Wednesday, May 13, 2009

Broad Pay Reform for Financial Industry By Obama Administration

is being contemplated, according to New York Times article.

"Obama administration officials are contemplating a major overhaul of the compensation practices in the financial services industry, moving beyond banks to include more loosely regulated hedge funds and private equity firms."

Question No.1: Why should a government "overhaul" the compensation practices in a private industry? Or are they saying that financial industry will cease to be a private industry?

"Federal policymakers have been discussing ways to ensure that pay is more closely linked to performance."

Question No.2: "Performance" measured by who? Who is going to define "performance"? The government officials? (and who is going to define and measure THEIR performance?)

"...the new rules could apply to financial firms like hedge funds or private equity firms that never accepted money from the Troubled Asset Relief Program, or TARP."

Question No.3: Why? Give me a reason other than "Because we can".

"Administration officials have been contemplating broad-based pay reforms since early this year... But the effort was apparently put off after the furor over bonuses at the insurance giant American International Group in March."

Well-orchestrated furor, in retrospect, which effectively obscured the more important news that AIG was used as a conduit to funnel money to the top national banks and foreign banks.

"Bank executives have been pressing for more clarity on the pay issue, fearful that talented managers and traders might flee their companies for overseas institutions and boutique firms. But President Obama and lawmakers on both parties have been looking for ways to rein in excessive pay packages and make sure that compensation does not encourage them to take more risk."

Question No.4: Bankers took more risk because they wanted to get a fatter bonus? That could indeed be part of it, but the greatest incentive for them to take more risk was super-easy, super-loose monetary policy that flooded the market with liquidity.

"Treasury officials have said new executive compensation rules could be released shortly, with some bankers and lawmakers expecting them to be formally released before the Memorial Day recess."

... Now, Mercury Retrograde seems to be exerting its influence steadily but surely.

As of 10:02 AM Pacific Standard Time, Dow Jones Industrial Index is down 176 points to 8291, S&P 500 Index down 22 points to 886, Nasdaq is down -43 points to 1672.


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