 and 4.

    As to #2, 401K contributions arevoluntary, not enforced — people do it for the tax benefit
    (I have to think some more about #2 . . . )

  61. dead hobo says:

    Industrious people go out and make things hapen in order to make money. Applied to Wall Street parasites, these people will figure out ways to create volatility in order to profit from price swings. Oil would not be priced via oceans of money going into index funds if Wall Street parasites didn’t create them. The oil index funds add no value to society overall and are just a compensation scheme, creating a wealth transfer based on inelastic demand for the underlying commodities.

    Reports last week on revised GDP stated that the oil spice worsened the GDP downturn last year. Thank Wall Street parasites for this.

    BR, you wrote an entire book on bailouts and their cause so the antics of Wall Street parasites should be known to you. Your logic above implies that these hard working folk are entitled to the profits from the theft due to the fact they are opportunistically taking advantage ways to part the rest of us from money. I’m surprised you didn’t use the term ‘innovative financial products’ above in your defense of parasitic behavior.

    Wall Street is primarily one giant compensation scheme. Nothing more. Capital for industry is only an accidental by product at this time.

  62. dead hobo says:

    Just to make my point, let me summarize the important points ….

    * Wall Street manufactures volatility in order to create profit opportunities

    * This volatility raises prices without adding value

    * Other than the creation of ‘innovative financial products’, nothing useful is created. And these products are only useful mechanisms to raise prices and separate people from their cash.

    * Wall Street is primarily a compensation scheme. Capital for productive investment is an accidental byproduct.

    A basic tenant of law is that those who have possession of stolen goods have no better title than those who performed the theft. Wall street manufactured volatility is parasitic behavior. The scale and efficiency makes it theft. Those who are paid to perform the theft or profit by it are not entitled to their spoils.

  63. bonghiteric says:

    Mike,
    Thanks for adding some cogent suggestions to the discussion. My company (a competitor to AIG) just made a 5% contribution to the 401K (Merrill administered) automatic with the opportunity to opt-out. I had never heard of this before.

    To the shrill pitchforking crowd: Hire Brazilian kidnappers and buy them tickets to D.C. Until you do that or undertake some other form of violent protest your vision of breadlines for the taxpayer-theiving bankers, traders, and CEO’s will remain unfulfilled.

  64. mainstreet says:

    This entire topic demonstrates nothing more than the corrupt “Moral Hazards” of the Wall Street mob. They are all LEGENDS in thier own minds. Everyone of them is replacable!!! Everyone with a portable 401K has the ability to get it out of thier hands in a grassroot manner. IMHO, This is going to be a long cold winter.

  65. nbas says:

    I guess I have issue with the “it’s a hard job that few do well.” There are quite a few of those, but most of them don’t even make six figures, let alone seven or eight.

    Unless the economy completely tanks, I can’t imagine it will change. The atitude of “I work with money, I’m more valuable than everyone else” will persist because most people in the country keep hoping that they can get rich quick through some amazing luck in the stock market or even a well picked lottery number.

    I’ll never buy it though…

  66. manhattanguy says:

    Agree with constantnormal and Mark here. Barry you are incorrect in this. The whole firm should take responsibility even if there are a few scums who ruined the business for the company. Ultimately buck stops at the management level. Free market ideology was dead when they involved public taxpayers money to bailour private firms. It is absolutely ridiculous for taxpayers to pay for these sales scums and investment bankers bonuses even when they were the one to f up the economy. If they never relied on our money, I don’t give a hoot about how they are compensated. We live in a bizzaro world. Will this happen again? You betcha.

  67. cvienne says:

    @hrux

    Hey I just wanted to say “thanks” for that link…

    http://www.ritholtz.com/blog/2009/08/looking-at-wall-street-pay/#comment-199609

    It’s a pretty comprehensive BIG PICTURE view which broadly conforms to what’s been on my mind…A couple of quick points…

    - #1, I’m not NEARLY as versed in EW as Andy T is (so I cede to his logic first)
    - I’m aware that there is a great debate among “modelers” as to when the largest of the recent wave counts started. Personally, I’m in the 2000 camp…There are several reasons to think so, but my favorite recent one is when I saw the “inflation adjusted” prices on the S&P for the 2007 highs (they suggest that IAV’s topped out lower than the 2000 highs).
    - Assuming a 2000 high, it fits the 18 year cycle pattern better.
    - As for “where” this bear market rally will top out is anybody’s guess…(I thought 956 might have been it, now I’m working on 1007, and if that gets taken out, 1060…I even have “higher” points in mind…
    - Note: The possibility of “intermediate” higher levels is the thing that is preventing me from KITCHEN SINK’ing it right now on the short side…So for now, for, me, it’s TRADEABLE to go on the short side when markets get stretched, but I exit those shorts rather quickly…Ithink there’s PLENTY of bone on the downside (and the upside is looking more chewed by the day)…
    - One thing I have been doing a little is buying WAY IN THE FUTURE (2011) puts that are extremely out of the money…They’re pretty cheap now with the VIX here in the low 20′s…That’s my insurance policy in case the market just DIVES (like in ’87), and catches everyone by surprise…

  68. willid3 says:

    stuki, i guess you have dealt with management and seen how stock holder are dealt with by them. for the most part, stockholders have little to no control of the company they have stick in. this was accomplished over many decades to keep corporate raiders from destroying good companies as well as bad ones. but now, you as a stock holder have little say in the business. and oddly enough, those by their size holdings in these companies also don’t take active roles, as they claim they are only holders of the stocks. that would be the financial retirement organizations (like stock funds and state retirement funds). they have the investment size in the companies to get management attention, but don’t because they want more money from the companies involved. so they end up not representing stick holders. it has become a corporate monarchy with executives as the monarchy, with the relatively rare coups removing them from power

  69. stuki says:

    willid3,

    Stockholders vote against management by selling their stock. Those that don’t vote against incompetent management in this fashion, will cease to remain holders of stock in going enterprises. No one is forced to hold stock in a bank (At least no one ought to be. Now we all are, but I can’t imagine even the single least sentient numbskull outside of the latter two administrations are still thinking that was a good idea.)

    So, the problem is not who gets to speak at board meetings and such. The problem is that it can be perfectly profitable to invest in a company consisting of nothing but abject incompetents, as long as that company is under the wing of the thugs with guns and printing presses. Or, perhaps, maybe the Goldman crew aren’t complete idiots, just unusually incompetent at what those old-fashioned amongst us still think constitute banking, trading and risk management. While at the same time being awfully good at what really matters in this brave new ‘progressive’ world, namely suckering middlebrow public officials and public school indoctrinated mobs into robbing third parties at their behest.

    And, have no doubt, all the childish banter about ‘regulating Wall Street pay’, is nothing but an attempt to cover up and distract from this robbery. And sadly enough, it even seem to be working.

  70. Fantastic discussion here . . .

  71. [...] So much for the adjustment in banking pay that was supposed to occur post-crisis.  (Real Time Economics also Clusterstock, Big Picture) [...]

  72. [...] Looking at Wall Street Pay This weekend discussion generated lots of good back and [...]

  73. [...] Looking at Wall Street Pay Our last weekend discussion generated lots of good [...]

  74. aupanner says:

    Which is worse – the greed of Management that “put the financial system at risk” or the greed of J6P who never did any independent thinking and dumped their savings into things they didn’t understand.

    I submit that they are one in the same. I have plenty of friends who have resources to invest and choose not. They were smart enough to know they don’t know. they’re sitting on cash. Or houses with no debt. Or expanding their family’s small business. Or being entrepreneurial and trying something new on their own. They’re not parking money is various “public securities” and hoping management does a good job.

    What if the compensation system of these Public Companies is EXACTLY right? What if you’re a fool to invest your hard earned dollars in a situation you can’t control and don’t understand. Aren’t most of the compensation packages publicly available and shouldn’t they be part of an investor’s due diligence? Maybe the term “public” as in publicly traded or public stock creates a misconception that the general public should be protected. If a company (its management and board) wants to burden itself with an expensive employee compensation plan, that should be reflected in the company’s value and stock price. Maybe these solutions for fixing management comp shouldn’t be mandated, but left for the companies to adopt themselves in an effort to attract investors.

    I was going to say perhaps there could be an “accredited investor” criteria that one has to meet before being allowed to invest in public securities – but that won’t fly.

    Why does everyone think that management needs to be altruistic?

    And if you’re going to argue that this system allowed the economy to be put at risk requiring bailouts. First of all, I think they should hall failed. But, since that didn’t happen – if a company poses systemic risk and requires a bailout, why the hell aren’t the dollars funneled directly to the point of systemic risk – and not a 100 cents on the dollar (e.g. AIG -> GS) but at just enough to avoid collapse? Why are employees paid anything? Who cares if star traders leave? We’ve given
    up on making money with this mess, haven’t we ? I thought the point was to avoid the GD or worse. Its like, without a bailout the company implodes and the star trader (and others) would get nothing –well would go to court and get in line. But, with the bailout he expects to be made whole? Wait – I thought it was a bailout of the System, not the employees and not every creditor at 100 cents on the dollar.

    About this $100mm bonus guy from Citi – let me get this straight. Citi is toast, so in need of a bail out in order to prevent Catastrophic Systemic Failure around the world. Fine. Assume we agree on that point. Now we’re worried about paying a star trader? Why is losing a star trader a danger to the global capital market system? Let him leave. If we’re worried because now we “own” Cit, well then isn’t that greed all over again? Why don’t we (the Gov) just write their own contract with him? Let him trade with the our balance sheet…