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
Posted by Marc Hodak on March 6, 2010 under Governance, Politics |
The main reason that the USPS will never make any money is that it can’t get rid of its infrastructure. It must have a post office in every district and letter carriers visiting every house six (soon to be five?) days a week. They can’t get rid of their post offices because Congress pays the bills, and no congressman is willing to let their post office get shut down. They won’t give up universal delivery because their unions, who help elect those congressmen, don’t want to give up those jobs with, say, requiring rural people to come into town to pick up their mail, like they do their groceries and sundries.
I know there are all sorts of other arguments out there about why we need a postal service in the age of the internet, with UPS, FedEx and a whole industry of couriers and delivery services, etc., but they’re all irrelevant against the political considerations. With congressional support, the USPS exists in its present form. Without congressional support, it doesn’t.
Now that Congress has similar control over Government Motors, are we seeing the same political pressure take hold in that firm?
GM would not offer any details on Friday about which dealerships it was reinstating and where they are located. It said it chose the 661 based on a variety of criteria, including sales and other business factors.
For you, my loyal readers, I have obtained the criteria and their weighting from an unimpeachable source. Here they are:
1) Is the dealership in the district of a congressman or woman on a key house committee? (40%)
2) Is the dealer’s owner a major contributor to the political campaign of a key congressman or woman? (30%)
3) Will our losses from keeping this dealership open be less than the congressionally imposed costs of arbitration required to shut them down? (25%)
4) Is there anything else about this dealership’s sales or other business factors that we didn’t consider when we originally decided they weren’t worth keeping around that might have gotten us to change our minds? (5%)
What I don’t understand is why the media that reported this are pretending that these factors are being weighted any other way.
Posted by Marc Hodak on March 2, 2010 under Innumeracy, Politics |
The first premise of the story is ludicrous enough: The Obama administration may require every new automobile sold in the United States to incorporate a brake override.
“We’re looking at it,” LaHood told the Senate Commerce Committee. “We think it is a good safety device.”
We? You mean the auto designers and builders in the Department of Transportation, that well-known bastion of quality manufacturing? The agency that, according to Senator Rockefeller “would rather focus on floor mats than microchips because they understand floor mats?” Those guys should be tasked with second-guessing Toyota’s engineers? Please, please, please let me wager against any of them that the net effect of their interference on this will be a net loss of highway safety, with autos all over the nation’s highways suddenly stopping as drivers maneuver to momentarily avoid something with a van riding just a little too close behind them.
Senator Rockefeller, desperately seeking to destroy far more economic value than was created by his illustrious grandfather, began with the conclusion that every legislator draws: “The U.S. government has to do a much better job of keeping the American people safe.”
Yes, the government of a nation that tolerates 35,000 auto deaths per year is gearing up its magnificent machinery to take on a problem that is alleged to have caused all of 5 deaths since 2007, and perhaps 52 deaths since 2000, with even that latter number being mere allegation provided by cowering agents whose funding depends on giving their congressional masters exactly what they want to hear. That way, our legislators can studiously ignore the fact that in the trillions of miles driven per year, the average driver is far less likely to die in a Toyota than in most any vehicle made by the auto companies they directly oversee, makers of the most unsafe vehicles in the land, according to the government’s own crash testing.
And when you thought your “You can’t be serious!” clown nose couldn’t shine any brighter, the second premise of this story–that the government may restrict Japanese-made vehicles–turns it blinding red with this from Nebraska Senator Mike Johanns:
Read more of this article »
Posted by Marc Hodak on January 26, 2010 under Executive compensation, Politics, Scandal |
Last November, the Government Accountability Office released a report titled “PRIVATE PENSIONS: Sponsors of 10 Underfunded Plans Paid Executives Approximately $350 Million in Compensation Shortly Before Termination.” At the time, I was wondering: Gee, how did they pick those ten companies?
Not really. Anyone familiar with politics knows exactly what the criteria was–it was blazoned on the title of the report. The more interesting question is: What exactly is the link between unfunded pensions and executive pay that the government would consider it worth highlighting in a few hundred pounds of wasted paper?
It’s a weak link. Benefits consultant Michael Barry snaps it with some hard sense:
Obviously, out in the political atmosphere, these two things—PBGC liability and executive compensation—are connected somehow, but is there a logic to that connection?
Certainly, you’ve got to pay an executive something, and who is to say that in these circumstances this $350 million wasn’t the right amount? It’s clear that there are, anecdotally, instances that could only be called grotesque abuse. Also without doubt, there are companies out there (perhaps not these 10, which apparently all went bankrupt) with executives that are underpaid. In real life, if you want to win, you’re going to have to pay for talent.
Moreover, why exactly is executive compensation the PBGC’s problem? Couldn’t you make the same argument about corporate charitable giving? Every dollar of matching grants that these companies paid the United Way could have gone to fund the pension plan. Why pick on executives? Why not pick on the company day-care center?
Or, why not pick on regular employees? Surely there are some rank-and-file employees out there who are overpaid. According to The Wall Street Journal, the UAW jobs bank program cost U.S. automakers $1.5 billion in one year—2006. These were “employees” getting paid not to work.
Of course, there may be perfectly reasonable reasons for giving to the United Way, or providing a day-care center, or providing a jobs bank. There also may be perfectly reasonable reasons for paying executives managing companies through difficult times big salaries and bonuses. Or there may not. However, the government—is there any money being wasted on government employees I wonder?—is in no position to tell which is which.
That last point bears repeating. What standard does an outsider use to determine if a company is spending too much or too little on anything, especially something as difficult to value as senior talent?
Barry’s conclusion is not something we see in the mainstream media:
The point being—if it’s not obvious—that there is no necessary link between executive pay and unfunded benefits. The idea that there is, is simply an appeal to envy—which is, you know, a base instinct. (Some of us actually think it’s a sin.)
And some of us think envy is every bit as bad a sin as greed–much worse if it has state force behind it.
Posted by Marc Hodak on January 25, 2010 under Irrationality, Politics, Scandal |
So, you offered your investment managers an extra 50 cents for every $1,000 they make you as an incentive to better performance, i.e., more money for you. Then you got the best performing investment management in the whole industry. They earned you an extra $6,000, for which they are entitled to a bonus of $3. So, now you:
A) Increase the incentive to 60 cents–maybe the extra incentive will motivate even better performance going forward;
B) Pat your managers on the back, and keep the existing incentive in place. No need to get greedy;
C) Ridicule your management for being paid a BONUS, calling it “unconscionable,” try to take away what they earned, and cancel the whole incentive program, and their cost-of-living increases to boot.
The state of Missouri chose C.
The title of this post is attributed to Gary Findlay, head of the investment management team that had performed so well, only to be berated for it by his ignorant, spineless bosses.
Addendum: My wife considered the last comment unusually harsh for a sober blog. I am willing to admit that I overstated my critique of Findlay’s bosses. He has at least one who is not ignorant or spineless.
“By any objective standard, MOSERS is the best fund in the country,” said Senator Jason Crowell, a Cape Girardeau Republican who cast the lone dissenting board vote, according to the AP. He said the board should not change its policy based on “newspaper articles and political speeches,” and said taxpayers could ultimately lose money if the system’s rate of return fell because talented staffers left.
Thanks, Sen. Crowell, for standing up for reason against the thankless mob.
Posted by Marc Hodak on January 14, 2010 under Politics, Reporting on pay |
Could a so-called news report begin with any louder bias than this?
The fat cats were supposed to get their comeuppance.
If we’re going to assume that the market for talent doesn’t exist, which this entire article does, then, sure, I can see the problem in banks refusing to simply cut back on what they pay their people. But why not assume that the market for real estate is arbitrary, too, and lament the fact that banks are still paying almost the same rents as they did in 2007? Or that the market for loans is arbitrary, and lament the fact that banks could simply charge less interest to everyone?
One thing that apparently doesn’t change is the market for envy, which is counted in circulation and votes. If you can tap into that ever more profitably, you’re considered quite a fine fellow.
Posted by Marc Hodak on January 11, 2010 under Politics |
The Central Laborers Pension Fund, an Illinois pension, is suing Goldman Sachs over the approximately $20 billion that the firm is looking to pay out in bonuses for 2009. Their rationale:
Defendants’ conduct shows that, even though Goldman is supposedly owned by public shareholders, defendants have scant regard for the interests of those shareholders.
This suit shows that the Illinois pension fund has scant regard for the evidence to the contrary regarding how Goldman Sachs’ takes care of its shareholders. Before 2008, in a decade of market outperformance, the firm paid out nearly 50 percent of net revenues in a combination of cash and shares to its employees, most of it in so-called bonuses. In 2008, when Goldman Sachs underperformed the entire financial services sector by about 10 percentage points, they paid their senior executives zero. In 2009, when they outperformed the financial services sector by nearly 100 percentage points, they intend to pay out 40 percent of net revenues in bonuses, all of it in the form of restricted shares.
Given these facts, it’s hard to see this lawsuit as anything but a waste of money by this pension fund’s leadership, who appear to be using their pensioners’ cash to indulge in political grandstanding. Who is breaching their fiduciary responsibility here?
