1-2 Knockout

Welcome to the New Pigovian Era

Ok, big freaking deal, another few cents tax on a can of soda.  We've already got ridiculous cigarette taxes, fat (unfortunately not fat people) taxes, this tax, that tax, everywhere a tax-tax.

Its not like this is anything new, Government has been taxing and subsidizing the constituency whenever they determine the "market" is not properly allocating resources to optimize the "greater good" to society.

As a non-crazy free-marketer I'm generally against Government intervention (and the always unintended consequences thereof), but when I put my Libertarian ideals aside for a minute, I can't really deny that Pigovian taxes/subsidies may be acceptable, especially in such tenuous times as these. 

However, I say this with the uber-important caveat that "asymmetrical" and ad hoc taxes/subsidies will only further screw up an already screwed-up system.  Let me explain:

Imagine if (when) the US Government instituted a gasoline tax similar to that in the UK - all $3.50/gallon of it - because as we all know cars and foreign oil are bad, or whatever.  Now putting aside logistical issues like revenue/expense alignment, rolling implementation, lead times, etc, and this may not be such a bad idea, IFF the proceeds of the tax are used to incentivize the (approximate) opposite action the tax is used to punish.  

In this case, perhaps funds would be used to build energy-efficient, low-pollution, convenient (this part always gets dropped in practice) high speed rail in and among our major metro centers.  This is a (not great) example of "symetrical" pigovian tax/subsidy. 

"Asymetrical" applications, unfortunately, seem to be go-to strategy our current Administration uses to get what they want (whatever that is).  In order to save hundreds of thousands of union jobs (and Democratic votes), the administration is quick to effectively subsidize the purchase of Chryslers, GM's, and Fords (and/or their parent companies).  Heaven forbid they subsidize cars built by non-US domiciled firms actually made IN the US, by (non-union) US workers, but I digress. 

Now the Gov't has to fund these subsidies somehow, but as far as I can tell instead of finding an opposite (or other "matchable") externality to tax, money is just coming from anywhere and everywhere they can "find" it.  Tax the "rich" (i.e. middle class).  Tax future generations (don't get me started).  Just Do It ^TM and worry about how the hell to pay for it later, much later.

So, in conclusion - and before this rant gets too out of control - I just want to clarify that for the 20th time I'm non-partisan and contrary to what the lefty/crazies will undoubtedly presume, I am not explicitly criticizing the Obama Administration.  If you understand my point, as much as it pains me to admit, I'm saying increased Government involvement may, in some situations, not be as evil as many of us often presume.   However, it seems to me that Newton's 3rd law should govern the application of Pigovian taxes and subsidies whenever practicable.  At this point, its painfully apparent that the Government is going to get involved in everything one way or another.  So, if we can't stop the Gov't from getting involved, perhaps we can at least try to affect what form said involvement takes.

Apologies for the myriad shortcuts and overgeneralizations.

Goodnight!

How NOT to Learn From History

Since the terms "recession" and "depression" first started making headlines in late 2007 (+/-) I've watched with horror as countless traders, analysts, flapping heads, journalists and other market participants blindly extrapolate historical patterns and apply them to our current situation. The most recent example I've seen (and my apologies as this is nowhere near the worst I've seen), is over at Clusterstock where Henry Blodget quotes Merrill strategist David Rosenberg (who, in fairness, actually includes some caveats):

It was extremely difficult for equity investors to make money in the decade following the June 1932 bottom. After the three-month rally (+75%) off the bottom in 1932, equity markets were extremely volatile and largely sideways for the next nine years. Keep in mind that the jury is still out as to whether the March 2009 lows were in fact the bottom, as was the case in 1932. 

Generally, we find such failed "analysis" takes the form of:

"In 19xx, the ____ Index dropped __ % over __ months, _________ economic indicators were _________, so judging from history, we conclude that now, we should expect X, Y and Z..."

Now, were conditions today exactly, or at least mostly the same as they were during previous recessions/depressions, I could see how this sort of analysis might make sense.  Contrary to the claims of others, I think its quite clear that global (and regional) dynamics and fundamentals are materially different than they have been at any earlier period of human history, which means these analyses constitute at least one type of logical fallacy, and are thus of little or dubious value.  No doubt, I'm guilty of some of these myself, but that's another story altogether.

I won't go so far as to claim that such claims are useless, since they may reveal some information about investor behavior and psychology, which is for the most part unchanged over at least the past few centuries.  However, this is hardly a redeeming quality of these poorly conceived - and even more-poorly used - forms of analysis.

No doubt both those who present and heed these arguments are suffering from at least one form of cognitive bias, although both are similarly blissfully ignorant of their own psychological predispositions and the like.

I'm of the belief that such forms of analysis - and those who propagate their use - do more harm than good insofar as almost any conclusion reached is, at best, a non sequitur, and may introduce or reinforce false beliefs to the investor population.  

Alas, despite the painfully obvious errors inherent in such comparisons, I still see them far-too frequently, in places and from people who should know better.

Tip of the hat to those who avoid such poor analysis, wag of the finger to those who don't!

I'm Scared; Hold Me

 "To be honest, I've been actively trying to avoid writing this for quite some time. 

Each day seems to bring more evidence of impending doom.  While I'm ecstatic to still have a job this week - not to mention surprised - who knows if I'll still have a job next week.  Many of you out there have been out of work for months already.  I've been there myself, and I feel your pain.  Hopefully, you saved for the proverbial rainy day and and haven't (yet) got to the point of selling your body for money or slingin' crack rock just to get by. 

Both the domestic and Global Economies seem to be slipping further into the abyss on a daily basis, despite the best intentions efforts of Central Bankers and their Political puppet masters.  Sure, there's a light at the end of the tunnel somewhere around 2011 (+/-), but for many of us, there just doesn't seem to be much about which to be optimistic in the interim.  Our Industry, our Country, and the World are all undergoing fundamental changes that will forever alter our futures in ways we cannot yet predict, at least not with any more accuracy than S&P's ability to predicts defaults.  Moving on.

Those of us who work(ed) "in Finance," regardless of whether it was on Wall Street, The City, Dubai, or wherever, have collectively been labeled "Public Enemy #1."  The ire directed upon us from several directions evokes memories of 17th century Massachusetts, untimely deaths and all.  While we've yet to witness Stan O'Neal's public hanging in front of the NYSE, we are no-doubt in the midst of our generation's version of a Witch Hunt, except this time the mission is to find convenient scapegoats for a decade (again, +/-) of widespread financial irresponsibility.  Frankly, I'm a bit surprised we haven't seen the pitchfork & torch crowd marching down Broad Street yet, although its probably only a matter of time before they're on the steps of Federal Hall calling for the head of anyone who walks by in well-tailored suit. 

I digress.

Our "leaders" - epitomized by the House Financial Services Committee - have shown themselves to possess nothing even approaching rudimentary understanding of the situation at hand, or any of its underlying facts or concepts.  This ignorance, by itself, is hardly anything new.  Nor, should we be surprised with the incendiary political grandstanding and finger-pointing,  best exemplified by likes of Maxine Waters. 

Lawmakers and Regulators alike seem intent on giving us (much) more of the same crap that helped enable the bad decision making that got us here in the first place.  Heaven forbid they actually address the root-causes and underlying issues, or dare I suggest, put their careers aside and take their own advice and do what's "best" for the Country.  The best part of this whole show is that people who can't evevn comprehend the basics of Business 101 are now exerting their political will on systematically important corporations, corporations that some of the most experienced, best-educated people on the planet can't even fix. Axing Rick Wagoner from GM, I think, might not have been the best idea (or the worst, obviously).  He's educated and a GM "lifer," to say nothing of the fact that he basically took the helm of the Titanic long-after it'd already hit the iceberg.  He's no superstar, but in my humble opinion, he seems comfortably in the middle 50% of Fortune 500 CEOs in terms of efficacy.  More broadly speaking though, this action made a huge statement:  If you're running a "Least-Favored Company" ("LFC"), take whatever $ you have left and get the hell out of Dodge (no pun intended). 

Its so pathetic its almost humorous, or perhaps the other way around.  When we desperately need people committed to getting the job done, people with intimate knowledge of their firms and industries, the Powers That Be are more concerned with scapegoating, and thereby ostrasizing the very people who perhaps have the best chance of acheiving the virtually impossible.  I've been thinking, if I were a top exec at a "LFC", say sitting on $10 million liquid, maybe another $5 million illiquid, why the hell would I still be showing up for work?  If I could swallow my pride and put the ego aside for a moment, I'm pretty sure the obvious solution would be to give the Government the middle finger (but ever so politely) and sit on the sidelines for a while, or until they come back begging you to help dig them out of the even bigger mess they've created. 

Our other "leaders," they mostly of the corporate variety, generally haven't shown much more spine than their Legislative counterparts.  When times were "good," it seems many just rode the gravy train with the proverbial "if it ain't broke, don't fix it" mentality.  When crap hits the fan though it seems many emperors truly wore no clothes, just like many formerly "superstar" hedge fund managers have been shown to be little (if anything) more than highly-leveraged mutual funds.  The underlying causes of such behaviour are outside the scope of this post, as are the clearly flawed incentive structures that enables them, so once again, I digress.  Just as firms overshot on the "way up," there is a decidedly non-zero probability that they will overshoot on the "way down" due to general ass-covering, short-sighted decision-making, and other examples of shoddy management. 

Many of these "leaders" have yet to grasp the concept that the Global Economy was over-inflated with cheap/easy/too-much credit, to oversimplify, money that didn't, ya' know, actually exist.  They speak (and worse, act) as if all we have to do is pass a few laws, beef (pork) up regulation, bail out a few companies and voila, we'll be back to the good ol' days when asset prices only went up, and any Joe Schmo could buy a million-dollar house with a 200-year, NINJA IO Option-Arm mortgage.  Far too often, I find myself feeling compelled to remind friends and family that comparing present-day to the artifically high price levels of mid-to-late 2007 is self-defeating, at best.  While we're likely not headed back to the Stone Age, we're similarly unlikely to get back to boom-time highs anytime soon..." 

I wrote the above, incomplete rant the last week of March, 2009.  Truth be told, I can't remember exactly why I never finished, although I suspect it had something to do with the inexplicable upward-march in asset prices since then.  Anyway, I think its interesting that despite everything that's happened over the past 4-5 weeks, my general outlook hasn't changed very much, if at all.  I should clarify explicitely that despite sounding like a crazy cynic, I'm (still) a closet optimist.  I think prosperity is possible, and likely;  I just don't think its going to happen overnight.

Since I penned the above though, most of the data I've examined indicate we're nowhere close to returning to economic growth and prosperity in the near-to-immediate future. And by that, I mean I have no freaking idea how anyone calling themselves an "Economist" (hell, or even "Pundit") can rationalize projected GDP growth by the third quarter of this year.  Even if their forecasts are based upon massive Federal spending and all sorts of bonkers bailout bullshit, I still just don't get it.   Sure, savings rates are showing signs of increasing - as are a few other pieces of data - indicating we're starting to make some progress towards sustainability, but the "bad" is still grossly overshadowing the "good."

As far as I can tell, the Administration's economic triage thus-far has been, and continues to be predicated upon widening of the "Hope & Change Spread," coupled a wholesale failure to identify, address, and ameliorate the underlying causes of our socio-politico-economic malaise.   Populist pandering and vague promises rooted in fantasy only serve to delay the inevitable.  I won't presume for an instant to have all or even some of the answers, but it seems painfully obvious that until we're ready to address reality, any interim gains or impression thereof won't mean squat over any meaningful period of time. 

So long as we consider economic and social prosperity a worthwhile endeavor, we must acknowledge that nothing worthwhile ever comes easy.  No doubt, if we are to acheive these goals many sacrafices and difficult decisions need to be made at every level of the game, and by all participants.  Absent these, I don't see how anyone can presume to declare us back on the road to sustainable prosperity, of any sort. 

Reg FD: All cash.  May have/be initiating limit short trades.

Thoughts

Over the course of the past few months, I've been increasingly asked for my thoughts on several econo-political topics, including, but not limited to "the bailout(s)," industry-specific solutions, regulatory overhaul, and others.

Those of you who've read my work over the course of the past year may also be wondering where or how I weigh in on these issues, and/or why I've remained relatively silent on issues which one would expect I'd be quite vocal.

To be honest, the only quasi-explanation I have to offer is that I just don't know.

Unlike professional writers, analysts, and pundits who depend on their words for sustenance, I have the convenience of not saying anything if/when I don't have anything good/useful/interesting to say.  The events that have transpired over the past year or two (including those preceding events over decades past) have been a bit overwhelming, in terms of the time and knowledge required to not only stay abreast of, but more importantly to understand.  While I'm hardly disappointed to still remain otherwise employed (knock on wood), I simply haven't had time to wrap my head around much of this information, at least not to the point where I would risk what little (if any) reputation I've managed to nurture by spouting off some uninformed nonsense the likes of which I've previously accused others. 

Thus, while I haven't yet developed a comprehensive solution to our various ills, there is a slightly smaller issue into which I've put some time and effort.

Like many people, as I see the news scroll by on my monitor, I'm often overcome by feelings of anger and disappointment.  I'm particularly enraged (although unsurprised) with the constant interference of pandering politicians and poorly-informed punditry presenting opinion as fact or careful analysis.  That every Joe and Jane Schmo with a keyboard gets to voice their often similarly uninformed opinions reminds me of Steve Carrell's character in Anchorman when he declares "I DON'T KNOW WHAT WE'RE YELLING ABOUT...LOUD NOISES!"  The complex, interrelated issues at hand seem to be way beyond the knowledge, experience, and understanding of virtually everyone, and yet everyone still has an opinion, everyone knows who was at fault, who we need to blame, and how we'll magically "fix the economy," whatever that means.

Various media participants and outlets have done their part to contribute to the hype and hysteria, often inciting outrage and chaos, when there is often little-to-no reason for doing so, other than to sell papers/eyeballs.  To be sure, much of my ire has been focused on the media, specifically, the part that  covers (or attempts to, as it were) business, finance, and economic happenings.  Even to those of us who are actually trained, experienced, and possibly still work in such fields, there is much disagreement over what/how/why things happened as they did, and perhaps more importantly, how to "fix it."  Yet we've seen the same sort of behaviour from virtually every media outlet that I described in the above paragraph, speaking very loudly and authoritatively on topics of which they don't appear to have the slightest understanding.  Just pick up any daily Newspaper or click on over to Fox News or CNN to see some of the ridiculous crap being peddled by the "fair and balanced" media.  (Just to be sure, the previous sentence applies to both sides, and everyone in-between.)

Despite a keen awareness that most reporting these days is unfortunately nothing but filler between advertisements, I've found it difficult to contain my immense dissapointment with the way inherently complicated concepts have been grossly over-simplified, mis-interpreted, and mangled over-and-over in popular media, of both the new- and main-steam varieties.  To be sure, its altogether unsurprising to witness such a non-phenomenon when sensationalism and incendiary "reporting" are - or are perceived to be - the largest drivers of revenue for most media outlets.  Contrarily, when there is - or there is perceived to be - little/no incentive to present  balanced, well-argued/researched, and transparent information, it comes as no surprise that such things are few and far between. 

In fairness, there are several media outlets who have found a way (not necessarily a profitable one perhaps) to practise what I'd call "responsible reporting" when it comes to these matters, and I applaud them for their efforts.  These are the outlets I visit on a regular basis, and its little secret who they are.  However, such outlets unfortunately represent a disproportionate minority, and are thus not nearly as popular as their sensationalist, more irresponsible brethren.  

Of course this is hardly the biggest problem at stake, but it is perhaps one of the few that we have any ability to affect.  Especially in such turbulent times, we should be extremely cognizant of the material presented to the general public, and the light in which this information is presented. 

I say this because frankly, I'm not quite sure how to properly enunciate my fear that the various braintrusts  (legislatures, the SEC, FDIC, Board of Directors of most banks, the general populace, etc) will, in trying to "stabilize" the economy, actually send us further into the abyss.  If there were an ETF or other instrument to short the testicular fortitude of our Congressional and other "leaders" tasked with addressing our economic woes, I would be into that trade in serious size.  I have little-to-no faith in their ability to understand the issues in front of them, and even less faith that the group as a whole will make the tough choices conducive to long-term sustainability and economic health.  If what we've seen from both sides is any indication, we should expect more of the same short-term "solutions" which have generally failed to address any underlying issues, and quite likely prolonged the pain, and simply delayed confronting the real issues until a later date.

Showering the masses or individual companies with money (the exact faucet, pressure, and distribution pattern used is irrelevant here) may seem like the most politically expedient option, but as many others far more informed than I have argued, is actually counter-productive at a certain point.  Eventually, we have to pay the piper and reduce leverage across the board to sustainable levels.  (I'll leave it to 1-2 to discuss this in greater detail if he feels compelled to do so, since going down that path is a far-longer discussion than I'm interested in having here.)

So, perhaps if we can find a way to incentivize the media to be more careful about what information they present, and how it is presented, perhaps we can affect public opinion, and thereby affect the decisions made by the powers that be. 

I realize that this is far easier said than done, but to oversimplify, I believe that those of us who "know" have a civic duty to share that knowledge with those who do not, especially when it just so happens that doing so may very well be critical to ensuring our future employment. 

Some have argued that trying to improve the quality of business reporting is a fools errand, a futile effort.  One follower on Twitter pointed out that if one possesses a functional understanding (or even capacity to understand) the material, they one will most likely pursue a more-lucrative career in the field rather than reporting on it.  This may be true for many people for whom money is the primary motivator, however I know several people who forgo financial gain to report upon and analyze business and business news (for example, I don't do this for the money).  Some of these people even have undergraduate or even advanced degrees in the fields which they cover, as shocking as that might seem.  

The other solid criticism seems to be that news outlets and reporters wouldn't have much, if any incentive to comply with our requests.  Judging from traditional media's well-documented aversion to change, this is a legitimate criticism for which I don't have a fantastic response.  It would seem that any concerted effort to affect change would have to first gain sufficient visibility and popularity so as to make our stamp of approval an important sales/marketing tactic, or on the other hand, such that not having our support was perceived to be sufficiently detrimental to that outfit's credibility that they comply out of perceived necessity.  This is a bit of a catch-22, as 1-2 was quick to point out when we spoke about this a few days ago, but one that I don't think is insurmountable.

I envision a largely-volunteer Non-Profit, at the core of which is a proprietary, secure database of business professionals and academics willing to make themselves available to whatever degree they're comfortable with to reporters and journalists.  There are enough of us who make our thoughts, opinions, and analysis available for free already that I don't think this is asking too much.  Think of something along the lines of Linkedin, except with the added ability of anonymity for those who need to remain so for professional concerns.  These volunteers would be able to create a profile with whatever level of detail on their background, knowledge, experience, etc they feel comfortable providing.  Reporters and journalist members would then be able to search the database for those with knowledge/experience on the subject matter they're covering. 

Additionally, the website would allow volunteer members (like FT Alphaville's Long Room) to post corrections, criticisms, etc, on poor business/financial/economic reporting.  This could even be extended to a ranking of various media outlets.  In turn, this could be used to present awards each year for the best, most improved, etc ones, and also highlight repeat offenders so that the general public could be made aware which outlets they should avoid or take with a grain of salt.

Perhaps I'm delusional, perhaps I'm insane, but to me, this seems like a worthwhile cause.  There's virtually no overhead besides maintaining the website, plenty of business professionals with newfound time on their hands, and a general politico-economic state of affairs that makes today a more important time than ever to put our knowledge and experience to good use.

Let me know what you think. 

Good idea?  Bad Idea?  I'm a stupid schmuck?  Whatever, just let me know.  If this turns out to be a horriffic idea, then so be it, however if enough of you are with me then I stand ready to make this (or something like it) happen.  Lets see how it goes.

 

A Sign of the Times?

Over the past few weeks I've witnessed the explosion of an internet sensation: f*** My Life.  Over the past 3 months the site has gone from not even being in Alexa's top 10,000-ranked sites globally to being just out of the top 1,000 (#908 already in the USA).

For the uninitiated, the formula is to begin your post with "Today," something really crappy that happened, finishing up with "...FML."   For example:

Today, my fiancee broke up with me. Via a myspace message. While we were in the same apartment. FML

I'm sure you can come up with some more finance/economics/business/current events-related ones, so go ahead, give it your best shot in the comments section. 

Best one wins lunch on us, seriously.

So THIS is Why the ABS Market is So Screwed

Check out this PDF ,which appears to be the summary sheet for a $2,000 Kaplan course on Asset Backed Securities.  I'm at a complete loss for words, for a change, to describe the epic fail at hand, one that must be evidenced first-hand to truly appreciate its sheer magnitude.

Perhaps achieving even a fleeting familiarity with the English language before trying to understand, nay, structure, trade, and value complex securities and derivatives would be a good idea, learn to crawl before you learn to walk, so-to-speak.

Just a hint.

SAT Review: Fun With Analogies, Legislative Edition

Pro:Con::Progress:_________

Methinks those in Washington D.C. would be well-served to remember the law of unintended consequences.

Pandering morons.

1-2 Knockout Presents the "Timing is Everything" Award: Doubledown Media

This week, I received what I can only presume will be my final copy of Trader Monthly (November/December 2008).  Pay no attention to the fact that we're in mid-February, there is far more important information, historically-relevant information, at hand.

Front cover, "Special Report:"

WHAT NEXT?
WHO WILL SURVIVE,
WHO WON'T
AND WHO WILL
EMERGE STRONGER

Oh.sweet.IRONY...

Congratulations to management on this momentous achievement, and best of luck to all employees currently trying to get back in the game.

Gretchen Morgenson, Please Step Down From Your High Horse

Back in March, 2008, I sent an emal to Gretchen Morgenson regarding the Bear Stearns/JPM debacle, and her populist, Wall Street-hating coverage surrounding the situation.  For some strange reason though, I hoped, despite all indications to the contrary, Mrs. Morgenson would clean up her act, knowing that people who actually have some semblance of financial/economic knowledge read her nonsense work.

Alas, almost a year later, she's one-upped herself, this time with a new, more vengeful ignorance that by now I've regrettably come to expect from the paper that employs such Financially illiterate (arrogant, annoying, etc) types as herself and Floyd Norris.

Curiously, now Mrs. Morgenson fancys herself an expert not only in all things Wall Street, but all things involving compensation, incentives, and policy.  While I'm not particularly surprised or dissapointed at this point,  readers should understand the righteous indignation with which I'm tempted to rain down upon her with, and the restraint I'm showing by avoiding the use of expletives, ALL CAPS, various other means of expressing such feelings in text.  To clarify, explicitly, the following is not an attack on an individual (per se), but on the argument(s) which she presents, and will be sent to her in an email, again.

Gretchen,

Regarding your recent article, "Fair Game: Bailout Needs Some Strings Attached to Limit Pay", I'm not quite sure where to start?  At the beginning, perhaps:

“The panel’s analysis revealed that in the 10 largest transactions made with TARP funds, for every $100 spent by Treasury, it received assets worth, on average, only $66,” the report said. “This disparity translates into a $78 billion shortfall for the first $254 billion in TARP funds that were spent.”

More taxpayer money down the drain, alas. And all the more reason to focus closely on executive pay restrictions at any bank that receives TARP funding.

Lets ignore, for a second, the fact that claims of "value" are for all practical purposes useless, given that no one can actually value the instruments in question, but frankly, I mean, holy non-sequitur Batman!   If I'm following your "logic" here, because the Treasury overpaid for assets to which no one can accurately value, you conclude that we should limit the pay of the bank Executives that convinced them to do so, despite the fact that their job is to do precisely that, to get the highest possible price for assets?  Seriously?  Give me a break.

I think you'll agree that most of the ladies and gentlemen who sit at or near the tops of these firms are already financially well-to-do, no?  Your plan is, to summarize, that we give the people who have the knowledge, ambition, and wherewithal (if anyone can be said to posses such things), a disincentive to fix the mess they may very well be responsible for creating?  This, sense does not make. 

Given the enormity of the task at hand - restoring the stability of the Global Financial System - perhaps we should be primarily focused not on punishing those deemed "responsible", but on creating an incentive structure to make sure those to which this task is left are those best equipped, and most likely to succeed. 

I realize, however, because this concept makes sense, it has no place in your column, especially since it does so without fueling the indignation of the ignorant pitch fork & torch anti-capitalism crowd. 

Much to my chagrin, It gets worse (much):

Although our long-running financial despond has produced few real positives, surely this is one: Investors are finally seeing just how regally executives live on their shareholders’ dimes. Maybe now they will do something about it.

Yes, Gretchen, making it, per your own admission, the Shareholders' problem, not the Government's.  

During good times, banks either hide or try to justify such perks as fleets of corporate jets and Las Vegas junkets. But as companies run to taxpayers for their bailout billions, they are now being forced to forgo the Gulfstreams, the tee times at Pebble Beach and those sumptuous spa treatments.

No, Gretchen, these perks are not restricted purely to the Executives and Employees of Financial firms.  As a matter of fact, firms (yours included, I'd imagine) rely on such perks in their every-day course of business.  Are you suggesting that, at a time when Banks are already up the proverbial creek in terms of retaining, nay, generating new business, that we further restrict their ability to do so?  Do you ever engage your brain before you put pen to paper (or fingers to keyboard, as it were)? 

Considering this suggestion, if put into practice, would necessitate further layoffs and bankruptcies amongst the very firms that depend on corporate travel and entertainment spending,  which we do not need any more of, I highly doubt it.

Could shame, that long-lost American character trait, be making a comeback? Not likely. So it’s important to make Washington’s plan to rein in executive pay airtight. Loud rebukes against executive excess are amusing, but a $500,000 cap on salary means only that the executives will be paid some other way. And requiring companies to recover compensation only if an executive is found to have lied on financial statements? Good luck with that.

Well, the voice of reason speaks, kind of.  This is really the best part though, where you, Gretchen, presume to teach us all how you think we'll get out of this mess, thank god!

Here’s an alternative approach. How about requiring that any severance pay over $1 million be subject to an excise tax of 20 percent? This is the amount levied on golden parachutes, and it could easily be applied to severance at companies tapping the TARP.

Ahhh, the inevitably arbitrary, yet impressively chosen "million dollar" threshold, what better way to rile the masses?  Far be it from me to point out that this approach simply amounts to a redistribution of money to The State, which I should remind you has such a great track record when it comes to deciding how best to allocate capital, but let's not let things like "logic" or "history" get in the way of your arguments here.

Furthermore, why not extract a 20 percent tax on all perquisites exceeding $50,000 that are given exclusively to top executives each year? These include such delectables as cars and drivers, country club memberships and personal use of corporate aircraft. If the government won’t bar perks outright, then executives should have to give something back for the freebies.

Gretchen, by what calculus did you arrive at these numbers?  Even if you're speaking only of use of jets, drivers, and the like for personal use, $50,000 is still an arbitrarily low number, when a country club membership alone can cost $100,000+/year for a mid-to-fairly high-level club around a major metropolitan area.  A driver, often included in compensation packages since an Executive's role is sometimes a 24/7 job, can cost substantially more than $50,000.  

And while we are on the subject of excise taxes, the government should ban the deplorable corporate practice known as the gross-up, in which shareholders pay to cover an executive’s tax bills. Rank-and-file employees at these companies, who have been hit hard by the crisis, don’t get these deals. Why should anyone?

Gretchen, I'm sorry, you are either a shameless pandering hack playing to the already-angry masses to sell Papers, or an ill/un-informed idiot. 

 If shareholders don't want the executives of their portfolio firms receiving gross-ups as part of their compensation, then can - get this - not hold, or sell their shares in that firm or firms.  Incredibly, they can also attend what we call a "shareholder meeting," among a variety of other ways they can air their grievances.  Feel free to return to the realm of reality at any point, we'll be waiting for you.

IT is also important for the government to provide as many incentives as possible to get taxpayers’ money paid back quickly. So any executive pay restrictions might also state that if TARP funds are returned within a certain period — say, 18 months — the penalties can be avoided or refunded.

Oh, because this proposition won't incentivize Executives to do anything silly, like maximize short-term results to the detriment of long-term sustainability, no, we'd never expect anyone to do something so preposterous!  Of course, this says virtually nothing of the fact that as long as Banks keep paying interest (preferred dividends) on TARP funds, repaying loans later, rather than sooner, may actually work out better for shareholders, as over a more distant time horizon, many asset values will likely increase closer (albeit likely not to) par.  This is a gross oversimplification for which I apologize, but you should be comfortable with such shortcuts, so bear with me.

That which does not kill you makes you stronger, as the saying goes. If out of this near-death economic experience, shareholders emerge stronger and tougher on directors about me-first executives, more to the good.

Yes, you've hit the nail on the head, finally!  Shareholders, not the Government, need to demand more accountability and results, more performance for the pay, so-to-speak.  I do not disagree with the basic premise that when Government (or, as you're careful to say, "Taxpayer") funds are used, certain restrictions may be a good idea to ensure that said funds are not abused.  However, not a single suggestion if your article comes close to making any sense whatsoever.   If adopted, your proposals would, as I've already pointed out, likely accomplish the complete opposite results for which we should be desperately hoping.

Please, I implore you, issue a public defense of my criticisms, of your work.  Nothing would make me happier than to see some actual supporting evidence or logic to back-up your claims and suggestions, that is, to prove my criticism unwarranted; I am not excited about my seemingly ever-declining faith in traditional media outlets and traditional Journalists like as yourself.  Seriously, please, I beg of you, restore my confidence once more!

Regards,

Anal_yst

1-2 Knockout Product Desk Introduces the "Short Human" Series of Structured Funds and Notes

As some of you may or may not have noticed, its been quite some time since we've heard from the trolls brilliant minds down at our Structured Products Desk.  Truth be told, despite our mostly-fictional status as an actual Investment Advisor/Underwriter, there just hasn't been much demand for any innovative structured products over the course of the past few months.

Until now.

Ladies and gentlemen, today, the 1-2 Knockout Structured Product Desk presents the next generation of financial innovation:

The "Short Human Investment Thesis" ("S.H.I.T.") series of Exchange-Traded Funds and Notes. (tadaaaa!)

What, you may ask, is Short Human ("S.H.I.T."), and why (or simply, wtf)?

The point is, investors are sore - like they just spent a few nights in PMITA Prison sore - and they need something to get excited about.  As we, ourselves, have pointed out on multiple occasions though, there just isn't much out there to get investors salivating (and Wall Street profits flowing, more importantly).