End Bonuses For Bankers 548
theodp writes "NYU risk engineering prof Nassim Nicholas Taleb has a suggestion that won't sit too well with the banksters. In his NY Times op-ed, Taleb writes: 'I have a solution for the problem of bankers who take risks that threaten the general public: Eliminate bonuses.' The problem with the bonus system, Taleb explains, is that it provides an incentive to take risks: 'The asymmetric nature of the bonus (an incentive for success without a corresponding disincentive for failure) causes hidden risks to accumulate in the financial system and become a catalyst for disaster. This violates the fundamental rules of capitalism; Adam Smith himself was wary of the effect of limiting liability, a bedrock principle of the modern corporation.'"
Except that.... (Score:5, Insightful)
bankers will still upset the market on purpose for bribes, much like how politicians lie to (and upset) voters because of what amounts to bribery....
Re:Except that.... (Score:5, Insightful)
Yes, but they won't upset it systemically in the way they do now.
Re:Except that.... (Score:5, Interesting)
Well they are doing exactly what they were meant to do just
like the 21 other instances of major inflation in the past 25 years.
As John Perkins clearly explains the economic destruction of
nations has been by design.
http://www.youtube.com/watch?v=yTbdnNgqfs8 [youtube.com]
We need more inflation (Score:3)
I don't have time to watch a 53-minute YouTube video, but in case you haven't been paying attention, inflation is not a problem in this country right now. Interest rates are at record lows. In fact, rates on some T-bills are negative. This means that people are paying the federal government for the privilege of lending it money [treasury.gov].
We could do with a lot more inflation in the near term. It would accelerate economic growth, and it would cause the debt held by many middle-class people to shrink in real terms.
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Since the systematic disruption is largely due to conflicts of interests (many of which are directly enabled by the elimination, in the 1990s, of regulations imposed in response to the same conflicts and their contribution to the previous economic dislocations) that affect financial services firms and not bonuses paid to individual executives, eliminating bonuses paid to individual executives is unlikely to stop the systematic disruption.
It mi
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More to the point . . .
http://www.theatlantic.com/business/archive/2011/11/no-wall-street-bonuses-arent-destroying-the-economy/248093/ [theatlantic.com]
Re:Except that.... (Score:4, Insightful)
>. These pay levels are based on the market value of the services that they provide
No most of these guys can't beat the market they provide ZERO service they're just sitting close to a river of money
Exactly (Score:3)
Great link! I agree that the real problem is that we have these firms that are too big to fail. Asset price bubbles (like internet stocks and real estate in the past couple decades) are going to to happen, but we must not support firms that exacerbate the issue with a government guarantee.
Re:Exactly (Score:5, Insightful)
This is the solution proposed by Paul Volcker, and for my money it is the correct one.
Re:Exactly (Score:4, Insightful)
Think of it from a military point of view, If my company had a private security force, that rivaled the US/Chinese military, would they let me keep it? Then why the fuck is a company allowed to wield the same economic power?
Re:Exactly (Score:5, Insightful)
Funny how historic problems repeat themselves, and we let it. East India Company was so big and its reach so massive that it had it's own flag, its own military, and its administrative section was larger than most governments. Eventually even government officials, who were quite comfortable with someone else managing their nasty colonial duties, began to realize that they had outgrown their own britches and started systematically taking them apart.
Re:Except that.... (Score:5, Interesting)
I believe this is how it would work out according to Taleb.
1) Banks cut salaries/bonuses
2) Lot of workers leave
3) The banks can't do much else other than old fashioned banking
4) Hedge funds partnership based pick up all the "cool stuff"
5) Since partnerships and hedge funds do not have "Limited Liability" , they are much more careful
The Atlantic article is incorrect in using the Lehman example. Taleb's point is that a partnership with unlimited liabilities would never have gotten into the situation Lehman got into. He does not say that Lehmans corporate structure mattered in any way after Lehman got into the situation it did.
Unlimited liability + Bonus is a very different incentive compared to Limited liability + Salary which are both better than Limited liability + Bonus.
If you were a trader who could do a billion dollar trade that had 50% chance of winning that would fetch you a million dollar bonus and 0 liability (except loss of job which pays you 100K a year), you would likely take the trade if you thought of sticking to the job only for 5 years. But you would be less likely to take it if you had unlimited liability.
Re:Except that.... (Score:4, Insightful)
That's just theoretical wankery. Remember the joke: An economics professor and his student walk down the street. The student sees a $100 bill on the ground and stoops to pick it up. His professor stops him and says "leave it, it's fake, otherwise somebody would have picked it up already".
People accept the threat of unlimited liabilities all the time in all sorts of situations. For example, criminals have a threat of life in prison or even the death penalty, and yet they still elect to take the risks. Students take loans that could and probably will take half or more of their lifetime to repay. From the student's POV, that's pretty close to unlimited liability. Soldiers who volunteer to go to war face the threat of being maimed or killed with high probability. That's an unlimited threat of liabilities, and yet millions do it.
The point is that Taleb's argument is flawed, human nature is vastly different from the rosy ultra-rational toy model that many economists and bankers paint the world to be. Lehman with unlimited liabilities would have behaved essentially exactly the same way.
Re:Except that.... (Score:5, Insightful)
Except that they create nothing of any real value and is of limited utility.
Finance, Insurance and Real Estate (FIRE) should not be the engine of any economy. It can support and facilitate it but when it becomes the prime mover. Well, then you're just fucked.
Not sure how Services (flipping burgers, IT support, etc.) fall in there but a service based economy sucks as well.
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http://www.theatlantic.com/business/archive/2011/11/no-wall-street-bonuses-arent-destroying-the-economy/248093/ [theatlantic.com]
Translation: His friends in the business like their bonuses.
Imagine your contract gives you 10% of what profits you make for your company during a calendar year. But it's December 31, and your balance is at zero, you're looking at no bonus at all. Now, if you could take $1M of the company's money to the casino and put everything on red, would you do it?
Of course you would, if you live only for money, as Daniel Indiviglio suggests. You have an 18/38 chance of winning with a $100K bonus to follow. And you h
Re:Except that.... (Score:5, Insightful)
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Or just restructure the market a tiny bit so this job doesn't exist in the first place. It contributes nothing of worth to our society.
Re:Except that.... (Score:5, Insightful)
Bullshit. Their stress is nothing compared to what we routinely ask soldiers, detectives, judges, and other people to do for a fraction of the pay. They hardly ever even get shot at, although that might change if the poor keep getting pushed up against the wall.
This bs pisses me off. Over privileged drones who voluntarily chose a career of gambling other people's money and got rewarded all out of proportion to their success want sympathy for their ulcers- fuck them. Go tell some single mother fry cook in a ghetto how hard their job is and see how hard she laughs.
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Thank you for speaking for me, a former armored cav officer, who could have sworn he knew a little bit about what stress was after Desert Shield/Storm. You're part of that same group you are holding yourself oh, so superior to. I can think of at least a dozen other Slashdotters here who could show you and the OP a thing or two about enduring real stress. Cheap sophomore cynicism is just that, and you are contributing absolutely nothing to this conversation. You're a tapeworm, sticking up for another tapewor
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Instead of paying people based on their self-inflicted stress levels, imagine paying people based on value delivered to other human beings.
Or we could just pay them based on supply and demand. There's just something screwed up with the supply/demand ratio, because these fraudsters, gamblers, and self-deluded financial geniuses aren't in short supply.
Re:Quit the generalization crap (Score:4, Insightful)
You're funny, you were insightful until you started calling the President a liar. How do you reconcile that despite Goldman Sachs people being brought in, that the President actually did propose to congress what he promised while campaigning and he's met nothing but staunch opposition from Republicans who's stated goals are to make him, the President of the United States fail. You should probably look at the number of proposals the executive office has put forward to the legislators only to have little to no progress in return even when it is their own proposals.
So rather than trying to portray the issue as black and white and cloud the problems with the banking industry by blaming government maybe you should realize that both are messed up and in need of serious reform, reform that McCain as a Republican proposed during the Clinton years with compaign finance reform. Then there is the need to put taxes back to where they were in the Clinton era, then put Glass Steagel back in for regulation of the financial sector and you start the process of developing a sane road to real recovery.
I look forward to the day when we can have rational debates that don't involve Republican versus Democrats and instead revolve around actual problems that need solving, like alternatives for oil, infrastructure rebuilding, energy generation, healthcare, and the myriad of other actual problems.
Re:Except that.... (Score:4, Insightful)
By asserting what is obvious is not true, you claim "reasonable" discussion?
This is why people are marching on the banks. Because fucksticks like YOU work so hard to keep the issues muddy when they are really quite clear.
Bankers are the main cause of our destroyed economy. They have so far failed to hold themselves accountable for that (big laugh), and our system is so rigged that it won't hold them accountable either. So the people are going to the streets to hold them accountable.
And before you start spewing anymore defensive horseshit, just keep in mind that the reason people are in the streets now is that we've fucking got nothing left to lose, 'cause you and your useless, greedy, lazy banker buddies have taken everything we have.
Re:Except that.... (Score:4, Informative)
Fannie Mae and Freddie Mac purchased the bundled loans, they didn't do the actual bundling. The bankers bundled the crappy mortgages up with the AAA one and then flipped them into the fund market. How the hell they could get away with lending to NINJAs is ridiculous.
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No, no, you LIEberals don't see it! Standard & Poor, Moodys, and the rest are arms of the federal government, wholly owned subsidiaries of Freddie Mac. They gave those high ratings to junk bundles cause Obama ordered them to, six years before he got in. They had to do it for all those investment banks who weren't actually subject to any of the rules about lending, since they weren't lending banks. That's how government lending rules caused all this. OOOOPPS! New Big Lie needed! Alert! Alert! Anyone ex
Re:Except that.... (Score:5, Insightful)
You also had a law passed in the Carter years to make it easier for people who couldn't (and as we can now see, shouldn't) have been granted a mortgage provided one. This law got itself teeth during the Clinton years to aggressively push these high risk mortgages out there, or the banks would suffer fines. All of this backed up by federally created Fannie Mae and Freddie Mac, who then started bundling these high risk loans with AAA credit loans. All the while, anything that had once been considered wise lending practices were thrown out the window.
This is horseshit. This is the "blame the poor minorities and the liberals who thought they should be subject to the same standards as everyone else" canard that was trotted out after the collapse to try to divert blame away from the deregulation that is the real obvious cause -- point of fact, even if this bull excrement explanation held any water, had the old rules about the types of securities banks could invest in and the limits to their ability to leverage were in place, the collapse wouldn't have happened.
The law never required banks to make risky loans. It only required them to not refuse loans based solely on where someone lived, or to use a higher standard to secure the loan than they would for someone who lived somewhere else.
My bank was subject to the same law, and while so much of the financial sector was collapsing it was fine, because it didn't make risky loans, and it didn't invest in CDOs because the board was smart enough to realize what a crock of shit their ratings were.
The people who got mortgages but shouldn't weren't just the poor, but the middle class getting mortgages far beyond what they could afford. Not every middle class family should buy a McMansion, but that's not what the loan officers were saying. They knew the loan was risky (or didn't know but didn't care), but they also knew they could turn right around and sell the loan to someone who would package it up with a bunch of others, slap a completely fanciful risk rating on it, and then sell it again to some sap, aka Fannie May, Freddie Mac, Citibank, and all the others who had to be bailed out.
The only policies that were pushed that caused this disaster are the deregulation The-Free-Market-Knows-Best policies that the banks themselves were pushing for.
Oh and as far as taking -- the government may be the only one authorized to take in the form of taxes, but the government is only taking a percentage of earnings. When the bankers, in their irresponsible greed, trashed the economy and cost millions their jobs, so they had no earnings. Despite not having the authority, the banks took more than the government did.
The protesters know who is to blame. The bankers are not middlemen in this mess.
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You also had a law passed in the Carter years to make it easier for people who couldn't (and as we can now see, shouldn't) have been granted a mortgage provided one. This law got itself teeth during the Clinton years to aggressively push these high risk mortgages out there, or the banks would suffer fines. All of this backed up by federally created Fannie Mae and Freddie Mac, who then started bundling these high risk loans with AAA credit loans. All the while, anything that had once been considered wise lending practices were thrown out the window.
This is horseshit. This is the "blame the poor minorities and the liberals who thought they should be subject to the same standards as everyone else" canard that was trotted out after the collapse to try to divert blame away from the deregulation that is the real obvious cause -- point of fact, even if this bull excrement explanation held any water, had the old rules about the types of securities banks could invest in and the limits to their ability to leverage were in place, the collapse wouldn't have happened.
The law never required banks to make risky loans. It only required them to not refuse loans based solely on where someone lived, or to use a higher standard to secure the loan than they would for someone who lived somewhere else.
So, are you woefully uninformed, or are you lying? [theafforda...ession.com] I'm guessing lying.
Re:Except that.... (Score:4, Informative)
You also had a law passed in the Carter years to make it easier for people who couldn't (and as we can now see, shouldn't) have been granted a mortgage provided one. This law got itself teeth during the Clinton years to aggressively push these high risk mortgages out there, or the banks would suffer fines. All of this backed up by federally created Fannie Mae and Freddie Mac, who then started bundling these high risk loans with AAA credit loans. All the while, anything that had once been considered wise lending practices were thrown out the window.
This is horseshit. This is the "blame the poor minorities and the liberals who thought they should be subject to the same standards as everyone else" canard that was trotted out after the collapse to try to divert blame away from the deregulation that is the real obvious cause -- point of fact, even if this bull excrement explanation held any water, had the old rules about the types of securities banks could invest in and the limits to their ability to leverage were in place, the collapse wouldn't have happened.
The law never required banks to make risky loans. It only required them to not refuse loans based solely on where someone lived, or to use a higher standard to secure the loan than they would for someone who lived somewhere else.
And here is the actual text of the CRA and IBBEA laws that forced the banks' hands: IBBEA [wikipedia.org]. Read up before you accidentally release any further un-data into our already troubled world.
Re:Except that.... (Score:4, Insightful)
disincentive is not getting a bonus.
If the game where "if you make a profit, you get a bonus, if you break even, you get none", that would be fair. But Taleb's point is that this is not the case. The game is "if you make a profit, you get a bonus. If you make a horrible loss, you get no bonus".
In other words: The result for the person responsible is either +/- 0 or +(big sum) - no rational person would not take risks given that payoff matrix. Do the math. Taking risk is always the rational choice if you apply game theory. And it doesn't even matter how big the bonus and how big the risk. 10% chance of success, 0.1% chance of success - doesn't matter.
it's horrible job with brutal hours and inconceivable stress
I used to work with these people for a short time years ago, and I know people who work in that "industry" right now. Yes, it's not a nine-to-five job and yes, it can be stressful. Compared to fireworkers, soldiers or emergency-room doctors, it's a walk in the part. If you think playing games at the stock exchange is stress, you've never experienced actual stress in your life. If you think spending the day in the office is "brutal hours", you've not spend a night at the hospital, in a burning building or under enemy fire.
Transfer your money to a credit union (Score:4, Insightful)
Or a community bank.
That will get their attention.
True to every corporation (Score:2, Insightful)
This is a fundamental property of capitalism: when a corporation gets lucky it can cash in and when it gets unlucky just go bankrupt.
Re:True to every corporation (Score:5, Insightful)
Re:True to every corporation (Score:5, Insightful)
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They want morebail out money this year and are planning to give out something like $13M in bonuses?
Let's clean the federal house first....
Re:True to every corporation (Score:4, Funny)
cayenne8 (626475)
You know...I'll be concerned about private banks' bonuses...as soon as the bonuses for failure at somewhat public failures like Fannie and Freddie are addressed.
They want more bail out money this year and are planning to give out something like $13M in bonuses?
Let's clean the federal house first....
You silly person. The only way to fix this is to tax the rich. Cutting spending, and spending wisely are obviously racist conspiracies.
m
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Re:True to every corporation (Score:4, Informative)
"Bonus" in an executive context often means "payment that is like salary, but is given in a lump sum at a particular time". It does not necessarily mean "payment given for exceptional performance".
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Re:True to every corporation (Score:4, Interesting)
Let me get this logic straight:
-A corporation gets so large that it is literally able to warp the space/time continuum of political power. They are able to buy off the puppet politicians and get whatever laws they want passed.
-One of your answers to this situation is to have the puppet politicians take complete control of the corporation. The other is for the puppet politician to break his master into pieces.
Would removing the ability of the puppet politician to work on behalf of his corporate overload be an option?
Re:True to every corporation (Score:4, Interesting)
Re:True to every corporation (Score:5, Interesting)
I'd say that this is a property of a certain subset of capitalism where influence of the political system is treated as any other good. That is to say, buy what you can afford, at whatever price it's worth to you.
The libertarian approach is to weaken government to the point where it can no longer aid corporations in their corruption. The liberal approach is to not treat it as a free market good. I can't for the life of me figure out what the conservative approach is. Seems to be, "What's the problem again?"
s/capitalism/cronyism (Score:5, Insightful)
It's not a property of capitalism. It's a property of cronyism. I'm so sick of anti-capitalists and their Che Guevera T-shirts. What do you think the guy you bought that shirt from is?
Re:True to every corporation (Score:5, Insightful)
Re:True to every corporation (Score:5, Insightful)
Indeed. I heard an interesting argument a week or so ago, where one businessman said that one of the problems with banks in the US is that the government insures all deposits (up to a limit). On it's face it sounded possibly terrifying, can you imagine giving your cash to a banker with no gov't insurance. However since the gov't backs the holdings the banks do not need to operate in a low risk manner with that money, since they know regardless they will get bailed out. It made for an interesting thought, in that if the gov't did not insure any of the holdings you can be sure people would only put their money in a bank with an absolutely solid reputation and no tolerance for risk.
There was a similar argument I heard a few years ago regarding insurance companies, in that they also have large holdings which they were investing in ever more risky ventures. The fact that the gov't backs up all deposits implicitly indicates their distrust in the banking system (after all, if it were trustworthy, why would it need backing), but yet they do things like repeal Glass–Steagall which encourages ever more risky behavior. There is a lot the gov't could do to rein in bad bank and investment behaviors. After all if things like derivatives are indeed equivalent to financial mass destruction tools, why not ban them outright. Just because things can be done, doesn't mean they should be allowed.
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This is how it really works, deposits are insured, not the banks. When one is about to go out, the government usually brokers a deal to turn over it's operation to another healthy bank and dissolve the failed bank (If it can't work it out I guess they just pay everyone with a deposit off but that can be messy).
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Fundamental property of *corporatism* maybe, but not capitalism. True capitalism doesn't have bankruptcy laws, they're considered an immoral government interference in the organized crime, er, marketplace.
Re:True to every corporation (Score:4, Interesting)
That's true. The system we have *now* in most of the world is basically "stone cold capitalism for the people" and "cosy socialism for the corporations"
Re:True to every corporation (Score:4, Insightful)
My wife worked for an attorney whose check would bounce. Every payday there was a dash to the issuing bank. They never paid Medicare or SS taxes to the fed, by the time our slow, lazy revenue office caught up to them, the'd already gone bankrupt and started a new firm. We didn't figure it out until we got one of those medicare statements in the mail.
In order to have real capitalism there can be no social welfare for the corporation, the executives and board of the companies must be liable for their mistakes. They get paid to take risks, not penalized when risks go bad.
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After the corporation is already dissolved, the IRS will trackdown the LLC partners and make them pay the back SS and medicare payments?
Yes, in fact failure to pay payroll taxes is considered tax fraud and a criminal act.
Re:True to every corporation (Score:5, Interesting)
This is not true.
Historically, corporations were required to be non-profit and demonstrate that their existence served the public good to be registered.
"In the United States, government chartering began to fall out of vogue in the mid-19th century. Corporate law at the time was focused on protection of the public interest, and not on the interests of corporate shareholders. Corporate charters were closely regulated by the states. Forming a corporation usually required an act of legislature. Investors generally had to be given an equal say in corporate governance, and corporations were required to comply with the purposes expressed in their charters."
You believe that the way things operate are fundamental because you were programmed to believe that by those who have been exploiting you since you were born.
It's not a complete solution yet... (Score:5, Insightful)
This isn't a solution until he first figures out how to get this by the politicians that said bankers have bought with said money.
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Actually... since banks are publicly owned/traded corporations, wouldn't one just need to get enough voting rights on blocks of stock (either thru purchase or delegation) and have a share holders vote on it?
Re:It's not a complete solution yet... (Score:5, Insightful)
When you see who holds and manages those shares and who has voting rights, you'll understand just what a predicament we're in. You're asking the people who are sitting on the money to stop writing themselves checks. They won't.
This is one of those (Score:5, Insightful)
"why didn't anyone think of this before" things.
After all, banking isn't really an "industry" in the sense that the word is used in relation to other industries. What does the banking "industry" produce? Money? (In the form of deposits when they make loans?)
How do you increase productivity? More loans per bank employee?
Ideally, banking is supposed to be a support process, not a growth industry in itself. So, yeah, it seems to make sense not to give bonuses to bankers.
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Money in the form of INTEREST when they make loans. The more interest you can get, the more profitable your bank is.
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alas, that only works to a point. When your loanee fails to repay the loan (because, maybe you lent against an asset that no longer appreciates in price) then you interest repayments are dwarfed by the subsequent write-off.
You could say, from nothing comes nothing, but as the bank reports the loan's "value" as part of their assets and has claimed bonuses based on these large increases in bank revenue... it becomes difficult to say "oh well, we never had that money in the first place" as they gave it to empl
Clawback, not end (Score:5, Interesting)
If the problem is no corresponding disincentive for failure, it doesn't make sense to remove the incentive for success.
Instead, should unwarranted bonuses be given that later turn out to be fraudulent, the bonuses should be clawed back. Perhaps add a penalty of 50% of the bonus on top of clawing back the full bonus.
Re:Clawback, not end (Score:4, Interesting)
You are implying a fallacy here. How can someone be rewarded for a success, if that success is later revealed to be a failure. The root cause of much (all?) of the financial crisis was that people were being encouraged, financially, to make trades that would cause their firms to fail.
It is pointless(and futile) to try to claw back the bonuses after the damage has already been done. You have to prevent damage in the first place, and that means not incentivising people to cause it.
Bonus have to go.
Re:Clawback, not end (Score:5, Insightful)
Instead of taking away wealth creation from the companies that succeed, why not punish those who fail by not bailing them out? Your business fails you go out of business, pretty simple process actually.
Too big to fail is a big fat lie.
The issue is that you're "punishing" the fictional person, rather than the actual person making the decisions, and thus the entire "simple process" fails completely in achieving its goal.
Re:Clawback, not end (Score:5, Insightful)
Do surgeons get paid "bonuses" for successful surgeries?
The incentive for success should be "continue to draw a paycheck, perhaps get a raise/promotion, and not get fired." That's what it is for most of the rest of us.
Re:Clawback, not end (Score:4, Insightful)
Re:Clawback, not end (Score:4, Interesting)
Another option would be to hold all bonuses in escrow for some defined period (I would suggest at least 5 years). At the end of that period, the bonus may be claimed.
This would work at least as well for stock based bonuses for CxO level officers; now they have a direct financial incentive to ensure the company will shine just as well after they leave as they do shine up the numbers for next quarter.
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There's too many ways that Creative/Hollywood accounting could make the five year away bonus disappear. Look to Silicon valley for examples of the vanishing bonus.
Most high level people are practically guaranteed their bonuses, as long as they keep breathing. VPs are routinely paid millions when they get fired.
If you did create a utopia bank that worked properly, your shareholders would eventually sell out, and it wou
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Corporations are people. Death penalty to corps? (Score:5, Insightful)
How about if a corporation is awarded death penalty, all its assets would be sold,the proceeds will be distributed to the shareholders, the corporations name, ticker symbols and other trade marks will be sequestered for ever?
It is far too easy to create corporations, compared to real human beings. Corporations do not require visa/green card/work permit/citizenship to work and profit inside the USA. So we can apply the lower standard of "preponderance evidence" to award death penalty to them, not the stricter "beyond reasonable doubt".
Any corporation that is too big to fail, is too dangerous to exist. They should be executed. We bailed out the financial institutions. They technically are living due to our mercy.
Let us break up any bank that has more than 10% market share in retail banking. Any investment bank that has more than 10% market share. And reinstate Glass-Stegall act. Let us do it peacefully when we still can do it in an orderly manner. Else someday roving mobs will be pulling out chairman of Goldman Sachs hiding in sewer pipes.
Re:Corporations are people. Death penalty to corps (Score:4, Interesting)
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Why give the assets to the stock holders? Confiscate them as a fine.
Re:Corporations are people. Death penalty to corps (Score:4, Insightful)
No point in alienating mutual funds and individual investors in this war. Often it is the small investor who stands to lose a $1000 investment in a bank is the one who would be most seriously fighting back. The fat cat bankers will hide behind these small investors and use them canon fodder. First cut the most egregious bad boys away from the not-so-innocent but not-so-culpable group. That is where they hide. That is the sanctuary we should deny, and the escape route we should cut off before rounding up the fat cats.
Re:Corporations are people. Death penalty to corps (Score:5, Informative)
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Yep, corporate death penalty is the right way forward. Which is why it will never happen.
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Re:Corporations are people. Death penalty to corps (Score:4, Insightful)
Re:Corporations are people. Death penalty to corps (Score:5, Interesting)
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"Let us break up any bank that has more than 10% market share in retail banking. Any investment bank that has more than 10% market share."
Actually, bank size is NOT the problem. Canada only has seven banks and they are of course bigger than US banks with all their alleged competition.
'reinstate Glass-Stegall act."
That is indeed the regulation situation in Canada and Canada's economy did NOT go into the shitter.
"Let us do it peacefully when we still can do it in an orderly manner. Else someday roving mobs wi
no shit (Score:3)
It doesn't take a doctor of risk engineering to figure that out. The average Joe on the street could tell you the same thing. It's easy to come up with ways to improve the banking system. Now, getting our overlords to implement them is another matter.
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The more people that move their money to Credit Unions and non-profit mutal funds the more difficult it's going to be for bankers to get money for bonuses.
When will we learn? (Score:2)
Sure, but also eliminate the safety of not taking risks...
You need to balance.. not tip it more one way or the other...
This would have the effect of punishing them to do anything, so they would just refuse all loans, even qualifying ones..
The money would not work in the economy, and we'd still be in the crisis, ten years from now.
We have to keep in mind the heisenberg principle, but applied to banks, it's impossible to Affect the market without unabalncing it. We(the people) ARE an actor in the market, we
Wrong Headed (Score:2, Insightful)
A corporation that is too big to fail is too big to have. The Justice Department spent 10 years trying to break apart Microsoft while the banks kept consolidating and getting bigger and bigger. This is a problem.
The solution isn't to eliminate bonuses, it's to send people to prison when they lie (and their lie disrupts the entire global economy, as is the case with the S&P / Moody's / Fitch ratings agencies that declared all of those worthless bonds AAA), and to not bail them out when they fail.
Again
Incentive switch (Score:3)
So the incentive for people to be creative, finding better ways to increase profit goes from a system of irregular rewards to one of threat? e.g. You don't make $$$ in quarter, you get the sack.
While this may be popular with the people who lost jobs or homes, plus the Occupy movement, banks probably won't go for it as psychology has determined we are more productive with irregular, but predictable (you know you'll get a bonus of you make the money) rewards.
I'd rather the change to banks be that they are not to put more than certain % at risk. I know they don't like that, but better safe and steady than another massive flop like 1929 or 2008.
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Thank you! http://www.youtube.com/watch?v=u6XAPnuFjJc [youtube.com]
Another thing to keep in mind is that the law of diminishing returns applies to dollars as well as anything else. Moving from $500/year to $5000/year is a big friggin deal. A proportional move from $10M/year to $100M/year doesn't have much effect on how you personally live, since you can already buy pretty much whatever strikes your fancy. When you get above, say, $1M/year, money stops being about improving your quality of life and starts to be a way
News for haters? (Score:2)
This is news for people who hate bankers. Is it "News for Nerds" though?
BTW: I actually agree that banks should structure incentives to account for risk.
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Your reference to $34k/year is a straw man [wikipedia.org]. The Occupy movements are specifically rallying against the upper 1% in the USA or the upper 1% in
reinstate Glass-Steagall instead (Score:2, Insightful)
What TFA is proposing seems to be a way to recover some of the protections lost when Glass-Steagall was repealed; specifically, don't allow retail banks like BofA and Citi to have trading floors or do investment banking.
BTW Phil Gramm seems to have an uncharacteristically low profile these days.
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Exactly. Reinstate the regulations that kept a wall between the types of banks. And while you're at it, reinstate the regulations that limit how far out on a limb you can go.
The problem isn't that banks take risk. That's what they do. The key is to keep them from taking stupid risk that exposes so much of the economy. Taking away bonuses from the bankers won't keep them from doing that. Reinstating the regulation (that was ripped down for the last 20 years with full bipartisan support) is what we need
Bad idea, there is disincentive for failure (Score:3)
Totally eliminating all risks is a bad idea, because then banks will not back a lot of potentially good, but also risky ideas. It will stagnate the economy even further when only mundane ideas can get loans...
The reason you see WAY too much risk being taken is that some large banks know now the government will not let them go bankrupt. When there is no chance of failure you can shoot for the moon, so to speak.
The traditional disincentive for failure is that if you fail often enough, you'll be fired or your company will go under. You are playing with other people's money, you can only screw that up for so long - unless of course you are backed by an endless parade of government bailouts.
Look to places where regulations have indeed eliminated risks of failure and fix THAT, don't dumb down what banks are able to invest in by eliminating upside.
Novel concept, that (Score:5, Insightful)
This changed when firms went public and came to be run by employees rather than partners, with the usual issues of agency, of which asymmetrical incentives are high on the list.
Nassim is one of the brightest thinkers around (Score:5, Interesting)
I'm a voracious reader. I figure I've easily read thousands of books in my life. My top ten list (hey, I'm a nerd) of most thought-provoking books I've ever read are:
10. Why Societies Need Dissent - Cass Sunstein
9. The Road to Reality - Roger Penrose
8. Diplomacy - Henry Kissenger
7. Last Chance to See - Douglas Adams
6. Free to Choose - Milton Friedman
5. Cosmos - Carl Sagan
4. Guns, Germs, and Steel - Jared Diamond
3. Black Swan - Nassim Nicholas Taleb
2. Meditations - Marcus Aurelius
1. Bible (KJV)
You are doing yourself a disservice if you don't read Taleb. He is one of those rare authors who doesn't just serve up facts, but fundamentally alters the way you see the world.
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I do not place Taleb anywhere near that league (which I otherwise agree with). There are good and original thoughts in his books, but (to repeat the old saw) what is good is not original and what is original is not any good.
He is intellectually dishonest, and highly evasive when asked about specifics. Consider this:
http://www.marketfolly.com/2009/06/nassim-talebs-black-swan-examining.html [marketfolly.com]
Reform them, don't elminate (Score:3)
That way, we can claw it back if their policies bankrupt a company. Also, by doing it that way, we encourage the corporations to think in longer terms -- and to structure the bonuses to pay out depending on longer term results.
Risk is in the eye of the behold (Score:3, Insightful)
A $500,000 salary with a potential $5M bonus, a $5.5M salary with a potential "fail risk" of $5M, and a $2.5M salary with a potential bonus of $2M and a potential "fail risk" of $2M amount to the same thing.
The "risk of failure" in each is entirely in the mind of the banker - does he see his salary as "at risk": "I'll get $5.5M unless I fail to perform at the highest level" or does he see it as an opportunity to be rewarded for going beyond expectations: "I'll make $500,000, but I could make an additional $5M if I do really well."?
For the sake of argument, assume that all 3 salary options are paid out over the same period of time, have the same tax and other consequences, and are subject to identical performance or lack-of-performance measures.
This is just silly (Score:3)
A what? (Score:2)
"risk engineering prof"?
Never going to happen (Score:3)
The last thing an ego-maniacal millionaire is going to do is give up his "hard-earned" money. At some point in the wealth process money becomes the _only_ measuring stick of success. It's not that you need more, rather it's that you want more. It's like an addiction. The only way a law like this would pass is if there were a bigger payoff awaiting those who would support it.
For every proposed solution or reform... (Score:5, Funny)
For every proposed solution or reform, people come up with a thousand reasons why it can't possibly work, and why we can't change the status quo.
I guess the implications of that are obvious - We're living in something approaching the best of all possible worlds.
Therefore we shouldn't change anything.
On our current course, we're set to virtually eliminate the middle class in several more decades, so I guess that makes the world a better place. I guess that makes it sound like my status as a member of the middle class is making the world a worse place, but I guess I'll go on being "evil" as long as I can mange.
But let's look at the bright side...
Without a middle class, we won't need as much infrastructure, since most of us will be walking or taking a bus, since we won't be able to afford cars any more. We don't need to bother fixing that aging infrastructure, we can just decommission it. Decaying infrastructure problem solved.
As our income sinks lower and lower, even those low-paying jobs currently taken by illegal immigrants will start to look attractive. Americans will take the low-paying jobs. Illegal immigration problem solved.
Once there is no middle class and the wealthy are safe in their gated communities, drug addicts won't be able to find easy victims to support their habits. They'll wind up going cold-turkey simply because they can't afford the drugs on their own, and are no longer able to steal enough. Drug problem solved.
The military becomes the only reliable employer, since all other decent-paying jobs have been sent overseas. There are so many people trying to get in that the military can raise their standards back up to where they ought to be. Recruiting problem solved.
As we quite being able to afford to travel, we can take the national parks and either mothball them to eliminate cost, or out-and-out sell them as resorts, generating revenue. Not a solution, but certainly an assist to the deficit/debt problem.
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Every time in history, that the middle class has been wiped out, it has been from bad government monetary policy, or the institution of communism, period. Capitalism has always increased over time the quality of life for all.
Some pretty broad strokes there. That's true if we define the "middle class" very loosely. And to say "N has always increased over time the quality of life for all.', can't be true, because if the social system ends up with *you* dying, then your quality of life can't increase, even if the average quality of life increases. There are always some people getting the short end of the stick.
It's also worth noting, that there are very few Capitalists in high end finance. Mostly, they are monopolists, t
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Wall Street firms — independent companies and the securities-trading arms of banks — are doing even better. They earned more in the first 21 / 2 years of the Obama administration than they did during the eight years of the George W. Bush administration, industry data show. Source: http://www.washingtonpost.com/business/economy/wall-streets-resurgent-prosperity-frustrates-its-claims-and-obamas/2011/10/25/gIQAKPIosM_story.html [washingtonpost.com]
Bush. Obama. Clinton. Who cares? I grow tired of trying to pin the tail on the appropriate "ass" here to find blame...like THAT is going to do any good? Think we're actually going to incarcerate a former President? Please. We can't even manage to impeach an active one even when we find reason to. Greed and Corruption existed far before the last dozen presidents were in office, so let's stop with the name games already. If you want to throw any name around, then stick with the current guy for not do