Monday, February 02, 2009

Playing with fire

This comment is not about Lil Wayne, not about the Rolling Stones, not even about Hilary Duff. It's about our politicians, Obama, his administration, the Republicans, the whole group, all seeking to pin the blame for this economic catastrophe on easy villians. This could backfire, as in playing with fire.

There is the nexus of the Citi French jet, the bonuses given out at financial firms, the buy only USA consideration in the stimulus plan, John Thain's office, the hire only USA proposed in the stimulus plan, the banks' heavily criticized inability to lend at pre-disaster levels, the auto execs being required to drive to D.C. and the government's aggressive use of the financial industry as a punching bag. Pass on responsibility say the politicians, resent an established system, and accept no complicity in all that has happened --- no responsibility for regulators, certainly not for legislators, no responsibility for individual Americans who speculated, no responsibility for those who simply splurged, and no recognition of so many macro reasons like the unsustainable cyclical imbalances in trade and investment and the long term encouragement and even mandate to mortgage companies starting with the Clinton administration to lend to poor and minorities who "otherwise would not qualify"(1999) for home loans. That's a long sentence. The effort to unleash resentment and pinpoint blame is not productive, not correct, and could make a Sarah Palin ride the resentment ticket viable in 2012. That's a stretch but it is meant to be.

To defend the financial services industry more than is already done above is a Sisyphean task but:
--- Citi is the largest retail financial services company in the world, with offices in over 100 countries, its executives and managers need contact with headquarters, many of their locations have less than ideal air connections, this French jet has parts made all over the world, even in the U.S., this was not a bad business decision but even smart people seem to see it as indicative of some arrogance and excess, it is not and was not, in fact it may well have been a sound business decision.
--- the bonus protocols of investment banking have been long established; that they had become excessive is completely accurate but the protocols often require some level of bonus; the IB's are paid low salaries, often no more than a cop or teacher on Long Island and the great majority of their compensation is expected to come from an end of year award based on performance; for traders these awards are often set in contracts at percentages of profit generated on pre-agreed formulas, for rainmakers they work like atheletes salaries, pay me or I'll play for another team, for mid-level folks they are an essential part of compensation; while there are always slackers who manage to hang on to a good thing that they don't deserve, most IB'ers work hours that match anyone anywhere, 12 hours a day plus parts of weekends except at busy times when it's non-stop. AIG, the greatest insurance company the world has ever seen, was brought down by 20 traders selling credit default swaps in London and a default CEO, due to an attention driven Spitzer execution of Greenberg , a default CEO Sullivan who was clueless about almost everything. Does no one in this firm get a bonus, an incentive for retention, an award for good performance. This is an example of the issue. The level of bonuses will go through a period of decline and readjustment but paying some reduced levels now is not "shameless". It's based on performance, formulas, and an effort to hold together firms that are spinning out of control.
---John Thain's office, that's a pathetic waste of shareholder money under any scenario, even in the good times; when at Goldman he was apparently known as someone who was so smart that any type of excess was excused, but no more.

There is so much blame to go around, complicity in every direction, so much naivety to be shared, and so many reasonably intelligent people from Wall Street to Main Street to Capital Hill who went beyond common sense in an effort to make, encourage, and spend easy money. That's a message that seems to be too complex for the stump speech.


Anonymous Anonymous said...

The Citibank jet purchase was the height of hubris, Wall Street compensation is disgusting, and you're right on one thing---Thain's office.

12:16 PM  

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