Thursday Links

Sorry, I’ve been out to lunc. This is the time that hedge fund managers get together with all of their colleagues at different firms, talk about how big bonuses might be and try to think of new ways to screw the middle class.

Stevie, you get IROTD (Insane Rant of The day) for that 12:30 post. Kudos.

“The second weakness in our government is “concentrated benefit versus diffuse harm”
also known as the problem of special interests. Decision makers help small groups who care
about narrow issues and whose “special interests” invest substantial resources to be better
heard through lobbying, public relations and campaign support. The special interests benefit
while the associated costs and consequences are spread broadly through the rest of the
population. With individuals bearing a comparatively small extra burden, they are less
motivated or able to fight in Washington.
In the context of the recent economic crisis, a highly motivated and organized banking
lobby has demonstrated enormous influence. Bankers advance ideas like, “without banks, we
would have no economy.” Of course, there was a public interest in protecting the guts of the
system, but the ATMs could have continued working, even with forced debt-to-equity
conversions that would not have required any public funds. Instead, our leaders responded by
handing over hundreds of billions of taxpayer dollars to protect the speculative investments of
bank shareholders and creditors. This has been particularly remarkable, considering that most
agree that these same banks had an enormous role in creating this mess which has thrown
millions out of their homes and jobs.
Like teenagers with their parents away, financial institutions threw a wild party that
eventually tore-up the neighborhood. With their charge arrested and put in jail to detoxify,
the supervisors were faced with a decision: Do we let the party goers learn a tough lesson or
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do we bail them out? Different parents with different philosophies might come to different
decisions on this point. As you know our regulators went the bail-out route.
But then the question becomes, once you bail them out, what do you do to discipline
the misbehavior? Our authorities have taken the response that kids will be kids. “What? You
drank beer and then vodka. Are you kidding? Didn’t I teach you, beer before liquor, never
sicker, liquor before beer, in the clear! Now, get back out there and have a good time.” And
for the last few months we have seen the beginning of another party, which plays nicely
toward government preferences for short-term favorable news-flow while satisfying the
banking special interest. It has not done much to repair the damage to the neighborhood.
And the neighbors are angry, because at some level, Americans understand that the
Washington-Wall Street relationship has rewarded the least deserving people and institutions
at the expense of the prudent. They don’t know the particulars or how to argue against the
“without banks, we have no economy” demagogues. So, they fight healthcare reform, where
they have enough personal experience to equip them to argue with Congressmen at town hall
meetings. As I see it, the revolt over healthcare isn’t really about healthcare, but represents a
broader upset at Washington. The lack of trust over the inability to deal seriously with the
party goers feeds the lack of trust over healthcare.”

>>This whole “screw the middle class” is getting old and largely without any intellectual support.

Proof? I thought so.

>>StevieB — I’m not a supporter of the huge bonuses in general. But the majority of the bonuses are paid to those that brought in major revenue. Bonuses are not paid in a HUGE investment house according to *overall* profit/loss. They are usually paid on the performance of the particular unit. X Division was in the black by $29 billion, while Y and Z Divisions were in the red by $18 billion each. That looks like the *company* was not profitable — overall. But the guy(s) you run X Division should most definitely receive a bonus… if that’s the reward structure of the company.

You should reward the positive.
—————————————-

Hey DIBS, lets say I am a hedge fund manager and I ran two strategies in my fund. One lost a ton of money while the other made a little but my fund is net down massively. How about I ask my investors to pay me performance fees for the strategy that made a bit of money because they should “reward the positive” and the strategy has “earned it”.