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February 08, 2009


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Kid Dynamite

ummmm - I agree.. if the Treasury overpaid by $78B shouldn't we cap pay at the Treasury? we can put all the crappy assets into a fund to pay comp to Congress - like CSFB did...

Populism will be the most dangerous political tool of the next several years.

Anal_yst - I think what gretchen meant to say was that since the government is giving the TARP firms money, the government has a right to demand concessions. I actually agree on this point - but i think that the government should buy common, VOTING, equity, so that this is easily accomplished - which i think was YOUR point.


@ Dynamite

As usual your spot-on, and I love your CSFB-esque Congressional compensation plan, put that down on paper and get it on the Oval Office, stat!

You are also correct that yes, my point was that Morgenson is trying to reinvent the wheel; as you said, the mechanisms to accomplish her suggestions (the ones that aren't completely out of touch with reality) already exist.

I understand that the NYT is in the business of making money (although they're not so good at it, but I digress), part of which necessitates publishing material that sells the most papers/ad space or whatnot. However, I firmly believe that it is entirely possible to appeal to a broad audience without sounding like a schmuck to those "in the know," so-to-speak.



Y'know, I normally agree with you. But most of your points here miss the fact that the executive pay caps here would not be imposed by government fiat. They would be contractually imposed. I.e., the government would say, "If you want to take some of our money, you must submit to these conditions." If a firm does not wish to submit to the conditions, fine: don't take the money.

I fail to see the problem. Frankly, I hope as many firms as possible see the terms as too onerous and remain free of the taint of government money. But the government has every right to impose such restrictions as a condition of funding.

Furthermore, I am as anal about the use of the English language as you are about economic literacy. And the New York Times can not employ "herself." Only Gretchen can employ herself; the Times employs "her."

Sorry, I just really hate the overuse of the suffix "-self" that is rampant in corporateworld.


@ Bryan24

Appreciate your candor and keen eye! I'm pretty sure I corrected the "herself" thing on the version of this post that appears on the FT's Long Room but forgot to here, whoops?!

The problem which I thought I painstakingly and simply illustrated (apologies if this comes off as defensive), is that I think we can all (most?) agree that the Financial system is under what may very well be unprecedented stress. Yes, we should punish Executives who were more than just simply not that good at their job, but criminally negligent or worse, complicit.

The point of doing this is not to satisfy the Public's desire to see "bad men pay for their sins," although I'm sure it will be interpreted and spun as such. It is to discourage others from repeating the same crimes and/or mistakes in the future.

More importantly, it was my (perhaps most critical) point to remind Gretchen (readers, etc) that while discouraging future behavior detrimental to the Financial system (and all it's participants) is important, ENCOURAGING people to step-up to the mighty task at hand is even MORE important, as in it should be our immediate and primary concern.

Appreciate you taking the time to comment, and hope to see you around these here parts again.


I certainly do agree that there's a whiff of witch hunt in the air, and that's certainly counter-productive. But as long as the rules Gretchen's obsessing over are conditions of taking taxpayer money, I see no reason to question any conditions set by the taxpayers' representatives. If she starts angling for legislation unrelated to taking gov't money, of course, I'm on your side.


@ Brian24

So we get back to my main point: If by taking (regardless of "need" - that's another conversation) Government $, a bank (er, "bank") subjects itself to onerous restrictions as to how it can run it's business, attract/retain capable talent ("talent"), etc, what incentive does the Bank have to take Government funds, when the alternative is to call the Government's bluff and go it alone.

Best case, they pull off a veritable miracle and get paid out the wazoo. Worst case, they continue on their current trajector and the Government bails their butts out anyway, just likely further into the abyss, which isn't good for anyone in the long run.

"Taxpayers" and the Government (everyone, really) needs to understand that until you create some incentive structure(s) to encourage people to voluntarily step up to such a difficult task, the probability of accomplishing said task approaches zero.


Gretchen writes the same column every week. Same theme, rotating cast of villains. It's like the old "Batman" TV series from the 1960s.


@ awestruck

I can only aspire to the kind of realistic detachment you've attained.

Seriously, that's a fantastic comment, so elegantly simple, yet so true.


I propose we examine the existing laws in order to create an incentive structure for TARP executives and their anti-salary cap bloggers:

1.) Realize that 18 U.S.C. § 875(d) stipulates the following:

"Whoever, with intent to extort from any person, firm, association, or corporation, any money or other thing of value, transmits in interstate or foreign commerce ANY COMMUNICATION CONTAINING ANY THREAT TO INJURE THE PROPERTY or reputation of the addressee or of another or the reputation of a deceased person or any threat to accuse the addressee or any other person of a crime, shall be fined under this title or imprisoned not more than two years, or both."

2.) Realize that 18 U.S.C. § 880 stipulates the following:

A person who receives, possesses, conceals, or disposes of any money or other property which was obtained from the commission of any offense under this chapter that is punishable by imprisonment for more than 1 year, knowing the same to have been unlawfully obtained, shall be imprisoned not more than 3 years, fined under this title, or both.

Thus, I think that it is clear that the TARP executive who are pursuing an argument that salary caps will be a disincentive are, along with their allied blogger, committing extortion against the U.S. taxpayer. If one does not like salary caps, either STFU and leave your TARP funded institution or stay and do your patriotic duty to fix the mess that you helped to create.


@ tmaker

While I haven't yet got my JD, as far as I can tell what you've provided is nothing more than a non-sequitur, at best.


@tmaker (continued...)

I meant to include in my above response a question:

Do you realize that you've tacitly agreed with my point, as you say, "If one does not like salary caps...leave your TARP funded institution..."


Ask yourself, seriously, if you were sitting on $5, $10, or $20+ million, were in your 50's or 60's, would you want to subject yourself to the incredible stress of taking the helm of a TARP-supported financial institution for $500m/year when the downside is so uncertain?

I suspect (and hope) that some will be motivated by "patriotic duty" or something along those lines, however, I'm too cynical to expect people to be jumping at the opportunity.


Anal_yst, since TARP executives are on the public dole, they should realize that what normally would be OK (i.e. refusing to do a job unless they get "appropriate" compensation) could be taken as a threat of extortion. For instance, suppose the IRS Commissioner told Congress that he and his organization would not collect revenue unless their General Schedule (GS) pay grades were raised. Clearly, such an action would be extortion. Likewise, if a group of IRS agents, or, perhaps, their family members, blogged that the organization would refrain from revenue collection unless their demands were met, then, their collective act could be viewed as extortion or a racket (i.e. an organized illegal activity, such as bootlegging or the extortion of money from legitimate business people by threat or violence). I guess you have failed to distinguish how the actions and you and your TARP-taking Wall Street bosses differ from my hypothetical IRS example. Please educate me.



I appreciate you trying to clarify your point, but you seem to be of the impression that all of these people (Bank Exec, IRS Commissioner, IRS Examiner, etc) have only 2 options:

1. STFU and work


2. Boycott work or strike to "extort" higher wages.

Back in the realm of reality there is AT LEAST one other option which I can't for the life of me understand you keep forgetting:

They can step down/quit/retire.

This isn't rocket science my friend, and it seems you're failing to see the forest for the trees here, i.e. getting caught up in the legalese/minituae and ignoring real options available to participants in the current situation.


No, I realize they could retire or quit. That is fine, and, I think that is where the real work on incentives should begin. In some instances, it may be good for younger (and less wealthy) blood to be promoted within these organizations. Additionally, we should be thinking about compelling some of these people in their 50's or 60's to disgorge their bonus payments from 2002 to 2008 or, alternatively, pay a 5% excise tax on wealth conditional on past employment in the financial industry for the next 10 years. These kind of arrangements would create the proper incentives for them to continue working.



That's a slippery slope, my friend. Be careful what you wish for...



As you know, a slippery slope is a type of logical fallacy. Simply saying that something is a slippery slope is not an argument. I could just as easily say that socializing losses across the entire U.S. tax base is a slippery slope. The fact of the matter is that we have a class of people that were paid an extraordinary sum of money to destroy value. Furthermore, this same class of people is now attempting to extort even more money based on the claim that they can somehow restore the value previously lost. Proper incentives for eliciting value producing actions from this class of people may include the avoidance of substantial fines and jail time, NOT increased pay.


@ tmaker

What is your background, don't have to be specific, please enlighten me as to what informs the curious opinions you've expressed here.

You appear by all indications to be engaging in subversive class warfare, insinuating that "those at the top" screwed/are screwing "those who are not".

This is not only a gross oversimplification, the likes of which I'd attribute to a NYT writer, but a gross perversion of reality.

Perhaps you missed this very prescient piece from Slate (on DB yesterday), http://www.slate.com/id/2210720/?from=rss.

You should realize this is not about "class," despite what those such as yourself may delude yourself into thinking.

If I'm reading your suggestion(s) correctly, you're advocating that we essentially jail "those responsible" and forcibly keep them working at the companies you believe they've destroyed.

I was willing to entertain your comments up until now, but I'm sorry, you're views - and the "logic" you use to support them - indicate that you're not only ill- or poorly-informed but frankly vindictive, if not downright vengeful.

I always appreciate the viewpoints of those with different backgrounds and perspectives than myself, however, I request that said perspectives be grounded at least somewhat in reality and supported by logic, and you've cleared neither hurdle (mostly due to your last comment).

For some strange reason you're under the impression that the "haves" are trying to extort the poor, defenseless "have-nots," but you seem not to have understood me, despite having repeated myself several times, that while this may describe the minority, this accusation is hardly applicable to the majority to which you ascribe it.

Please, feel free to comment again. Hopefully you'll bring more to the table next time.

Thanks for playing,



Thank you for the link to that article. Now, on to the meat:

"If I'm reading your suggestion(s) correctly, you're advocating that we essentially jail 'those responsible' and forcibly keep them working at the companies you believe they've destroyed."

Yes, that is what I propose. I use the term "class" interchangeably with "those responsible", so, to be clear, the class I am talking about consists of individuals with managerial power within TARP funded organization, subsidiaries of said organizations, and all predecessor organizations. The article you gave a link to states that this group is a "minority within the minority."

How realistic is it to identify these individuals. Pretty realistic is my guess. For instance, the 2008 FY budget provides $3.8 billion for the FBI’s counterterrorism, counterintelligence, and intelligence programs [1]. A fraction of this money goes towards compiling and maintaining the terrorist watch list which supposedly contains 2,500 "no fly" individuals and 16,000 "selectees" [2]. Furthermore, the impetus behind this list was an attack which caused an estimated $47 billion in lost economic output and $1.7 trillion in lost stock market wealth [3]. In comparison, losses from the credit crisis may reach $3.6 trillion [4].

Since it is feasible to identify our target class of approximately 20,000 to 200,000 individuals, the next issue is to determine what legal remedies we may pursue...

We may not:

1.) Single out an individual or group for punishment without a trial since this is forbidden by the Constitution (see Article I, Section 9 - No Bill of Attainder) [5].

2.) Enslave a group of people (see Amendment XIII) [6].

We may:

1.) Retroactively tax, as long as we can avoid any due process complications [7].

2.) Declare the individuals "enemy combatants" and do as we please.

3.) Have taxpayers in each state file civil suits against the TARP-taking organizations arguing that said taxpayers were bystanders injured by defective products (e.g. CDOs). If the organizations lose, they can pursue claims against their employees (e.g. negligence in modeling financial products - similar to how an engineer is liable for constructing a faulty bridge) [8].

4.) Utilize provisions within the Racketeer Influenced and Corrupt Organizations Act (RICO).

Thus, there are ample legal tools to achieve my policy objective of draining resources away from TARP executives and thereby giving them incentives to continue working. As an added benefit, the Treasury and/or the taxpayers may recoup approximately $20 to $200 billion dollars.

As far as labels go, I am not really interested in them. If desperate, though, I suppose you could call me a Republican who became a Libertarian who was then influence by Henry George into a sort of geolibertarianism and who now despises labels and is reconciled to the fact that we live within a form of state monopoly capitalism.

[1] http://www.whitehouse.gov/omb/budget/fy2008/justice.aspx
[2] http://www.cnn.com/2008/TRAVEL/10/22/no.fly.lists/index.html
[3] http://www.house.gov/jec/terrorism/costs.pdf
[4] http://www.bloomberg.com/apps/news?pid=20601087&sid=aS0yBnMR3USk&refer=home
[5] http://www.archives.gov/exhibits/charters/constitution_transcript.html
[6] http://www.archives.gov/exhibits/charters/constitution_amendments_11-27.html
[7] http://www.heritage.org/Research/Taxes/HL613.cfm
[8] http://www.law.com/jsp/article.jsp?id=1202211782244


tmaker - I going to presume here, but I don't think Anal_yst was asking about your political leanings; rather, your work background. Your liberal use of legal non-sequitors and stated belief in compelling people to work seem to indicate you don't work in a business setting (certainly not a financial industry).

As far as your compulsion argument goes, there is no way anybody will compel me to stay in a job I don't feel like staying in. Like Anal-yst, I don't have a JD (nor do you, is my guess), but I do not believe the government has a legal ability to compell work. I suspect that would fall under the "takings" clause of the constitution. And no, that is not extortion, since I am merely removing myself from a compensated job, not threatening to injure the property.

I hae no idea why you brought the "no-fly" list up....was that supposed to be relevant? It helps if you don't just cite parts of the law that you found on wikipedia...

If you worked in the industry, you would probably know that a retroactive tax would generate much less revenue than you think - most of those executives receive large amounts of their compensation in restricted stock. That stock has subsequently lost the vast majority of its value at the time of award.

Finally, I think you misunderstand entirely what happened here. It really wasn't a case of "defective products." CDO's, CLO's, RMBS, etc certainly suffered from stupid risk-taking, but that is what it was. Any financial instrument (including the US Treasury) involves risk. Whoever buys the instrument should take that into account. Whoever doesn't, say, the pension funds who bought all those RMBS, deseres whatever they get. They're stupid for not examining the risk themselves. Bad underwriting is not criminal behaviour.


@ Thoth

Correct, you are in your presumtion, and I couldn't agree with your assessment much more. Frankly, I'd given up on @tmaker after that last comment insinuating the Gov't should prosecute Financial employees under RICO, among other idiotic ideas.

You put it better (and less angrily than I almost did), thanks.



1.) I did not make an argument for compulsion. I said that I would like to compel them, but the country can not legally do so. Therefore, I gave a list of ways in which we could recoup some of the compensation paid to the "experienced" people that got us into this mess. With less wealth, these individuals would hopefully find it worthwhile to continue working for less pay and not seek out an early retirement. What is wrong with that?

2.) Anal_yst requested that my perspective "be grounded at least somewhat in reality." The no-fly list was an attempt to demonstrate that modern technology allows us to easily identify and track networks of people. In modern times, saying that we can not figure out who did what within Countrywide two years ago is false. We can and we should. Putting together a list of employees, their bonuses, and their position/role within the securitization chain, while not trivial, is a lot simpler than repricing "toxic" assets. It took less than $3 billion to figure out Al-Qaeda's structure, so we could find "those responsible" for the current crisis with approximately 0.3% of the stimulus package's funds. If we only recoup $20 billion dollars over three years via the courts, we are still talking about a simple annualized ROI of 188%. Even if we recovered nothing and just put the information online, it would be an incredibly brilliant piece of make-work. Why not do this?

3.) Ya, I'm not a big fan of the retroactive tax.

4.) You say that:

"Any financial instrument (including the US Treasury) involves risk. Whoever buys the instrument should take that into account. Whoever doesn't, say, the pension funds who bought all those RMBS, deseres whatever they get."

Yes, I agree with you; however, under strict product liability, you must make sure that your product does not harm bystanders. For instance, if you bought a crappy lawnmower and the blade flew off and hit me, I could then sue the manufacturer of said lawnmower for damages. I was not a user of CDOs, CLOs, or RMBSs, yet I, and my fellow taxpayers, are now losing money because of them. We have been harmed for actions entirely outside of our control. I think that this is the strongest argument going forward. I especially like it because it would hold financial engineers liable for the negative externalities caused by their products. Furthermore, any judgments against these financial engineers would be paid out of future earnings! Whats wrong with demanding taxpayer-safe financial products?

I am not trying to anger you guys, and I am not angry. I do wish you would address my actual points instead of straw men, but if you do not want to do so, that is fine with me.



The problem is not the tools, themselves, but how they were used/abused.

In well-trained, cautions hands, a sledgehammer is a very useful tool. However, in untrained/irresponsible hands it has the potential to be horrifically abused, not only to the detriment of the user, but to others as well.

Also, you suggested using RICO to prosecute the employees of financial firms, which would presuppose that highly-regulated firms were in actuality criminal enterprises, right? Do you realize the implications of your words?

Necessarily, you've implied that the "Government" was complicit in aiding & abetting criminal enterprise, and would thus have to prosecute itself, causing a circular reference of the worst variety.

The unintended consequences of your suggestions would reach far and wide, if you can't see that, I'm sorry but I don't have either the time or the inclination to walk you through it.

You sound like there's a smart guy in there somewhere, just spend less time focusing on your vengeful witch-hunt and more time thinking about what decisions/actions will help us get out of/through our current predicament ASAP, in the best shape possible.



Thanks for the complement. Also, I admit that RICO is probably the last refuge of prosecutorial scoundrels; however, it has been used on Wall Street before (with limited effect) by Rudolph W. Giuliani:

6 Charged With Racketeering In Wall Street Insider Inquiry


Please note that there were no unintended consequences of this action and that the Government did not end up prosecuting itself.

If you want ideas for the future, well, I am sort of pessimistic since I think that, to a certain extent, business cycles must play themselves out. You might want to look at the following post for some innovative ideas on pricing toxic assets:


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