Posted by Marc Hodak on July 19, 2010 under Politics, Scandal | 
Prof. Larry Ribstein on the Goldman ‘Abacus’ settlement. He predicts that the end result will be confusion about what big banks must disclose:
[W]hat lesson should Wall Street take away from this case? What, exactly, does a bank in Goldman’s position have to disclose to a customer? The identity of another customer on the other side, as the complaint suggests? Only when that customer is somebody like Paulson. What does that mean? Only if the customer has selected the portfolio? What does that mean? Many deals are put together with buyers in mind. Suppose ACA (the collateral manager) assembles the portfolio here with Paulson in mind, and then Paulson says, “that’s for me. Now I’ll invest.” Is this more “material” than having Paulson take the initiative? Suppose they collaborate in putting the portfolio together?
Get ready for even more fine print in our ever less readable disclosure regime.
On the other hand, why bother. If the government targets you, no amount of disclosure will save you.
And, yes, Barry, Larry is a lawyer.
Posted by Marc Hodak on July 7, 2010 under Politics |
From today’s news, regarding how far down the income scale that tax increases are going to hit:
Sen. Byron Dorgan, D-N.D., who chairs the Senate Democratic Policy Committee, said he didn’t think there was “any magic” in $250,000. Sen. Dianne Feinstein, D-Calif., noted “you could go lower … why not $200,000? With the debt and deficit we have, you can’t make promises to people.”
Se. Feinstein, who voted for Medicare expansion and ObamaCare, did not intend irony.
Posted by Marc Hodak on June 9, 2010 under Irrationality, Politics |
In the Nevada Republican primary, Sen. Reid got the tea party-backed “opponent he had hoped to face.”
The Reid camp maintains that Ms. Angle holds many views that lie outside the mainstream.
That may be, but at least Ms. Angle doesn’t hold the view that taxes are voluntary.
Posted by Marc Hodak on June 7, 2010 under Government service, Politics |
Most people would agree that the federal budget is a cesspool of waste. The few who disagree are those who directly benefit from the spending, i.e., our members of Congress. The agencies that spend the money know how utterly wasteful some of it is. Some of it is so useless that even the agencies don’t have the stomach to spend it all. Unfortunately, few agencies have an incentive to not spend money. In my brief stint in government, I’ve experienced the last quarter rush to “use it or lose it.” It is an ugly, cynical process.
Now, the White House is asking for an incentive to not spend it all:
The proposed change would let agencies that save money redirect half the savings to other initiatives, with the rest going toward deficit reduction, an administration official said on Sunday…
“The president’s goal has been to change Washington’s focus from figuring out how to spend money to how to save money, and we are going to incentivize savings instead of spending,” Mr. Emanuel said Sunday.
At least the administration understands economics and incentives as it applies to the decision-making right before their eyes.
Alas, the article suggests the source of opposition to this measure:
It is likely to be welcomed by deficit hawks but could attract opposition from members of Congress who appropriate money, as it would take away some of their control of the federal purse…
Brad Dayspring, a spokesman for Rep. Eric Cantor (R., Va.), said the latest plan sounded “too complex” and “constitutionally questionable.”
“If this administration and Congress is serious about lowering the debt, they should start cutting spending immediately,” he said.
Which proves that economic ignorance/political cynicism is not monopolized by Democrats.
Posted by Marc Hodak on May 19, 2010 under Executive compensation, Politics |
I’ve been following the bonus drama in Missouri as the MOSERS Board of Trustees channeled the envy and ignorance of the mindless mob in denying their retirement plan managers their bonuses just because the fund went down in 2008. Never mind that the bonus plan approved by the Trustees was rewarding managers for several years of outperformance, including during the disastrous 2008. Once the newspapers mentioned the word BONUS, the reptilian part of their brains reacted with: bonus = bad, and the board stripped the bonuses from their managers, reneging on their deal.
The board subsequently commissioned a compensation study. The study told the board that even with the bonuses, the investment staff would only be getting 92 percent of median pay. That’s below-median pay for above-average performance if they had gotten their bonuses. Via PLANSPONSOR:
The retirement system’s board of trustees commissioned the study to help set new pay levels for next fiscal year, and a compensation committee has reviewed the options. Committee chairman Bob Patterson said members will vote by e-mail this week, and the recommendation will go to the full MOSERS board in June, according to the Post-Dispatch.
So, if they follow traditional form, Missouri will end up paying their fund managers a higher total compensation than they otherwise would have by leaving the bonus plan intact, with none of that compensation in a variable form that would advantage the fund and retirees by providing the proper incentives.
I spoke to Gary Findlay, MOSERS Executive Director, when the bonus spat first broke out. He then believed that one could make the state agency work as well as a private fund. I think Gary is an honorable fool. On the other hand, it’s not like Goldman or any other private sector outperformer has been spared bonus envy.
Posted by Marc Hodak on May 13, 2010 under Politics |
At Wharton, I was taught that there was exactly one reason to invest in an asset: you would get more out of it than you put into it. That’s the definition of value creation. So, why would anyone invest in ShoreBank, a bank that has proven to be a massive money loser?
People familiar with the situation said Goldman initially declined to invest in ShoreBank. Within the past week, people familiar with the effort to save ShoreBank say Goldman agreed to commit about $20 million to the bank. That would make it one of the largest investors, according to people familiar with the talks. Goldman Sachs declined to comment on its involvement in the rescue effort.
Well, it would be difficult for Goldman to publicly acknowledge that it’s basically donating $20 million as a political sop to President Obama. But that’s what they’re doing. They aren’t the only one:
If Goldman invests, it will join a group that tentatively includes Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co., among others, people familiar with the discussions say. BofA, Citigroup and J.P. Morgan all declined to comment.
Because it would be really tough to say, “President Obama has let us know that he would really, really appreciate it if we helped out ShoreBank. He’s just concerned about them, you know. And he has our nuts in his grip.”
Another Illinois politician was slightly more direct.
Bill Brandt, chairman of the Illinois Finance Authority, said. “I know that Mr. Blankfein and his marvelous organization have been much in the news of late, and I can sympathize with their desire to change the narrative.
If Goldman could change the narrative for a mere $20 million, they’d do it in a second. But one can only change the narrative if one looks like they are doing this thing all on their own, and not because they are being shaken down by the feds and state.
A spokeswoman for Eugene Ludwig, a former U.S. comptroller of the currency who is working with ShoreBank to raise capital, said the White House and Chicago city officials haven’t been involved in encouraging the fund-raising effort among big banks, describing it as “totally a private-sector initiative.”
But of course. So, again, why is this particular bank of such interest to the rest of the private sector?
“There’s been a lot of very determined voices about doing it because it’s the right thing to do,” a person familiar with the effort to save the bank said. “It’s an important institution, an icon, and we don’t want to see this one fail.”
President Obama drew attention to the bank’s micro-lending efforts while traveling in Nairobi as a senator. ShoreBank co-founder and now president Mary Houghton offered guidance on small-business lending to Mr. Obama’s mother, who worked on similar issues in Asia. Officers and employees of ShoreBank gave Mr. Obama’s 2008 presidential campaign a total of $12,150, according to data from Center for Responsive Politics.
In January, the Illinois Finance Authority considered assisting ShoreBank. Mr. Brandt, the authority’s chairman, said he and George Surgeon, ShoreBank’s CEO, are childhood friends, and Mr. Brandt was sympathetic both to ShoreBank’s “historic” status and to its request for a state bond issue to finance a bailout.
So, private banks are making this investment because:
- It’s the right thing to do
- The bank’s leadership and the President go way back
- The state finance authority chairman and bank’s CEO are childhood friends
Nothing about NPV or ROI, except some mention that the bank has long since been ignoring those factors, which all adds up to my favorite explanation:
“Sometimes a bank like ShoreBank has to rely on karma, and the planets seem to have aligned to provide some karma with respect to this particular deal,” Mr. Brandt said.
Yeah, planets aimed at the bankers’ testicles. Welcome to the new world of political lending.
Posted by Marc Hodak on April 25, 2010 under Politics |
The WSJ reports:
Hugo Boss reversed a decision to shut down a factory in Ohio, succumbing to an aggressive union-led campaign against the German fashion house and its private-equity owners.
Of course, unions have every right to resist the loss of jobs. They also have the right, recently enhanced, of lobbying the legislature to affect union-friendly rules, even if said rules constrain the freedom of employers, consumers, and non-union workers.
But what kind of politician would threaten whole, productive sectors of the economy in order to protect a few hundred jobs? A politician beholden to union support:
Top Democratic political officials in Ohio including U.S. Senator Sherrod Brown and Governor Ted Strickland voiced their support for the union. Mr. Brown announced hearings that had been scheduled for next week on the role of private-equity firms and the U.S. economy.
Senator Brown of Ohio, of course, could look up the “role of private equity firms and the U.S. economy” in a textbook on economics. What the reporter really meant is that Senator Brown of Ohio is looking for a way to intimidate PE firms into sacrificing their investors’ interests in order to serve his parochial, political interests.
Posted by Marc Hodak on April 21, 2010 under Collectivist instinct, Economics, History, Movie reviews, Politics, Reporting on pay, Stupid laws |
The IMF is pushing for a bank tax:
[T]o pay for the costs of winding down troubled financial institutions, the IMF proposed what it called a Financial Stability Contribution”—a tax on balance sheets, including “possibly” off-balance sheet items, but excluding capital and insured liabilities. That tax would seek to raise between about 2% to 4% of GDP over time—roughly $1 trillion to $2 trillion if all G-20 countries adopted the tax.
On top of that, the IMF proposed that nations to adopt what it called a Financial Activities Tax, levied on the sum of profits and compensation of financial institutions. That would be paid to a nation’s treasury to help finance the broader costs of a financial crisis…
The IMF said that a nation didn’t need to put in place a specific resolution authority. Instead, the tax money could go to general revenues and used in case of financial crisis. But the IMF warned that the money would be spent by the time a problem arose.
OK, so let’s see how this would work. Congress levies massive new taxes on every major bank. Congress would then spend that money on…stuff. A financial crisis hits, and certain TBTF banks get into trouble. Congress bails them out, having to borrow gobs of money to do so because the tax revenues that were nominally for “Financial Stability” were in fact spent on…stuff.
So, how is this different from what happened last time? Hard to see. Does it do anything to reduce the systemic risks that regulators insist were at the root of the last crisis? No. Does it strengthen the banks to make them better able to weather such a crisis? Not likely when so much money of their capital–enough to raise between 2% to 4% of GDP–is being sucked out of their coffers. At least if the money were being held in a trust fund instead of dumped into general revenues, it would be there for frenzied politicians to disburse based on the rational workings of the government. But, of course, the money will not be there. It will have been spent not to support the financial system, but to support the reelection of incumbent politicians–the most short-term actors on the planet.
Oh. Yeah. THAT would be the difference.
So the lesson from all this appears to be: When it comes to a justify raising taxes, any excuse will do.
Posted by Marc Hodak on under Politics, Scandal |
Few mechanisms have a greater impact on democratic governance than gerrymandering. Having incumbent politicians redraw districts entrenches them to the point that their reelection rate exceeds 95 percent. To paraphrase Yakov Smirnoff, in gerrymandered districts the voters don’t choose their representatives; the representatives choose the voters.
Gerrymandering enhances the power of political parties since all of the action is in the primaries, and the general election is a forgone conclusion. Many districts throughout the country have not changed party hands in decades. Thus, any challenges to gerrymandering have been briskly opposed by the parties even more than by the incumbents. In fact, the more talented politicians, the ones who could win in competitive elections, would likely benefit from reform since it would bring them out from under the thumb of their party bosses.
It’s hard to imagine a circumstance where the parties that control the redistricting process would agree to reforms that would reduce their power. But such a circumstance appears to be taking shape in New York. New York’s legislature is arguably the most dysfunctional in the nation. It is legendary not only for its brazen corruption, but for the open institutionalization of this corruption. After a string of scandals, the door may now be open to a reform movement that is attacking this corruption at its root by proposing to eliminate gerrymandering.
A coalition of brand-name New York politicians and good-government groups are getting every gubernatorial candidate to promise, in writing, that they will only sign off on a redistricting plan drawn up by a non-partisan commission. Whether or not the elected governor will actually veto anything less than that remains to be seen. Whether the governor’s veto of anything less will stand in a gerrymandered legislature remains to be seen. One has reason to be hopeful on the first question. The leading candidate for governor is Andrew Cuomo, despite the fact that he hasn’t officially announced his candidacy. Andrew’s father, former governor Mario Cuomo, is one of the leaders of the reform campaign. After all, it’s no great honor to be lord of a cesspool.
Posted by Marc Hodak on March 24, 2010 under Collectivist instinct, Invisible trade-offs, Politics, Stupid laws |
The Senate Banking Committee is now taking up the Dodd bill to re-make the financial services sector more into the image of how the government thinks it should be run, e.g., more beholden to Congressmen. Senator Menendez (D-NJ) offered an amendment to include disclosure of pay disparity, i.e., the ratio of CEO pay to the pay of the average (non-CEO) employee in the company. It’s clear that this amendment is meant to inflame passions about CEO pay, and nothing more. It won’t change what CEOs are paid because the premise behind this amendment, like so much else about pay regulation–that CEOs are paid arbitrarily high amounts–is wrong. CEOs are, on average, paid what the market says they’re worth, a law of supply and demand that Congress cannot rewrite or amend, only distort.
One of the many possible distortions that come to mind would be an increasing trend to outsource low-skilled (and, therefore, low-paid) help, either to temp or admin agencies, or overseas. That would help reduce that ratio. It would also help to bring in-house the employment lawyer who will have to make the silly legal distinctions between who is an “employee” for the purposes of this bill. Would a part-time worker be included? Interns? A lawyer skilled at such useless arcana would presumably bump up the average.
Hey, Senator, if you’re looking for useless ratios, why not mandate disclosure of the highest price product sold by a company versus its average priced product? Or something slightly more productive like the ratio of the highest tax versus the average tax jurisdiction they operate in?
HT: Broc Romanek
