naked capitalism

S says:

Off topic although comp like provision is an expense. As it relates, the question is not so much provision as it is reserve to embedded losses. No one really knows what the embedded losses are so, the provisioning will be a death by a thousand cuts until many of the regions whiter, die or consoldiated.

Why is compensation such a third rail? I mean that both ways. Employees in companies outside FIRE not seeing increases in years while I banks raise capital from the government subsidized and belabor the idiocy that if they don’t pay X they will lose “talent.” [not surprising that I bankers themselves are virtually the only people in the world who think themselves value added].

The idea that shareholders (EPS) outrank employees is merely a cast off of the trickle down lunacy. I haven’t looked at profit margins versus compensation historically, but it’s pretty well tread that the it has gapped out substantially on the average. The return of the S/P to 500 may finally put the lie to the 401K sales pitch (401K was a risk shifting measure by cooperation’s and a boon for the annuity it produces as both a long term subsidy to the equity markets and their handlers). Capping labor costs (both at home and the wage labor arbitrage) to enrich shareholders was nothing more than looting in yet another form. And now the 401K gains that were the positive externality have gone by the wayside.

The rationale that lowers margins means lower profitability means capital flight is a red herring when it comes to competing against $2 workers. Discussions lately of a coordinated developed market fx devaluation had me thinking what if all major indices components decided to take a 6% hit to margins as a stimulus (housing and other). Would the potential bottom up demand and potentially higher top line growth in the out years – think DCF) outweigh the low NPV from reduced margins?

This reminds me of the debate about China revaluing not having the intended effect because capital flight would take hold and work to numb the expected blow out of the Yuan.

All that said, the market has been horrible wrong in allocating capital (Austrian’s like Mish would agree). So why is there such a religious zeal surrounding variable compensation expense? Perhaps it is because it really is the only truly variable cost left for companies to control. The unintended consequences mount as the race to the lowest common denominator.

Anonymous says:

Given this Bloomberg Headline

“Fed Raises Rate It Pays on Banks’ Reserve Balances”

Isn’t this contradictory to Paulson’s demands banks loan out the money given to them?

Am I missing something? Won’t they just hoard cash?

Any comments welcome!

Robertm73 says:

A once in a lifetime credit crisis has three components.

1st Numerous homeowner defaults
2nd Large number of banks become insolvent
3rd Large number of governments default on their debt
FYI this was 1932 not 2008….

Oh god we are screwed

S says:

More Panicked Than Ever said…

Effective funds this am was 0.
65% . As santelli is on top of the fed is effecting a quatitative ease via this mechanism anyway. JJ oata cross cuive is saying the eurodollar market is pricing in an 50 bps cut fully. perhaps the excess reserve which are being paid less than the target rate hurst banks profitability and thus the 5 yeear plan to recapitalize. Seems the only logical explanation. This action would seem to bolster the case for Libor convergence as banks have a defacto next best option nearer the target. Not sure there is anything sinsiter happening but might be well off the mark..

Anonymous says:

More Panicked Than Ever said…”Something’s going on that we are not seeing, that we are not privy to. Any idea? Anybody?”

Karl Denninger on Market Ticker today explained what was happening (hope this helps) — “Among other things, today we learned that The Fed has lost control of the Effective Fed Funds Rate – their own overnight lending rate. They were forced to change their interest rate on reserves in order to try to get it back under control – and there is no reason to believe their efforts will be effective.”

For the full article (well worth the read): http://market-ticker.denninger.net/index.html