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Inefficient Bonus Schemes

Andy Spero | January 13, 2010 | 0 Comment(s) |

The Outrage Makes Them Larger

Recently, much has been written about “Wall Street” bonuses. Almost all of those articles mention the same two things: (1) populist and government sentiment against the bonuses, and (2) the composition of the bonuses towards long-term, restricted stock and away from cash. At least some of the drive towards a more stock-heavy composition seems to be management’s attempt to appease the government and the public. In this post, we argue that such moves are needlessly costly, which means inefficient and larger than need be.1… Read the rest

Government Whining and Bailout Fees

Andy Spero | January 12, 2010 | 0 Comment(s) |

Given the past two days’ front page headlines in the The Wall Street Journal, it seems that banks are doing a lot of bracing. Monday’s headline announced that Banks Brace for Bonus Fury, and today’s headline announces that Banks Brace for Bailout Fee.

The first article notes of complaints by the public and government officials about bonuses paid for 2009 ‘results.’ The second article describes a likely attempt by federal officials to, in some sense, monetize those complaints by levying new fees onto banks. (Soon, we’ll soon publish a… Read the rest

Phibro and the Citi Hall Mess

Andy Spero | August 5, 2009 | 0 Comment(s) |

The Wall Street Journal has an excellent editorial in today’s edition: The $100 Million Banker.

Why do we say the editorial is “excellent?” For the usual reason; it is nearly identical to what we’ve written in the past: give Mr. Hall his money and ban prop trading at regulated banks.

If you missed those posts, see these two recent ones:  Prop Trading and Pay at Banks and The Children Who Have Eaten Their Cake… Those two provide links to many related ones, too. The latter one promises… Read the rest

The Children Who Have Eaten Their Cake…

Andy Spero | August 1, 2009 | 0 Comment(s) |

We hate it when one of our favorite quotes is used against us, but that is the nature of our queen and chairman. (Although she does it in a good-natured, light-hearted, and humorous way, there is steely resolve in her teasing words.)

Actually, she didn’t use the exact quote; instead, she updated it and made it more relevant to the situation at hand. That made it all the more painful. Her version with reference to today’s lunch, or shall we say the absence of lunch was: “The children who have… Read the rest

Prop Trading and Pay at Banks

Andy Spero | July 25, 2009 | 0 Comment(s) |

There is an article in today’s edition of The Wall Street Journal that attempts to frame Citi’s pay “dilemma” with trader Andrew Hall of its Phibro unit as some type of Gordian Knot: Citi in $100 Million Pay Clash. It’s not.

It seems that Citicorp will legally owe Mr. Hall about $100 million for his compensation in 2009, but Citi’s senior managers are concerned about the political ramifications of paying such a large amount. The last time we checked, Citi had taken about $45,000,000,000–yes, $45 billion–from wealthy, middle-class, and… Read the rest

The Banks' Mark-to-market Gains on Debt

Andy Spero | May 15, 2009 | 0 Comment(s) |

How Much Have They “Gained” From Becoming Worth Less?

Since the beginning of April, when many large banks reported unexpected (or unexpectedly large) first-quarter profits, we’ve wondered what percentage of those profits could be attributed to the accounting rule that lets them recognize a gain because their own liabilities have become worth less. (We think “worth less” is the correct form, but for the extreme cases, it should indeed be “worthless.”)

We wrote about this issue of recognizing gains from losses in mid-December in our post Read the rest

More Capital Ratio Silliness

Andy Spero | April 21, 2009 | 0 Comment(s) |

The Irrelevance of Book Equity and Capital Ratios

Last month we wrote March Madness: New Bank Capital Requirements. In that, we stated: “We’ve always thought that such requirements were stupid and provided a false sense of security: kind of like ducking and covering under one’s school desk as practice and preparation for a nuclear  explosion.”

We also provided an example from an old merger of two rust belt firms. At the time of the merger, the firms had combined book… Read the rest

Our Middle-class Morality

Andy Spero | January 14, 2009 | 0 Comment(s) |

We chuckled when we saw this headline in The Wall Street Journal today, January 15: Fed Officials Say Ailing Banks Require More U.S. Funds.

That’s not really news, and–by the way–it’s tautological or true by definition.  (Uh, otherwise, they wouldn’t be ailing now would they, precious.)

Anyway, our point is always the sa: just because they need the money, doesn’t mean that they deserve the money nor does it mean that they’ll spend it wisely.

In that way, they’re not much different the the homeless alcoholics who beg… Read the rest

What Is Citigroup Worth?

Andy Spero | January 14, 2009 | 1 Comment(s) |

The Wall Street Journal has an editorial in today’s paper–January 14–that seems to be ripped from our headlines: it calls for the dismemberment of Citigroup, and it implies that Citi has lost its right to exist.  (See When Is Enough Enough?, for example, or any of our calls to nationalize it.)

As we’ve seen in various news reports, Citigroup has lost about $30,000,000,000 or so in the last five quarters and has received about $45,000,000,000 in TARP funds, and the… Read the rest

When Is Enough Enough?

Andy Spero | January 12, 2009 | 0 Comment(s) |

Last Monday, The Wall Street Journal published a small survey of mostly academic economists in Experts’ Rx on How to Get Out of This Mess.  (Perhaps “academic economist” is redundant.)

We couldn’t tell whether a few of the replies were poorly edited or were inherently trite, e.g., to paraphrase we need long-term solutions, new risk measures, and the ability to separate the good and bad firms.  You don’t say!

Anyway, we did like Douglas Diamond’s response: “You have lots of carrots and no sticks right now.”

The reporter, Justin… Read the rest

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