Friday, March 21

Socialized Compensation

Some comments on a mailing list on this editorial.

Releasing compensation over 3 years is what happens with most of the investment banker’s compensation and this has been the rule, well, I can only confirm from 1995. You only get a piece every year. And more importantly, the compensation is generally 80% in stock. So their performance is firmly tied to the bank’s performance.

What floor is he talking about? Stocks have been burnt literally to death and stock wealth is near zero, it sounds like the editorial author would like the investment bankers to be feathered, tarred and drummed out of town.

Also, just to let the chappies know, Bear Stears was the counter-party to trillions of dollars worth of deals with financial institutions around the world. If the bear had gone under, not just the bankers, but the world financial system would have seized up.

What the Fed (and rest of the central banks) are doing is to make sure that the wholesale markets, which have seized up, are open and functioning. If that seizes up, then you have much more than just a bank going under which is the problem.

Have you seen the world trade figures? Last December, the world trade figures were ZERO growth and a large reason for that (despite bludgeoning commodity and agriculture and industrial production, import/exports) is that the wholesale markets are literally frozen despite the dollops of money shoved into them by the Fed and other central banks)

Driving off the cliff periodically is a feature of human history, asset bubbles have been identified going back to ancient Egyptian times (there have been runs and bubbles on land, beer and agricultural commodities, wood, etc.… ).

We will have a million properties (and rising) overhang in the USA, the dreaded inflation monster rampaging, food prices increasing…, this recession has a long way to run yet.

Just some of my disjointed thoughts

Have a good Easter, folks


Bhaskar Dasgupta (for shorter daily comments) (for longer weekly essays)


No comments: