Monday, February 09, 2009

Critique Of the $500,000 Salary Cap By WSJ

As usual, any pronouncements by Obama will be criticised by Wall Street Journal. Get over it already WSJ, work with Obama instead of trying to be a conservative Republican paper. The limits seem to apply only to "senior executives" -- the chief executive, chief financial officer and the like -- and not to many of the people who can earn the really big bucks on Wall Street, like traders, hedge-fund managers and the mad scientists who cooked up all those derivatives that almost destroyed the world financial system. So, what is your problem WSJ, isnt that a proper plan in itself. Who call the shots? The highly paid traders? What is most important is prudent lending, prudent managing of risks and rewards, building up the balance sheet, accumulating capital, hiving off unnecessary operations... these are the important tasks at hand.

Of course you shouldn't tie the packages for traders and quant scientists as they are paid to perform. The CEOs and CFOs would be quick to redraw the risk-reward line with these guys, perform or you are out, or draw up even more stringent capital at risk rules. You cannot legislate and control every aspect of running a company, what you only hope to do is to incentivise proper behaviour from the top, as that will filter down.

GE's top honcho Jeff Immelt came out against the salary cap. His beef was that you have to pay for talent. Jeffrey baby, talent my ass, its exactly these $1 million, $3 million, $20 million buggers that created and allowed the banks to be in the mess they are in - money does not guarantee appropriate talent. By delaying vesting of options and shares till money has been totally paid back to the government is only fair and should encourage the right behaviour, trickling down from the top.

WSJ fears that the new rules may cause managers to be be tempted to take greater risks in hopes of speeding up their preferred-stock payoff. If the risks go bad, Uncle Sam will eat the losses. That's why the buggers at WSJ will never be great management talent. The writers have NEVER run a company before, all they ever do is judge and critique like they are management gurus. These senior bank officers are basically employees of a government owned bank, and they will have to report frequently to the powers to be. It is exactly the molly-coddling board members that did not voice concerns over capital adequacy and risk taking profile. Well, now you basically have a government controlled board, and that alone will put an artificial net on those thinking of swinging for the fences with abandon to quickly pay back the government money.

WSJ, please grow up, do not mask your self as a Republican conservative paper, you are losing credibility that way. I respect Forbes even though I dont like the magazine much because at least they are upfront admitting they are Republican (have you seen Obama being featured on the cover of Forbes magazine??) ... WSJ, either you come out and admit your political bias or relearn why you became a great analytical business paper.

p/s photos: Terri Kwan Ying


The Contrarian said...


Can the US setup the TARP funds and Bad Banks as a private owned mortgage refunding facility and list it on the exchange? use the overnight interest as a direect 30-day loan to refinance and post a smaller /lower prime rate as a loan to help those in risk of foreclosure? Paying out dividend directly to the public through the collection of loan interest? BUying out the bad assets itself wont help solve, but helping to provide liquidity directly to the public should be able to help but this would debase the dollar furthur but there wont be a perfect situation...IMHO pls comment thx

Implosion said...

Personally, I'm looking forward to the restructure at the WSJ when Rupert Murdoch's News Corp plunders through.

see said...

WSJ is beginning to get on my nerves. Their bias from run-up of election till now is incredible even for a non-Obama fan like me. GET OVER IT!! On the pay cap, think the government should have made it a performance based pay cap instead of a flat pay cap. At least if the managers perform to get out of the rut faster they should be rewarded & so that the government can get out faster

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