David Kirkpatrick

October 23, 2009

TARP recipients to get White House mandated pay cut

I’m no fan of the government telling a business how much it’s going to pay executives, but you have to say the major TARP recipients brought this on themselves. After the forced bailout (most of these players had no choice but to go along with the bailout) the situation became no longer business as usual. Somehow that point was lost on the C-level at Citigroup, BoA, GM, Chrysler, GMAC, Chrysler Financial, and especially AIG. The end result? The pay packages of 175 top executives are going to start seeing much lighter pay checks.

Cue an entire chorus of nanoscale violins.

From the link:

The Obama administration will soon order the nation’s biggest bailed-out companies to drastically cut the pay packages of 175 top executives, a senior administration official confirmed to CNN Wednesday.

Kenneth Feinberg, who was named the White House’s pay czar in June, will demand that each of the seven largest bailout recipients lower the total compensation for their top 25 highest paid employees by 50%, on average, the official told CNN.

And here’s the big number:

Under the plan, which is expected to be officially released by the Treasury Department next week, annual salaries for executives at those seven firms are expected to fall 90%, on average, the official said.

March 19, 2009

House votes to tax AIG bonuses

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 4:23 pm

To the tune of 90 percent. We’ll see if the Senate does likewise and this bit of taxpayer outrage becomes a reality. I don’t like government being used in this fashion, but AIG is a pretty unsympathetic victim.

From the link:

Spurred on by a tidal wave of public anger over bonuses paid to executives of the foundering American International Group, the House voted 328 to 93 on Thursday to get back most of the money by levying a 90 percent tax on it.

November 25, 2008

Laffer on the bailout

Arthur Laffer, Reagan’s economist and namesake of the Laffer curvedisses the ongoing financial crisis bailout. I think I’ve made my thoughts about this bailout well known. Probably two words suffices to sum up my opinion — corporate socialism.

From the (second) link:

As you read this, our government is committing enormous sums of money above and beyond normal spending, solely to stimulate the economy and prop up failing companies and markets. These additional sums are huge by any reasonable measure, with estimates as high as $3 trillion in an economy with a GDP of about $15 trillion.

Here’s the bottom line: Instead of making things better, increased spending will only drive our economy further into the ground.

And there is still a lot more spending to come. First it was a $170 billion stimulus package in February of 2008, then material add-ons to both the housing and agricultural bills, followed by Federal Reserve asset swaps with Bear Stearns and a bailout of AIG (which, by the way, isn’t over yet) and then came the debt guarantees of Fannie Mae and Freddie Mac.

Shortly after that, the administration anted up $700 billion in a bailout package, and now Obama, Reid, Pelosi and Bernanke want another stimulus package of $300 billion. Just this week the powers that be are debating bailouts for Michigan’s auto industry. With the slowdown in the economy, tax receipts are now projected to fall sharply. The logic here is totally upside down, and each new measure, far from helping the economy, does enormous damage.

September 20, 2008

Maybe markets need the human touch

Here’s a Technology Review blog post on quantitative analysis and its role in the ongoing financial meltdowns.

From the link:

Much of what’s happening currently connects back to this: the application of incredibly complex mathematical and statistical techniques to financial markets. An article in yesterday’s Financial Times highlights how the failure of mathematical modeling to accurately foresee market behavior is now exposing even seemingly safe institutions such as AIG to the wider credit mess:

On a wider level, AIG failed to see how the fate of supersenior [pools of debt previously considered safe] could be linked to behaviour in other parts of the financial world. For what has made the price falls so vicious this year is that all the institutions that had previously piled this “boring” supersenior on their books have needed to sell at once. Hence the development of a vicious, downward spiral.

These institutions can hardly be blamed. This morning I spoke with Jiang Wang, a professor at the Laboratory for Financial Engineering at MIT’s Sloan School of Management. He says that the models used by big financial institutions simply aren’t engineered to cope with the kind of severe conditions we are now seeing:

“Quantitative models/tools have served finance well at the micro level, such as valuation techniques, trading strategies, and specific risk analysis and product design. However, they are not at the level of capturing system wide risks and dynamics, and not intended to be. Much more work and data are needed here.”

Unfortunately, as the situation worsens, it becomes even harder to predict what will happen next.