Posted by Marc Hodak on June 8, 2009 under Politics | 
Or that’s what I thought. Here is a description of a recent celebration for every banker’s favorite guy:
Last week, 600 people, including executives from Goldman Sachs and J.P. Morgan Chase, filled the cavernous National Building Museum in Washington, D.C., for a $5,000-per-table tribute to the chairman of the House Financial Services Committee. He is marshaling legislation that promises to make Wall Street a more regulated and less prosperous place for years to come, and to hear it from some of the bankers at the event, they couldn’t be happier that a tough-talking, capital-L Liberal Democrat from Massachusetts is leading the charge to rewrite their futures.
Yes. Couldn’t be happier.
Posted by Marc Hodak on June 7, 2009 under Patterns without intention |
This time...
...it is based entirely...
...on science!
When it comes to “global warming scientists” Freeman Dyson puts lays it out so beautifully:
The whole livelihood of all these people depends on people being scared.
Really, just psychologically, it would be very difficult for them to come out and say, “Don’t worry, there isn’t a problem.” It’s sort of natural, since their whole life depends on it being a problem. I don’t say that they’re dishonest. But I think it’s just a normal human reaction. It’s true of the military also. They always magnify the threat. Not because they are dishonest; they really believe that there is a threat and it is their job to take care of it. I think it’s the same as the climate community, that they do in a way have a tremendous vested interest in the problem being taken more seriously than it is.
If someone is paid to say something, that doesn’t necessarily mean they’re lying–not by a long shot. But it does color what they say, because you know they couldn’t possibly say otherwise, even if that were the truth. I don’t expect an advocate to be balanced. But I never confuse an advocate for a scientist, even if one could be both.
Posted by Marc Hodak on under Executive compensation, Stupid laws |
Model of current TARP compensation rules
According to our private sources:
The Obama administration plans to appoint a “Special Master for Compensation” to ensure that companies receiving federal bailout funds are abiding by executive-pay guidelines, according to people familiar with the matter.
They appear to be set to name Kenneth Feinberg, a lawyer, whose main qualification appears to be that he had the word “compensation” in his previous title. His job will be to sort out the contradictory, illogical morass that Congress has created for TARP recipients. Good luck Ken.
Posted by Marc Hodak on June 4, 2009 under Executive compensation, Politics |
There has been a lot of talk about Say on Pay, i.e., putting executive compensation packages up for shareholder vote. The U.S. government about to force every public company to submit to this policy. This is considered a corporate governance matter, i.e., something for the putative benefit of the shareholders. Unfortunately, debates over corporate governance policies rarely offer analysis of how the shareholders are actually likely to fare under a given policy.
Jie Cai and Ralph Walking of Drexel University recently published such an analysis for Say on Pay. The results will startle, well, no one.
Basically, they found that firms “with high abnormal CEO compensation and low pay for performance” benefit under a Say on Pay regime. If the CEO does not fall into the overpaid camp, Imposing Say on Pay will destroy value for the firm.
So, what is the net effect on shareholders if we impose Say on Pay on every public company, where the vast majority of them do not have overpaid CEOs? That’s right–shareholders as a class will suffer. But, hey, it’s a small price for the shareholders to pay so that our politicians can demogogue the issue for a few extra votes. And in the new definition that whatever is good for our politicians is “patriotic,” shareholders of well-governed firms should feel pretty darn proud.
Posted by Marc Hodak on June 3, 2009 under Executive compensation |
Recent research finds a significant correlation between something called prepaid variable forward contracts and negative relative returns to shareholders.
In layman’s terms, the executives are selling their firms short (after a fashion), and their stockholders are suffering afterward.
Now, executives can’t actually sell their firm’s shares short. That has been illegal since the Erie Railroad scandal in the late 1800s. But executives are allowed to sell their company’s shares that they own, and they are allowed to sell those shares in forward contracts, i.e., an agreement to sell them in the future. Why would an executive do this?
Supporters of the contracts say they help executives with concentrated exposure to company stock diversify while retaining voting rights for the shares until the contract ends.
The problem is that shareholders don’t want their managers to diversify. They like having the pilot in the front of the plane without a parachute. Read more of this article »
Posted by Marc Hodak on June 2, 2009 under History, Irrationality |
On a recent trip to D.C., I got some change from a vending machine, and thought, “Damn, someone managed to get a fake coin into the change box.” It looked like a casino token. I was pissed. When I looked more closely, I got confused. It’s markings said United States of America and indicated a value of $1. I shrugged and put it in my pocket. Shortly afterward, I saw a sign on the wall that read:
I read that one line twice: “They Save the Nation Money.”
Once upon a time, the currencies of choice were gold or silver. These precious metals had many properties that made them especially useful as currency– they were scarce, portable, and divisible into any useful denomination of coin. People using such coins in exchange could be reasonably certain that the next person in the chain of commerce would accept it at an equivalent value for which they received it. The only problem was that these metals had to be weighed for each transaction.
Monarchs exploited the opportunity to create greater trust in commerce by minting uniform denominations with the seal of the sovereign stamped on the coin. The stamp assured its value. To enhance the credibility of that stamp and protect the value of the coin, the sovereign threatened penalties to anyone representing a debased version of the coin as the real thing.
Eliminating the need for scales in every transaction was a huge advance in commerce, equivalent to the replacement of cash and checks with credit cards. The monarch capitalized on the value of his stamp by selling officially minted coins to banks for slightly more than they were nominally worth in bullion, which banks were willing to pay because the demand for the coins was high. This profit was called seigniorage.
Alas, monarchs didn’t enforce anti-counterfeiting laws against themselves. When they began to debase their coins, their currency suffered from inflation, and their people began reverting to other trusted coins, or to bullion and scales. To enforce their debasement, governments began forcing their people to use the debased currency via legal tender laws. The history of how seigniorage transformed from a game of narrow spreads into a large-scale, legal counterfeiting operation is long and sordid, but it has finally, apparently come to this:
The U.S. government now advertises that the coins it wishes the public to circulate have minimal intrinsic value.
I understand that the government is promoting this as a savings versus paper bills, which cost less per dollar to produce, but must be replaced more frequently, making their overall cost higher than the equivalent currency in coin. Still, I’m astounded that minimizing the intrinsic value of what is in circulation is being sold as a public benefit. I’m not yet sure how it’s being bought, but I can see a whole bunch of otherwise thoughtful people nodding, “That makes sense.”
