Comments on: Martin Wolf: "Why regulators should intervene in bankers’ pay"

By: The Epicurean Dealmaker

The Epicurean Dealmaker — Thu, 17 Jan 2008 23:31:00 +0000

ptstone — Actually, I think what you propose makes eminent sense, and, in fact, is already in wide practice throughout the financial industry (or at least those parts where people make enough money to trigger your cap, like investment banking). For example, UBS announced relatively recently that it was capping cash compensation to its bankers at $750,000. Anything above that would be paid in stock or the equivalent.

My objection was to Mr. Wolf’s proposal that external regulators enforce such a scheme from the outside, for the reasons I mention in my post and elsewhere.

By: ptstone

ptstone — Thu, 17 Jan 2008 02:22:00 +0000

I’m puzzled why the epicurean dealmaker thinks that requiring bankers to receive the largest part of their largesse in restricted stock which vests in 5 to 10 years would be a “highly intrusive, massively unwieldy, and extremely complicated regulatory regime”. Wouldn’t it be as simple as setting a salary cap and requiring that everything above that be paid in long-term restricted stock? Presumably, the cap could be set at a comfortable level, say $500,000 or $1 million.

By: The Epicurean Dealmaker

The Epicurean Dealmaker — Wed, 16 Jan 2008 20:07:00 +0000

Puravidavid — No really, don’t hold back. Tell us how you really feel. Whassamatter? Short one too many Citigroup puts?

Comments like yours make us “free market touts” look like sheer geniuses.

By: puravidavid

puravidavid — Wed, 16 Jan 2008 17:38:00 +0000

Free market touts are shameless hypocrites. They want to act with individual license for personal profit and when it leads to operating collapses, be salved by the loss of purchasing power for others.

And yet they defend it with discredited nostrums? Priceless.

The mood swing from lemming optimism to angry mob pessimism will likely leave bankers hanging from lamp posts or beheaded impaled on pikes with bloated tongues that once lied purple and protruding; eyes bugged out, sightless and dead.

By: Independent Accountant

Independent Accountant — Wed, 16 Jan 2008 13:42:00 +0000

I am in partial agreement with Wolf. Any regulation will be evaded. Period. My answer: repeal the Federal Reserve Act and let banks fail. Make bank officers personally liable for bank deposits.

By: The Epicurean Dealmaker

The Epicurean Dealmaker — Wed, 16 Jan 2008 12:28:00 +0000

Sorry, Yves, I believe Mr. Wolf’s recommendation is so hysterical, rambling, and contrary to common sense (and a fine regard for the facts) as to be risible.

To the extent you are interested in a contrary (or dare I say contrarian) view on the topic, please see the counter to Mr. Wolf’s tirade I posted yesterday, after his piece appeared on FT.com:

http://epicureandealmaker.blogspot.com/2008/01/armageddon-rag.html

By: vlade

vlade — Wed, 16 Jan 2008 10:51:00 +0000

I just had an idea. How about that banks (in return for bailing out) will pay the government a CDS fee based on the market CDSes for the bank? You get what you pay for, it’s clear and transparent, the CDS market for the banks is (relatively) liquid, so quotes can be had easily – and the govt. can’t be saying the banks are socializing losses.
Of course, some “trivialities” (notional and how that should move, should it be rolling CMS deal etc..) would need to be worked out, but I’m sure that can be done with a good aproximation.

By: a

Wed, 16 Jan 2008 09:08:00 +0000

I think you (Yves) have the right idea. Banks just need to hold a lot more capital. Double it or triple it. That will take care of the deals the bankers can do and the pay will come down of it itself (and prime brokerage will be much more costly to hedge funds, which will take care of their pay as well).

In addition to more capital, banks need to be taxed much more, in order to pay for increased and better regulation. Current regulation is too hands-off and gives the bankers’ the benefit of the doubt. The banks are allowed to use their own models and systems to evaluate risk and these are considered validated if they backtest. The regulators cannot and do not try to analyze the positions independantly of the banks’ own systems, because they do not have the time or the ability. This is unacceptable. The number and standard of regulators need to increase dramatically (ten-fold?), so the deals can be analyzed.