A funny thing happened at the INET conference. First, I got to ask Larry Summers a question because Martin Wolf, who was moderating the session, is a good sport. Normally, at this sort of event, only At Least Semi Big Names get to interact with Big Names. Yours truly is a minimum of a rank or two below At Least Semi Big Names.
You will find our question at 55:40.
Read more...I trust readers don’t mind that we are a bit heavier than usual on the political-related postings tonight, since this is a slow news week. But that may be useful, given that the big new subtexts at the INET Conference were the importance of “political economy” (three years ago, that expression was seen as having a decidedly Marxist color to it) and the rising wealth and power of the top 1%.
One nagging question is how the increased concentration of income and wealth in the top strata came to pass. The story that this group and their hangers-on would have us believe is that it is all the result of merit and hard work. Two offerings raise doubts about that line of argument.
Read more...Yves here. This post by Bill Black is important because it presents and dissects an ugly example of failure of morality and common sense within what passes for the elite in the US.
Earlier this week, Matthew Yglesias defended the Administration’s distaste for pursuing fraud investigations against financial players:
….the Obama administration felt it was important to restabilize the global financial system. That meant, at the margin, shying away from anxiety-producing fraud prosecutions. And faced with a logistically difficult task, that kind of pressure at the margin seems to have made a huge difference. There simply was no appetite for the kind of intensive work that would have been necessary.
I’m not as persuaded as, say, Jamie Galbraith is that the failure to do this is a key causal element in our economic problems. Indeed, I’d say that if you look at the situation literally, Tim Geithner’s judgment was probably correct.
This line of thinking is a favorite of authoritarians. Democracy, justice, and capitalism are messy affairs. All sort of repressive measures can be justified in the name of stability and safety. And the irony here is that the firms directly responsible for the most disruptive economic event of the last eighty years are to be shielded from the long arm of the law….in the name of stability, the one output they have clearly failed to provide.
Read more...Pay for performance has become virtually a religion in America. As a result, evidence that it doesn’t work as advertised is seldom heard in polite company.
Most of the caveats raised about bonuses in the business media relate to the design of particular pay arrangements rather than the general concept. These awards often reward short-term risk-taking or just dumb luck, and may be excessive relative to an individual’s real value added (as in they attribute too little value to the existing franchise and firm resources).
An article in New Scientist (hat tip reader Kevin S) raises more fundamental issues. It explains how performance-linked bonuses can be demotivating and lead employees to game the system rather than do their best work.
Read more...It really is a sign of how complete a victory that the banks have won over the rest of us that Jamie Dimon has the nerve to complain about banking regulations. Even worse, he is egging on a effort by Republican bank-owned Congresscritters to roll weak bank capital rules back.
His position is pure, simple, unadulterated bank propaganda: what is good for banks is good for America, when the converse is true. Simon Johnson warned in his May 2009 article “The Quiet Coup” that the financial crisis had turned American into a banana republic with a few more zeros attached, a country in the hands of oligarchs, in this instance, the financiers. And we playing out the same script he saw again and again in emerging economies:
Read more...Gillan Tett’s latest offering in the Financial Times discusses the woes that have befallen various major companies that find themselves exposed as a result of having extended supply chains that have Japan-based manufacturing as an important part. She correctly depicts this as a symptom of a much larger problem, of having pushed the idea of wringing out production costs too far. But perhaps due to space constraints, she fails to draw out the most important conclusion: just as with financial engineering, management incentives favored ignoring risk, and the resulting blow ups were predictable.
Tett tells us the Japan-related disruptions are merely the most visible symptom of a widespread pathology:
Read more...By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is http://www.twitter.com/matthewstoller Mozilo’s emails expose a political philosophy borrowed from Ronald Reagan. I was combing through the Financial Crisis Inquiry Commission resource materials, and I found an interesting email from former Countrywide CEO Angelo Mozilo to his senior executives. It was written in […]
Read more...By Richard Smith, a recovering capital markets IT specialist Economics of Contempt took issue with a post I had written about a Financial Times op-ed by the Bank of England’s Andrew Haldane (and Robert May). He also attributed it to Yves…I really must get the byline habit. To be candid, I find his piece a […]
Read more...Soon-to-be-unemployed sports team managers the world over know what it means when they receive an affirmation of full confidence from the club chairman. Accordingly, we know roughly what to make of this: ‘The Bank of England has credibility,’ said Osborne (pictured). ‘I have complete confidence in it.’ The chancellor will not alter the 2% inflation […]
Read more...One of the reasons American management isn’t what it used to be is that most companies do not give a rat’s ass about employees. Yes, you’ll get the usual human resources blather about how “our employees are our most important asset”, but actions on this front speak vastly louder than words. In the 1970s and early 1980s, management gurus and the business press argued that one reason German and Japanese manufacturers were trouncing their American counterparts was that they had better employee relationships. But even though there is still a mini-industry dedicated to producing corporate “leaders”, US companies too often see employees as costs, and their objective is to get buy spending as little as possible on them, rather than treating them to the extent possible as allies in building a more successful, profitable venture.
An article in the “You’re the Boss,” a New York Times column, demonstrates how deeply these warped values have taken hold in American business. Now admittedly, this feature focuses on small businesses, and these enterprises are often on the knife edge of survival. At the same time, every now-big company was a small company once, and presumably a venue like the New York Times is trying to help these companies perform better and for those that have significant potential, to chart a path that increases their odds of achieving it.
So consider this discussion:
Read more...While I don’t want to overdo the criticism of Wall Street pay practices (on second thought, I am not sure such a thing is possible), I’d be remiss if I neglected to highlight a very good job of analysis and reporting by Eric Dash of the New York Times (and Footnoted.org) on this topic.
The Times has been picking apart a partnership that Goldman preserved after it went public in 1999 and is the vehicle that holds stock options and shares allotted to the top producers of the firm, a 475 member group. It already holds 11.2% of the firm and its share is likely to increase as options vest.
The report published tonight reveals that members of the Goldman partnership would routinely hedge their Goldman exposures. That defeats the purpose of share grants and equity linked pay.
Read more...Bob Diamond, Barclays’ chief executive officer, no more said something as inflammatory as “drop dead” to the UK Treasury select committee yesterday than Gerald Ford did in a 1975 speech refusing to extend financial assistance to save New York City from bankruptcy. But the substance was every bit as uncooperative.
Despite its artful packaging, Diamond’s presentation was yet another reminder of the banking industry’s continued extortion game, namely, that they can take outsized, leveraged risks and when they work out, pay themselves handsome rewards, and when they don’t, dump them on the taxpayer. And they’ve only been encouraged to up the ante. Not only did they get to keep their winnings from their last “wreck the economy” exercise, no senior executive was fired, no boards were replaced, and UBS was the only major bank required to give a detailed account of how its screwed up so badly as to need government support. And before you tell me Barclays was never bailed out, tell me exactly how well it would have fared had any other major UK or international bank failed, or had the officialdom not provided extraordinary liquidity support when interbank funding dried up.
Read more...This story illustrates how far some companies are willing to go to preserve their bottom lines and assert their right to operate in an unfettered manner, even when that includes breaking the law and violating contracts. Huffington Post, via its daily political newsletter Huffington Post Hill, does some additional reporting on the very peculiar case […]
Read more...An article in the Wall Street Journal about Bank of America’s says a great deal about the woes afflicting Bank of America, thanks to its enthusiastic embrace of Countrywide, both the biggest subprime lender and the biggest subprime servicer. The irony is that one of the reasons BofA coveted a criminal enterprise like Countrywide (they […]
Read more...I enjoyed the interview on Russia TV, but boy, the lighting was harsh!
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