Cap Executive Pay

[Whack-a-Mole]

@Stratocaster

Your tax money gives you the right to regulate the behavior that created the mess, not to install some speculative social experiment that you think will create some new paradigm that will motivate different behavior. I do indeed react that the board and the shareholders get what they deserve, in that they have the means to control it; and, that said, the government has an interest in limiting the activity that directly causes such havoc. I do NOT attribute the current mess to exec compensation. But that’s my opinion, which is not the issue. The issues are those unregulated acts that directly caused such harm.

Let’s try it this way.

Do you think, on the whole, that these corporate execs are stupid people? Do you think they are irrational people?

Personally I’d say “no” to both questions.

Presuming they are not stupid do you think they absolutely missed the positions they were putting their companies in to? That the economy just blind sided them all, just bad luck? That they were unable to read a balance sheet and guess that being leveraged at 30:1 (to name one issue) was not a very tenable position?

Personally I would say they must have known and realized the precarious ground they were on. How could they not? On what planet is a 30:1 (or worse) leverage considered no big deal?

Now, presuming they are not irrational either, why would these CEOs continue on this reckless course? The only answer that makes sense to me, and keeps this bunch rational, is their compensation drove them. They were playing a game of musical chairs (of sorts). They knew the music would stop but hoped it’d go on just long enough for them to walk with a fat wad of cash which most did despite overseeing colossal losses to their companies.

So, either these execs are borderline retarded and just lucked into their jobs or were smart but crazy at the wheel or they knew what they were doing and drove us here anyway.

Hence my proposal to redirect the focus of where their compensation comes from that precludes this reckless behavior. Seems to me with great rewards comes great risks. These execs had no risk. Once there they got paid princely sums, fail or not. Worse, and I really do not get how this works, they often then go to another job and get rewarded handsomely all over again (I can provide many examples if you like of that).

In short, I want to make the “rational” choice for these execs to be the one that drives a healthy and sustainable company. Greedy shareholders and incestuous Boards of Directors certainly have not lined up with that goal in mind.

No, none of us can draw that conclusion. Because something occurred during an administration doesn’t make it attributable to that administration, a logical fallacy both parties have a great deal of affection for. And Clinton reduced the capital gains tax, which increased tax revenue as a result of the expanded investment–or so goes the theory. Economics is not the simple machine people would like it to be.

“But statistical regularities, like facts, are stubborn things. You bet against them at your peril.” (from my earlier link to the New York Times article)

I will grant it merits more work but the trend is so clear and so in lock-step with the different administrations you would indeed be foolish to bet against it at this point. The work I pointed to is scholarly and from a respected economist known to be apolitical (he had no axe to grind). He even adjusted to allow a previous president’s policies not count for or against a new president (so Clinton took a ding for the economy in 2000).

Is this supposed to be a gotcha? Am I singing the praises of the economy or saying that further regulation is not in order? :dubious:

It certainly isn’t.

What puzzles me are the Libertarians on this board, or free market types, who seem to assume that the market will just sort itself if only we stopped meddling with it.

Well, I see no evidence that is the case. Not now, not in the past, not in all of human history.

It boggles the mind that they miss the very mess we are in now. That lack of regulation was a big part of it. That throughout history the best societies, the strongest ones, were those with a large middle class and small poor and wealthy class. That the last time such concentration of wealth was seen in this country was just before the Great Depression. Remove regulations that were in place because of the Great Depression, concentrate wealth as it was back then and look where we are. Back in the same miserable mess.

Is it any wonder that some would like a saner approach?

[Shodan]

Of course, people will always break the law, but laws are effective. There is the fear of punishment and the fear of being ostracized.

No doubt this is why Prohibition was such a ringing success, and why drugs are virtually unobtainable in the US.

High employee wages force firms to find ways to increase profits and remain competitive other than downsizing.

Okay, then a law doubling salaries across the board will go a long way towards decreasing the unemployment rate. Obviously, if my company is losing money, I have much less reason to fire the person making $100,000 a year than the one making $50,000.

And equally obviously a company would have no reason to relocate its services to India, where it can pay its workers less. No, no - the more we have to pay, the more likely we are to keep jobs here in the US!

Or not.

Regards,
Shodan

[Stratocaster]

@Whack-a-Mole

Let’s try it this way.

Do you think, on the whole, that these corporate execs are stupid people? Do you think they are irrational people?

Personally I’d say “no” to both questions.

Presuming they are not stupid do you think they absolutely missed the positions they were putting their companies in to? That the economy just blind sided them all, just bad luck? That they were unable to read a balance sheet and guess that being leveraged at 30:1 (to name one issue) was not a very tenable position?

Why not simply set restrictions on leverage ratios? It is the leverage that created the economic catastrophe (among a long list of other things), not the executive comp. Why does the government need to assume that EVERY exec so compensated will execute his duties foolishly or selfishly? If reserve or debt decisions created the catastrophe, why not, I dunno, restrict those decisions, the ones that actually produced the havoc you have an economic interest in–and not worry about the unintended consequences of a government intrusion into an arena they should not be meddling in?

Why isn’t what I proposed the simplest solution, and one that produces the desired result with the least doubt and without restricting freedoms?

And I’m also not impressed by an economist saying, “all those other guys were employing a post hoc fallacy, but not me, I have cracked the code.” Governments get way too much credit and blame for the economy. Command economies do not have a good track record–to the extent that the government can influence the economic cycle, it’s probably bad that they do. I accept sane regulation, monetary policy. The rest? By and large, the government should get out of the way. They are horrible, inefficient, self-serving creators of boondoggles and unintended consequences. The less they do, the better.

[IdahoMauleMan]

@Stratocaster

And I’m also not impressed by an economist saying, “all those other guys were employing a post hoc fallacy, but not me, I have cracked the code.” Governments get way too much credit and blame for the economy. Command economies do not have a good track record–to the extent that the government can influence the economic cycle, it’s probably bad that they do. I accept sane regulation, monetary policy. The rest? By and large, the government should get out of the way. They are horrible, inefficient, self-serving creators of boondoggles and unintended consequences. The less they do, the better.

Just an observation, here. No real argument, but a bit of a commentary. It’s most definitely a strawman. I’ll admit that in advance.

One of the things that I always find interesting in these posts is the internal contradictions that I see in arguments about government control vs. free markets. As I’ve stated before in other posts, I’ve noticed that there is a segment of the population on the left that absolutely, positively wants no government anywhere near

• Restrictions on same-sex marriage
• Restrictions on abortion
• Restrictions on use of drugs
• Unreasonable search and seizures

and a few other things. The government must stay out. The government cannot be trusted. But yet, the same group usually clamors for as much government involvement as possible in the economy via taxation, trade restrictions, tilting the balance in favor of labor unions, etc. I scratch my head and marvel at what (is to me, anyway) a bizarre internal contradiction.

I’d like to pose a question from time to time to those clamoring for more government control of the economy.

Do you believe in creationism? If not, why not?

I suspect the answer is that belief in such a quaint notion is ridiculous on its face. That it’s silly to believe a spiritual being could have created and guided the progress of Man 4500 years ago in the Garden of Eden.

Surely, it’s clear to an educated populace that evolution, and the scientific evidence backing evolution, is obviously the correct answer. There was no ‘enlightened hand’ guiding the development of Man. It occurred naturally via small mutations, survival-of-the-fittest, and small course corrections along the way. That is what has brought us to our present state. There was no Grand, Master Plan initiated by a higher being to bring man to our present state. It just happened in the midst of a complex ecosystem. Fine. I happen to agree with that.

Believing in evolution, and simultaneously believing that the government can ‘control’ the economy, seems like a massive internal contradiction to me. The US has 300 million people. It trades with the other countries of world, which have 6.5 billion more people. There are hundreds of thousands of different industries, trades, and skills. Certain skills die away (buggy whips and ice trucks). Certain skills arise due to natural market forces (chip design, software and Twitter). Certain traits emerge as being economically dominant - like the dinosaurs were for a while - whilst others fade away (English vs French, math & science vs. religious training).

It’s very similar to the processes of biological evolution.

Then why in hell does someone tut-tut over creationism in favor of evolution, but yet doggedly believe that a few enlightened beings in Washington, D.C. (usually lawyers or career politicians, who have never held a real job anywhere) can ‘control’ the economy? It makes no sense to me.

[Mtgman]

Taking a more theoretical tack on this question, the average CEO at a S&P 500 made ~10.5 Million in compensation in 2007(1.01 MB PDF). Near the top of this list are the CEOs of financial institutions, from the first cite.

Private investment managers continue to push U.S. business leader paychecks off the charts. Last year, the top 50
hedge and private equity fund managers earned an average of $588 million, according to Alpha magazine.3 That’s more
than 19,000 times as much as average worker pay.

There’s some discussion, but general consensus is that ~10 Million constitutes Fuck You Money.

Every economic framework I’ve ever seen which builds on the rational choice theory uses underlying assumptions about risk versus reward when calculating utility maximization. People who have Fuck You Money don’t really experience risk. They’re set for life regardless of the outcome of their decisions. This doesn’t mean they can’t make good decisions, but it sets up a type of cognitive bias towards reward with little care for risk.

There is lots of empirical evidence this type of thing happens. Phrases such as “born with a silver spoon in his mouth” have long been used to describe people who blithely make poor economic assumptions about everyone because of their own background. Modern quips like “born on third base and thinks he hit a triple” show it still happens.

So here’s my point, as someone who generally believes in the free market and capitalism. Why should people with a skewed risk/reward perspective be allowed such great control over our economy?

Enjoy,
Steven

[Stratocaster]

@Mtgman

So here’s my point, as someone who generally believes in the free market and capitalism. Why should people with a skewed risk/reward perspective be allowed such great control over our economy?

Enjoy,
Steven

Don’t give him that control. If there are decisions one can make that have catastrophic consequences beyond one’s company, restrict and regulate such decisions (reserve requirements, that kind of thing). Let the company make whatever decisions they rightfully can regarding his compensation. I keep asking this–why isn’t that the most obvious and effective solution?

[Whack-a-Mole]

@Stratocaster

Why not simply set restrictions on leverage ratios? It is the leverage that created the economic catastrophe (among a long list of other things), not the executive comp. Why does the government need to assume that EVERY exec so compensated will execute his duties foolishly or selfishly? If reserve or debt decisions created the catastrophe, why not, I dunno, restrict those decisions, the ones that actually produced the havoc you have an economic interest in–and not worry about the unintended consequences of a government intrusion into an arena they should not be meddling in?

Why isn’t what I proposed the simplest solution, and one that produces the desired result with the least doubt and without restricting freedoms?

As you have noted government regulation can bring with it all sorts of unintended knock-on effects. Also as you note excessive leverage was one of many issues bearing on this economic boondoggle. So if we want to avoid a landslide of government regulations trying to cover a hundred different holes is it not more reasonable to make one regulation which causes the folks making these decisions to make better and more rational decisions? A regulation that actually would affect a very relative few rather than sweeping regulations that seep into every nook and cranny of the business world?

Which of these is the least pervasive and simpler regulatory framework?

Clearly these execs made colossally bad decisions under the previous mode of operation. As mentioned were they just ALL really that dumb or did they actually make rational and smart decisions? I’m going with rational and smart for them and not their companies. Why is it such an awful notion to want to point their incentives to doing the best thing for their companies in order to benefit from their substantial compensation?

Of course this does not preclude other regulations. I am not saying one size fits all and this is some sort of magic bullet. Just saying I think such regulations may be fewer and less pervasive if it does not behoove anyone to find the loopholes.

And I’m also not impressed by an economist saying, “all those other guys were employing a post hoc fallacy, but not me, I have cracked the code.” Governments get way too much credit and blame for the economy. Command economies do not have a good track record–to the extent that the government can influence the economic cycle, it’s probably bad that they do. I accept sane regulation, monetary policy. The rest? By and large, the government should get out of the way. They are horrible, inefficient, self-serving creators of boondoggles and unintended consequences. The less they do, the better.

Have you read the book? Have you even read the large body of book reviews and commentary from others including other economists/scholars? Have you noticed his book is well regarded and considered an honest and forthright piece of scholarly work pretty much across the board?

The author (Bartels) is aware of the limitations of what his data shows and honest about it. Nevertheless he found remarkable statistical regularities that simply can not nor should not be ignored. As in any field of scholarly work when trends strongly jump out at you it is worth noting and worthy of further research. It may be some other factors will upend the conclusions in Bartels’ book but like I said, if you were a betting man would you bet against him on this?

[Whack-a-Mole]

@IdahoMauleMan

Just an observation, here. No real argument, but a bit of a commentary. It’s most definitely a strawman. I’ll admit that in advance.

Yep…so why offer it? There is a world of difference between the things you are listing here and economic policy.

One of the things that I always find interesting in these posts is the internal contradictions that I see in arguments about government control vs. free markets. As I’ve stated before in other posts, I’ve noticed that there is a segment of the population on the left that absolutely, positively wants no government anywhere near

• Restrictions on same-sex marriage
• Restrictions on abortion
• Restrictions on use of drugs
• Unreasonable search and seizures

Please point out the contradiction between me wanting to protect my 4th Amendment rights against unreasonable search and seizure and me wanting government to do something about companies that fail so colossally that they take MY money to save them?

Then why in hell does someone tut-tut over creationism in favor of evolution, but yet doggedly believe that a few enlightened beings in Washington, D.C. (usually lawyers or career politicians, who have never held a real job anywhere) can ‘control’ the economy? It makes no sense to me.

I doubt you will find many here who support the notion of a state run economy. We’ve seen that with Communism/Socialism and it is an abject failure of an economic model.

What government needs to do is set the rules everyone plays by. Like in football, the NFL (government) lays down the rules of the game. Once a year they review how the season went and fiddle with the rules to improve the game for the next season.

This is normal and appropriate. When the economy goes belly up it is eminently appropriate for the government to look at what happened and seek new rules to make sure this does not happen again.

What makes no sense to me is why there are people like you who just flatly seem to ignore that the economy is crashing down around their ears, largely caused by loosening regulations and lack of oversight, and blithely assume it’ll all be better if government does even less. It flies smack in the face of reality as well as history.

[IdahoMauleMan]

@Mtgman

P1. People who have Fuck You Money don’t really experience risk. They’re set for life regardless of the outcome of their decisions. This doesn’t mean they can’t make good decisions, but it sets up a type of cognitive bias towards reward with little care for risk.
P2. So here’s my point, as someone who generally believes in the free market and capitalism. Why should people with a skewed risk/reward perspective be allowed such great control over our economy?

Enjoy,
Steven

P1. Then that is a consideration that the shareholders, owners and/or Board of Directors should take into account when they hire them. It’s their call. It’s a voluntary transaction on their part. Why do you care?

P2. What ‘control’ do they have, other than their ability to earn profits by providing customers with products that customers are willing to ’
pay for? They don’t ‘control’ the economy or anything of yours, unless you elect to do business with them, presumably by assessing the risks and rewards of doing so.

Unless of course, the government steps in to guarantee their shareholders’ equity, depositors’ funds and bail them out with your money. Then it does affect you. So why don’t we stop that?

[gonzomax]

The free market and capitalism as we have it, gradually evolves into oligarchy and monopoly. In Econ 101 they discuss how capitalism and competition foster lower prices and innovation. That is good for the consumer. It is bad for the companies. If they can control markets they can get "all the market will bear "prices and greater profits. Since our country started we have been at war with them trying to force competition and remove collusion. The government oversees the safety of products because they have to. They oversee the collusion because they have to.
The relaxing of banking regulation has helped make the financial mess possible. After the depression we set regulation in place to prevent the banks from risking their stability to make quick money. We did because we had to. But the banks immediately started chipping away at the provisions. They put very powerful lawyers and lobbyists on the case. They wanted to get as much short term profits as possible. Self enrichment was a lot more important than the stability of the banking system. That never changes. The government should never step aside and let the looters have their way.

[IdahoMauleMan]

@Whack-a-Mole

Please point out the contradiction between me wanting to protect my 4th Amendment rights against unreasonable search and seizure and me wanting government to do something about companies that fail so colossally that they take MY money to save them?

Because in the first, you are advocating for less government intrusion in your life.

In the second, you (1) quickly wave through the notion that the government is intruding into your life by taking your money, and then (2) debate about what strings and government control should come with that money. You’re arguing over the managerial details of an intrusion into someone else’s life.

Whoa. Why aren’t you vociferously objecting to (1) above? You seem to take that as a given. That the taking of your money is a natural state of being. Then you quickly hop on the Road to Serfdom and start debating the ins-and-outs of the strings on number (2).

Let’s take number (1) away. Then number (2) becomes irrelevant.

[Whack-a-Mole]

@IdahoMauleMan

P1. Then that is a consideration that the shareholders, owners and/or Board of Directors should take into account when they hire them. It’s their call. It’s a voluntary transaction on their part. Why do you care?

If it was just company “A” going belly up fine. Their shareholders suffer, that is the risk you take when investing and, presumably, seek to make sure competent people are at the helm so your investment is safe.

I care when these companies become “too big to fail.” I care when they come to me, someone who had no investment in their company, and take my money to bail their asses out. Worse, the very people most directly responsible for steering the ship into the iceberg are then handsomely rewarded with MY money and continue at the helm. I find that offensive.

I care because they made it my concern. As such I think I have every right to seek ways to make sure they cannot do this to me again.

P2. What ‘control’ do they have, other than their ability to earn profits by providing customers with products that customers are willing to ’
pay for? They don’t ‘control’ the economy or anything of yours, unless you elect to do business with them, presumably by assessing the risks and rewards of doing so.

What world do you live in? These companies wield vast power. They spend millions lobbying Congress. As noted above by gonzomax they chip away at the very regulations put in to prevent this and they succeeded. They sought to avoid regulation wherever possible (e.g. “These CDS things? They’re really insurance…no regulation needed, nothing to see here, move along!”)

Unless of course, the government steps in to guarantee their shareholders’ equity, depositors’ funds and bail them out with your money. Then it does affect you. So why don’t we stop that?

Certainly has been suggested and in the normal course of events that is what would happen. Except now we have a “too big to fail” issue. The knock-on effects from letting these guys founder are worse than paying them off. These guys wield control over such vast sums of money they quite literally bring the GLOBAL economy to its knees.

I think when someone has that much power, that much ability to affect the world, it is more than appropriate that they get increased scrutiny and oversight.

[Whack-a-Mole]

@IdahoMauleMan

Because in the first, you are advocating for less government intrusion in your life.

In the second, you (1) quickly wave through the notion that the government is intruding into your life by taking your money, and then (2) debate about what strings and government control should come with that money. You’re arguing over the managerial details of an intrusion into someone else’s life.

Eh?

If you buy a 50% stake in someone’s company do you just hand them your money and hope all is well or do you see to it that things are run to your satisfaction? There is no contradiction here.

And again, when these people can tank a global economy then we are all stakeholders in what they do.

Whoa. Why aren’t you vociferously objecting to (1) above? You seem to take that as a given. That the taking of your money is a natural state of being. Then you quickly hop on the Road to Serfdom and start debating the ins-and-outs of the strings on number (2).

Let’s take number (1) away. Then number (2) becomes irrelevant.

I do not even know what you are on about here.

Of course I debate how they spend my money. We all do for just about any economic policy the government implements. So the government throws $800 billion at these companies, no one can even tell you where that money went (literally), they pay substantial bonuses to the execs responsible (with my money) and you find it odd that I debate the ins-and-outs of this?

[Mtgman]

@IdahoMauleMan

P1. Then that is a consideration that the shareholders, owners and/or Board of Directors should take into account when they hire them. It’s their call. It’s a voluntary transaction on their part. Why do you care?

P2. What ‘control’ do they have, other than their ability to earn profits by providing customers with products that customers are willing to ’
pay for? They don’t ‘control’ the economy or anything of yours, unless you elect to do business with them, presumably by assessing the risks and rewards of doing so.

Unless of course, the government steps in to guarantee their shareholders’ equity, depositors’ funds and bail them out with your money. Then it does affect you. So why don’t we stop that?

P1. The deck is stacked against the shareholders, virtually none of which have any sort of effective insight into the executive selection nor choices in the Board of Directors. That’s assuming they had a real voice to being with. Most voluntarily abrogate their responsibilities through proxy voting. An industry has grown up around collecting proxy votes from shareholders. The forms published by these firms often have options to have shareholders sign over their votes to the board and let some financial adviser vote their share in perpetuity. Having been a shareholder and voted my shares I can tell you I was immensely disappointed that the only choices I had were to vote for the one candidate put forth by the board or to vote for corporate deadlock as no CEO could be elected without a quorum of shareholder votes(or votes by proxy). It should tell you something about how divorced the rational actions of shareholders are from how corporate decisions are made when most people choose to opt out of the process, leaving an accountability vacuum.

So yes, while in theory the shareholders and Board of Directors have the power to regulate CEO excess, in reality the CEO is often also the Chairman of the Board and wields a lot of influence there. The shareholders, except for a few extremely wealthy individuals who own lots of stock, are virtually non-factors.

P2. They set policy and practices for their company. Policies like acceptable risk levels when creating and purchasing financial instruments. They hire and evaluate the performance of senior management, i.e. Joe Cassano. Industries like finance operate behind the curtain for most consumers. They aren’t aware the firm they’re buying a product from is financed by a company with risky business practices. The Mom and Pop store I buy things from could close tomorrow because they took out loans to make payroll against their accounts receivable and now can’t because their loans are being denied, not because their AR isn’t strong, but because those companies have to divert their resources to propping up other divisions which were run into the ground by poor decision making. Decision making by people selected by, overseen by, and accountable to the CEO.

Explain, if you would, why you believe the average American is NOT affected by, say, the CEOs of the top 20 banks in the US. Explain how, keeping in mind people don’t have perfect information, a person could make a rational choice which would reward those who did not participate in the troubled asset market and punish those who did. My contention is there is not enough effective transparency(the data may be there, but it certainly isn’t easy to access or easily understood for guiding everyday decisions) for shareholders or consumers to exercise even a miniscule amount of control over corporate behavior as embodied in executive decisions. Still, those decisions drive everything from job creation/stability, to availability of goods and services.

Every corporate charter has provisions to have them held accountable by their shareholders. The methods they’ve implemented for shareholders to exercise this control are tedious, ineffective, and error prone. Thus you have companies run, not by those with anything to lose, but by those who can afford to tell anyone they meet, in any circumstance, “Fuck You” with no noticeable effect on their lifestyle.

I’m pretty sure a lot of shareholders are feeling like they just got that message, loud and clear.

Enjoy,
Steven

[IdahoMauleMan]

@Mtgman

P1. The deck is stacked against the shareholders, virtually none of which have any sort of effective insight into the executive selection nor choices in the Board of Directors. That’s assuming they had a real voice to being with. Most voluntarily abrogate their responsibilities through proxy voting. An industry has grown up around collecting proxy votes from shareholders. The forms published by these firms often have options to have shareholders sign over their votes to the board and let some financial adviser vote their share in perpetuity. Having been a shareholder and voted my shares I can tell you I was immensely disappointed that the only choices I had were to vote for the one candidate put forth by the board or to vote for corporate deadlock as no CEO could be elected without a quorum of shareholder votes(or votes by proxy). It should tell you something about how divorced the rational actions of shareholders are from how corporate decisions are made when most people choose to opt out of the process, leaving an accountability vacuum.
P2. They set policy and practices for their company. Policies like acceptable risk levels when creating and purchasing financial instruments. They hire and evaluate the performance of senior management, i.e. Joe Cassano. Industries like finance operate behind the curtain for most consumers. They aren’t aware the firm they’re buying a product from is financed by a company with risky business practices. The Mom and Pop store I buy things from could close tomorrow because they took out loans to make payroll against their accounts receivable and now can’t because their loans are being denied, not because their AR isn’t strong, but because those companies have to divert their resources to propping up other divisions which were run into the ground by poor decision making. Decision making by people selected by, overseen by, and accountable to the CEO.

P3. Explain, if you would, why you believe the average American is NOT affected by, say, the CEOs of the top 20 banks in the US. Explain how, keeping in mind people don’t have perfect information, a person could make a rational choice which would reward those who did not participate in the troubled asset market and punish those who did. My contention is there is not enough effective transparency(the data may be there, but it certainly isn’t easy to access or easily understood for guiding everyday decisions) for shareholders or consumers to exercise even a miniscule amount of control over corporate behavior as embodied in executive decisions. Still, those decisions drive everything from job creation/stability, to availability of goods and services.

P1. Then those shareholders should sell their shares, if they are uncomfortable with the risk. Otherwise they can price that risk into their decision and buy shares accordingly. The choice is up to them.

P2. They do, indeed. And if those decisions result in the company’s failure to perform, they will result in the underperformance of the company and possible bankruptcy. Those are the consequences of the CEO’s actions. Unless, of course, the government steps in to blunt those consequences via socialization of losses.

P3. Oh, I’m not arguing with you here. I most definitely think the Average American is indeed affected by the decisions of the top 20 banks.

Why is that? Why don’t the decisions of the top 20 banks only affect their customers and shareholders? Why do they affect us all?

[IdahoMauleMan]

@Whack-a-Mole

Of course I debate how they spend my money. We all do for just about any economic policy the government implements. So the government throws $800 billion at these companies, no one can even tell you where that money went (literally), they pay substantial bonuses to the execs responsible (with my money) and you find it odd that I debate the ins-and-outs of this?

I give up. I must be speaking Greek. The browser I’m using must be translating into a different language.
DON’T LET THEM TAKE YOUR FREAKING MONEY IN THE FIRST PLACE!!!

[Mtgman]

@Stratocaster

Don’t give him that control. If there are decisions one can make that have catastrophic consequences beyond one’s company, restrict and regulate such decisions (reserve requirements, that kind of thing). Let the company make whatever decisions they rightfully can regarding his compensation. I keep asking this–why isn’t that the most obvious and effective solution?

That would indeed be my preferred solution as well, but the governmental framework moves much slower than business. There were disincentives to pay executives over 1,000,000 per year built into the system back in the 80’s(may have the timeline wrong) and it led, not to an overall reduction in executive compensation(as was the legislative intent), but to complex webs of non-monetary compensation(options, homes, cars, travel, etc.). I mention this not as something which would have avoided this crisis, but as an example of how the market works around regulation. Similarly the rules for writing insurance policies, with capital to cover potential losses, were sidestepped with the creation of the Credit Default Swap and the market-based oversight provided by credit rating companies were befuddled by securitizing bundles and slices of mortgages.

When faced with people gaming the system, you can do two things. Tweak the system, or tweak the gamer. Tweaking the system is good in a closed system(like a video game). Don’t want someone to do something? No problem, the only tools they have to do things were written by you and if you don’t define their ability to do something, they can’t do it. In the real world people have endless creativity open to them and they’ll come up with ways around regulations. What the people who advocate executive compensation reform are saying is that we need people to look at a system and instead of saying “how can I get as much money out of it as possible in as little time, regardless of the long-term damage to the system it may cause?” to say “how can I get as much money out of it as possible, without causing damage to the system overall?” To make them stewards of the economy, instead of looters. Stewards live in the palace, they have exalted positions and lavish lifestyles. But they know they need to manage the palace in good faith or they get thrown out. The looters don’t intend to stay in the palace, so they can rip out the gold inlay from the throne, and sell the banquet tables. They don’t have any reason to care about the longer term or anything other than their bottom line.

It’s kind of like the way the environment was treated during the early days of the industrial revolution. Fouled streams, diseased wildlife, etc. These practices have long term effects, but they’re easy to ignore in the short term. We need to change the status quo to avoid rewarding people who trade long term detriment for short term profit. Ultimately, since we can’t create a perfect game, the only thing we can do is make sure our gamers are playing fair.

Enjoy,
Steven

[Whack-a-Mole]

@IdahoMauleMan

I give up. I must be speaking Greek. The browser I’m using must be translating into a different language.
DON’T LET THEM TAKE YOUR FREAKING MONEY IN THE FIRST PLACE!!!

Err…tell me how to keep my money from the IRS that won’t see me in jail for tax evasion. I’m all ears.

As for Congress, well, I can send you the letter I wrote my congresscritters opposing the bailout. Got a very lengthy spam reply from some on why they voted for it anyway.

Come next election I’ll remember, not sure how else you would have me stop them though. Armed insurrection?

[Ocean_Annie]

@IdahoMauleMan

One of the things that I always find interesting in these posts is the internal contradictions that I see in arguments about government control vs. free markets. As I’ve stated before in other posts, I’ve noticed that there is a segment of the population on the left that absolutely, positively wants no government anywhere near

• Restrictions on same-sex marriage
• Restrictions on abortion
• Restrictions on use of drugs
• Unreasonable search and seizures

You are comparing basic rights guaranteed in the Constitution to economic policy. The Bill of Rights is intended to protect the people from tyranny. There is nothing in the Constitution about protecting the wealthy at the expense of civil society. In fact, protecting concentrated wealth threatens democracy and leads to tyranny.

@IdahoMauleMan

Then why in hell does someone tut-tut over creationism in favor of evolution, but yet doggedly believe that a few enlightened beings in Washington, D.C. (usually lawyers or career politicians, who have never held a real job anywhere) can ‘control’ the economy? It makes no sense to me.

Most arguments about evolution revolve around teaching evolution in public school science class, a violation of the establishment clause.

@Whack-a-Mole

What world do you live in? These companies wield vast power.

Exactly. This vast power is the result of unimaginable wealth, a concentration of wealth that controls and suppresses all other speech. Arguably, the elite wealthy class and the government are one in the same.

To be clear, this isn’t wealth defined by a few million or even a few hundred million; it is billions of dollars concentrated in a fraction of one percent of the population.

[Whack-a-Mole]

@IdahoMauleMan

P1. Then those shareholders should sell their shares, if they are uncomfortable with the risk. Otherwise they can price that risk into their decision and buy shares accordingly. The choice is up to them.

And when they are affected without choosing to invest directly? When their 401k disappears overnight because of something someone else did? Or hell, they just have all their money in a nice, “safe” savings account then the bank, unbeknownst to them, engages in all sorts of risky behavior and they wake up the next day to see their life savings gone. Or, as mentioned above, they lose their business because they cannot get a loan for their payroll (a very, very common practice) despite them running a profitable company?

This extends waaaay beyond one company and its investors.

P2. They do, indeed. And if those decisions result in the company’s failure to perform, they will result in the underperformance of the company and possible bankruptcy. Those are the consequences of the CEO’s actions. Unless, of course, the government steps in to blunt those consequences via socialization of losses.

The government stepping in is distasteful in the extreme but unfortunately letting these “too big to fail” companies suffer what they should would see the pain to the rest of the economy rise to intolerable levels (bad enough as is).

Sucks but those are the facts on the ground. Cutting off our nose to spite our face is not a useful solution.

P3. Oh, I’m not arguing with you here. I most definitely think the Average American is indeed affected by the decisions of the top 20 banks.

Why is that? Why don’t the decisions of the top 20 banks only affect their customers and shareholders? Why do they affect us all?

Getting tired of writing this: “Too big to fail”

How do we stop that in the future? I do not know. If you howl at these regulations I wonder what you would say to a regulation that forced any company that reached a certain size to stop growing.