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February 22, 2009 9:20 AM   Subscribe

The wall street brain drain defense. Executive pay has been capped at 500k a year for companies bailed out by the government. Some argue it will lead to a brain drain on wall street. Some say it won't matter. In any event, can the bankers even live on 500k a year?.
posted by jourman2 (120 comments total) 6 users marked this as a favorite

 
We'll only drain brains that are driven solely by money. Which are probably not the ideal brains to be running companies that, e.g., make cars.
posted by DU at 9:24 AM on February 22, 2009


Is there something about being a banker that necessitates living on the Upper East Side and having a $45K/year nanny? Perhaps the fact that bankers'
identities are entwined with living a certain way in a certain neighborhood west of Third Avenue: a life of private schools, summer houses and charity galas that only a seven-figure income can stretch to cover
needs to be reconsidered.
posted by DLWM at 9:26 AM on February 22, 2009 [3 favorites]


Brain drain? It will raise the average IQ of Wall Street by ten points if it brings in new blood. Heck, I'd take 500k in a heartbeat if all I had to do was not run a Wall Street company into the ground. And I have a lot more credentials on paper than some of these guys on Wall Street.
posted by jonp72 at 9:26 AM on February 22, 2009 [9 favorites]


It seems to me like high pay is more likely to attract the greedy as the smart. Not that the two are mutually exclusive, but I don't know too many people who are really smart who pick their job based on how much they can make. Smart people tend to pick jobs that they will enjoy doing and jobs that present a challenge.

I think that attracting the greedy to be in charge of your company might be part of the problem rather then part of the solution.
posted by jefeweiss at 9:29 AM on February 22, 2009 [19 favorites]


Those school fees are pretty high. Maybe Obama could look into instituting some kind of free schooling program for all U.S. children? The money to subsidize the program could come out of our taxes, and everyone under, say, eighteen years old could have access to it. We could open up branches all over the country. Has anyone ever proposed this kind of "public" schooling? It seems like it might be able to work.
posted by Greg Nog at 9:31 AM on February 22, 2009 [82 favorites]


I see these people tooling around Bar Harbor every summer in their Jaguar E-Types while I worry about how I'm going to keep my car running. For all their money, they don't treat service workers well.

Fuck these guys. My parents are making 32 grand a year, together.
posted by dunkadunc at 9:32 AM on February 22, 2009 [12 favorites]


For problems that can all be addressed by commuting to work, I shed the worlds tiniest, subway-seat-moistening tear.
posted by mhoye at 9:32 AM on February 22, 2009 [2 favorites]


Will bank 4 food!
posted by cjorgensen at 9:33 AM on February 22, 2009 [2 favorites]


FWIW, when I first saw the line "the wall street brain drain defense," I momentarily thought it might refer to some explanation of why the economic collapse occurred (i.e. "we've been losing our best brains for years to other professions, and this is the result," or some such thing).
posted by ornate insect at 9:34 AM on February 22, 2009 [4 favorites]


'Brain drain' is just a euphemism for a decrease in the number of criminal minds on Wall Street. I look forward to it.
posted by grounded at 9:35 AM on February 22, 2009 [8 favorites]


Interesting that we're not concerned about the likelihood of a brain drain among our educators, who make, on average, about $41k per year.
posted by Astro Zombie at 9:37 AM on February 22, 2009 [77 favorites]


(i.e. "we've been losing our best brains for years to other professions, and this is the result," or some such thing)

I believe that your best brains have been actually building things people can use and care about all that time, and that make people's lives better, and not just shuffling money (and, often, entirely hypothetical money) from place to place while skimming off transaction fees.
posted by mhoye at 9:39 AM on February 22, 2009 [3 favorites]


In any event, can the bankers even live on 500k a year?

Yeah.
posted by kittens for breakfast at 9:40 AM on February 22, 2009


The U.S. Presidential salary is &400,000 (plus considerable benefits, of course), and that hasn't stopped some very smart as well as some very ignorant people from taking the job. It's all in the hiring practices.

And really smart people know how to live well on less.
posted by orange swan at 9:41 AM on February 22, 2009 [1 favorite]


Like jonp72, I will also offer my services to any willing bank. The conditions of my employment, and services rendered, are outlined below:

Demands: Annual salary of $400K. A savings of $100K against competing bank CEOs. Free lunches. At least one very nice suit.

Services rendered: An emphasis on, and a commitment to, not losing billions of dollars in investments.

Any banks who are interested may contact me by getting in touch with my lawyer at my home phone number or poking me on Facebook.
posted by billysumday at 9:42 AM on February 22, 2009 [6 favorites]


I like to imagine the kind of brain drain going on on Wall Street is the kind where they leak out through small holes in the back of the skull.
posted by dunkadunc at 9:42 AM on February 22, 2009 [7 favorites]


The brain drain already occurred. Putting recent college graduates with little to no experience in the field in a position to make potentially disastrous decisions is generally pretty stupid.
posted by oaf at 9:48 AM on February 22, 2009


Rather like draining the swamp to be rid of the alligators, no?
posted by five fresh fish at 9:51 AM on February 22, 2009 [4 favorites]


Metafilter: An emphasis on, and a commitment to, not losing billions of dollars in investments.
posted by Navelgazer at 9:52 AM on February 22, 2009


can the bankers even live on 500k a year?
wrong question - why would you want to if you had the opportunity to make more?

I'm gonna use an example not related to banking: top dog at a company I used to work for was famous in the industry for being the next big thing, the guy with ideas. he decided he was fed up with corporate red tape and the average paycheck and quit. big huffing and puffing from the owners. the chairman jumped onto his private plane and came over from paris to convince him to stay. no dice. top dog wanted his own company. he wanted to keep the cash he'd make. the old chairman needed to save face. so he made him a deal: do your own thing, we'll fund your company and nominally say you're a unit of ours, we'll pay you a very large percentage of what you make. we get to claim you're one of ours and you get your freedom and cash. they did that. top dog is doing very well. many of his recent work examples have been extensively discussed on mefi, btw.)

if someone wants you so badly that they're offering you unseemly amounts of money why should you the one to be ashamed if you took it? even if you screwed up - they were the ones lacking ideas, the ones who couldn't imagine another way of getting the results they wanted. there are two sides to salary negotiations and each one is free to walk away at any time. (btw: this is why I consider congress deciding how much congressmen get paid a problem.)

or let's look at a certain ceo who is in the news a lot right now: his 2007 salary was said to be €72,600,000. whoa! outragefilter! how did that happen? well, he joined the company back when they were down and out and negotiated a contract that back then was dirt cheap: pay me a percentage of what I make you. he trippled the product sold and their stock rose accordingly and the whole thing got to that out-of-this-world number. I'm talking about Wendelin Wiedeking of Porsche.

there are very highly paid folks who clearly screwed up. they deserve to be fired and lessons deserve to be learned. you do not automatically get the most talented person by waving gobs of cash around. yet what is up with people decrying that these ceo's took what they could get, that they played the game we all engage in better than most of us did? how is this anything more than jealousy?

I for one would gladly accept a job someone thinks I am qualified for pretty much anywhere if someone paid me three to four times of what I made last year. I'd put all I had into it. I'd try to get done what I was hired to do. but if I do fail, if I do fuck up, how could you blame me for having taken the outlandish paycheck? a warranty that I would produce a certain result was never given - all you got was the hope that things would work out if you hired me and not someone else. I got paid for my time and effort, not a result.
posted by krautland at 9:57 AM on February 22, 2009 [11 favorites]


First they came for the bankers. And I did nothing.
Then they came for the insurance brokers. And I did nothing.
Then they came for....

Wait, I think I am doing this wrong, since it seems like a good idea to put these people up against the wall.
posted by cjorgensen at 10:01 AM on February 22, 2009 [10 favorites]


No no, we need to keep the salaries high so that the douchewads with "wall street" mentality stay in that field. Otherwise they'd drain into less profitable, yet productive, fields like science and teaching and figure out a way to drive them into global collapse. It's like not draining the swamp so that alligators don't come hang out in your swimming pool.
posted by Cold Lurkey at 10:02 AM on February 22, 2009 [2 favorites]


cough cough, givewell, cough cough.
posted by Cold Lurkey at 10:03 AM on February 22, 2009 [6 favorites]


The brain drain argument seems, on its face, to be in line with capitalist logic. But it is being pitched to the public treasury, so none of it makes any sense.
posted by Brian B. at 10:06 AM on February 22, 2009 [1 favorite]


krautland: I for one do not begrudge anyone who makes their company a lot of money, then keeps a healthy percentage, like that fella from Porsche. But when you say, "yet what is up with people decrying that these ceo's took what they could get, that they played the game we all engage in better than most of us did?" it's confusing - they didn't play the game better than us. They gambled their money, poorly, and lost. And then they want to keep their $40 million bonus.

I guarantee you that the day a bank CEO goes on television and says, "Starting today my salary is $1/year, and the only money I will make is from the stock of our company as it goes up, up, up! because that's how confident I am in turning this company around, blah blah blah, etc." is the day that a lot of people put their money in that bank. It would be such a smart pr move. The ugly thing, from our peasant perspective, is that these CEOs want a guarantee that whether they do extremely well or extremely poorly, they get to keep their gob-smackingly huge salaries and bonuses. Indeed, it's almost an incentive to do poorly, because getting bought out is often more than the salary. What other business is like that? Pro sports, perhaps, but pro athletes don't eff with our money.

What I don't understand: there just have to be people out there who could run these banks who don't demand money whether they win or lose, but rather require payment if they succeed in the job. Why don't the boards hire those people? How is that not possible?
posted by billysumday at 10:06 AM on February 22, 2009 [3 favorites]


This article comes as no surprise to me; I've personally known more than one banker pulling in two to three hundred (Sterling) who was borrowing money at the end of the month. The old expression "it doesn't matter how much you make it's how much you keep" is oh-so-true. I've always been amazed how much most folks in banking spend.

While I love banking - the mental challenges, the subject matter, the problem solving - I never socialised much with banking people. I know that caused me certain political problems but I never really cared. For me banking was just a means to an end. I realised early on in life that if one doesn't acquire their own capital they'd always be a slave to someone else.

And I've got lots of friends who are also in banking, very much like myself and we've got a private expression - shamelessly stolen from Frank Zappa - "We're only in it for the money" .

You see, to be totally honest, I never particularly cared for most of the people I worked with in banking. Our value systems were incompatible. I only need and own one flat. I don't consume much. I haven't owned a car since 1982. My last banking job I walked to work every morning along The Thames, very relaxing. I prefer to purchase experiences rather than objects. I have always lived very cheaply. While working in banking I managed save about 90% of each paycheque. In many ways, I never felt a particular need to keep up with the folks living out in The Stockbroker Belt, buying bigger and bigger detached houses, and increasingly expensive autos. Most were shocked to learn I lived in Central London and not in a new build property with gym and underground parking and concierge.

Mrs Mutant is in banking as well, and I was fortunate enough to find someone else whose value system is consistent with mine. So we like living in The Ghetto (aka Whitechapel) - after all, its not only historic, its dirt cheap for Central London.

I feel sorry for many of the people whom the financial services industry is now excreting. Lots of them are going to get a radical adjustment to their value systems and living standards. For many this is the end of their banking careers. Hopefully they'll emerge as better people, but just from they way some of my ex-colleagues are moaning about the way I've been treated, and what will I do? I somehow doubt they all will.

That being said, this period of time is very, very similar to what we saw in banking in 2001, after the dot com collapse. Don't be fooled - there are banking jobs out there, and well paying ones. Just a lot fewer jobs and not as well paying as before.

So while many cuts are justified, business in other areas is booming and we're seeing many banks using the bad times as an excuse to screw over their loyal employees in well performing lines of business.

If management can find a way to make someone who is earning two hundred base, maybe three to four hundred total package redundant, and if that position is really needed they will find a way to relabel and refill that job for much, much less money. It is happening big time, just like it did a few years ago. All the banks are frantically reducing their cost base, and in banking some 80% of your cost is people.

If someone is barely making it at four hundred thousand, getting a 30% to 45% (or more) pay cut - doing the same job at a different bank - is enough to push them under. No savings, equity tapped out, credit cards maxed or soon to be, its absolutely incredible how reckless some banking folks are with their own finances.

On second thought, given what little care some of them exhibited for client money, maybe it isn't such a surprise after all.
posted by Mutant at 10:10 AM on February 22, 2009 [59 favorites]


This is just more Reaganite nonsense. There was a trope - always a lie - that has been floating around for a long time that says that if we over-tax the rich (or put any sort of limits on them) people won't have any incentive to get rich. Bullshit. If the most I can ever make is $500,000 - I will still want to make $500,000, just because there will be some guy who makes $499,900 that I can lord it over.

Let's face it: the real reason why people want to be rich is that it brings with it a certain amount of credibility and power and status and an ability to be a babied prima-donna. There is no way, in practice or in solid ethical principle, which would allow us to really strip the people running the engines of our commerce of power, and as long as there is power - people will seek it, the salary be damned.

Someone just raised the issue of the President, who is quite possibly the best example of this. Barack Obama could easily make more money somewhere else - but there's no place he could have more power, and thats why he wants to be President.
posted by Kiablokirk at 10:11 AM on February 22, 2009 [2 favorites]


Mutant's comment just dampened down my bile a little bit - thank you.

But re-reading the article in the last link, I thought of a great phrase I heard last year: "this is a red rag to a certain kind of bull." I am that kind of bull.
posted by carbide at 10:16 AM on February 22, 2009 [1 favorite]


krautland: your examples speak of successful people, people who have brought tremendous returns to their companies. The Wiedeking example is one of someone who gets a reward tied to the company's fortunes. This is different. This is a lot of wailing from people who are getting paid, win or lose, and whose salaries bear no relation to the companies fortunes. Yeah, I can't blame them for taking the big paychecks, but them having to take a pay cut due to their salaries being paid by the taxpayers who are now covering for their mistakes and in some cases gross negligence? They're lucky they're getting that much. Can they make a lot more? If they can, they are welcome to get a position in which they can. I suspect that right now they can't. Otherwise, they'd better learn to live on "only" $500k a year.
posted by azpenguin at 10:21 AM on February 22, 2009


The problem with america isn't the amount of people living below the poverty line. The problem is in the disparity of wealth. There is no excuse for needing more then $500k per year to live. The fact that some claim to only indicates how broken our system really is. Services that exist to capitalize on these artificially high salaries hemorrhage the excess money, but is America truly looking to become a nation of unskilled restaurant servers?

And the concept of a brain drain is preposterous. Take their money and GO WHERE? How many jobs, exactly, pay above $500k per year? I heard a similar themed story air on NPR a few months ago, and one Harvard banker was lamenting that perhaps he should go into acting. I laughed out loud. The mere suggestion that a business major could deal with the true economics of pursuing a passion job and living off of >$30k per year for 5 years or more is just too much.
posted by The3rdMan at 10:22 AM on February 22, 2009 [11 favorites]


What I don't understand: there just have to be people out there who could run these banks who don't demand money whether they win or lose, but rather require payment if they succeed in the job. Why don't the boards hire those people? How is that not possible?

Boards hire CEOs that help the stock price, that have the right "face" for the company. Investors like senior management teams that are seasoned professionals with a fuckton of experience under their belts. Most of the C-level crowd out there are folks from the Current System, so they all have MBAs and a corporate pedigree a mile long, etc etc. Therefore, they also come from the world of "$25 million a year + bonuses as applicable."

Finding a top dog who likes compensation as you describe it would be, I'd think, bloody difficult. And anyway it's too New and Different for the staid grey-haired grey-suited boards of our current system. Changes need to occur, I agree, but they'll be a little while coming.
posted by caporal at 10:25 AM on February 22, 2009


Rather than moralizing that high pay for certain workers (ie, CEOs and people in finance) is somehow "bad" (and earning a combined household income of $36K is relatively "good" in comparison), why not measure performance versus paycheque:

Surowiecki: And while it’s probably true that some highly qualified people who might otherwise have been interested in, say, taking over from Vikram Pandit at Citigroup will now shy away from that job, on the whole I’ll be surprised if the plan ends up having a significant impact on the quality of executives at troubled institutions; either those institutions will get out of trouble in the next few years and pay back the government (after which the restrictions will be lifted), or they’ll simply go under and be taken over.

Surowiecki on compensation in 2007: For all the talk of restraining C.E.O. pay, most compensation committees remain what Warren Buffett once called them—“tail-wagging puppy dogs.” At some companies, this is simply because the C.E.O. has packed the board with cronies.

Surowiecki reflecting on the causes of the 2001 crash: If you were interested in finding a culprit for the deluge of bad news that has engulfed American business and brought the stock market crashing down, the name of Lee Iacocca would probably not be high on your list of suspects. But if it weren't for Iacocca, it is unlikely that we would be talking about Enron and WorldCom today.
posted by KokuRyu at 10:26 AM on February 22, 2009 [1 favorite]


the only money I will make is from the stock of our company as it goes up, up, up!

It's far too easy to inflate a stock price with bullshit accounting and investing moves, and dumb to build in incentives to focus on stock price at the expense of long-term profitability. Isn't that what wrecked a lot of the companies in question? I see your bigger point, but using stock price as your peg seems dangerous.
posted by mediareport at 10:27 AM on February 22, 2009


They gambled their money, poorly, and lost.

Actually, it seems to me they gambled their invesors' money, poorly, and lost.

To me this is the root of the problem: we're paying these people as if they're taking huge personal risks, but their own wealth is never in jeopardy.

(btw: this is why I consider congress deciding how much congressmen get paid a problem.)

Similarly, I'd say it's also a problem that corporate boards are largely populated by the CEOs of other companies.
posted by sriracha at 10:28 AM on February 22, 2009 [3 favorites]


On brain drains in general: my wife works at a bank. Her bank did not get in trouble. I do not know what the CEO at her banks makes. But since he does not take taxpayer money, let the stockholders decide what he is worth. For those bankers taking MY tax money so they can get 500 thou per year rather than unemployment: take what you are offered and count yourself lucky.
posted by Postroad at 10:37 AM on February 22, 2009 [3 favorites]


That Times article? That kind of crap is how you got the French and Russian revolutions.
posted by dilettante at 10:44 AM on February 22, 2009 [3 favorites]


The Bloomberg article (the one I can read without a subscription) suggests that pay caps will cause an exodus to hedge funds and foreign banks. Maybe. But what if those institutions followed the example set by Wall Street and capped their executives' compensation, too? What if the federal government used other leverage to make sure that happened?

Of course there still might be a "brain drain" on Wall Street, but if my postulates hold true, then the talent would just migrate to other sectors like engineering or science. Is that really such a bad thing?
posted by Law Talkin' Guy at 10:45 AM on February 22, 2009


azpenguin: I think you missed my last paragraph but that's okay. the taxpayer argument on the other hand is not. just because it's now your money at stake (or a tiiiiny fraction of it) doesn't mean you can renege on a contract already fulfilled. if you don't like the terms you may end it and not continue to pay these salaries, I have no beef with that, but to expect that they should pay anything back is not reasonable unless a certain performance was part of the original employment contract, which in all likelihood have already been enforced.
posted by krautland at 10:49 AM on February 22, 2009


I haven't read much about the pay caps pushed by the Obama administration. Do the caps cover salary AND bonuses? Or just bonuses?

One of the articles linked above suggested that, in an effort to get around the pay caps, firms would increase salaries and cut bonuses, which makes it sound like the caps only apply to bonuses.
posted by jayder at 10:53 AM on February 22, 2009


but to expect that they should pay anything back is not reasonable unless a certain performance was part of the original employment contract, which in all likelihood have already been enforced.

I have no problems with clawbacks when there has been gross negligence. Do you think it's fair that bonuses were moved up by Merrill Lynch using tax payer money so employees got to drain the public coffers for private benefit? People should be lucky they aren't going to prison.
posted by ryoshu at 10:54 AM on February 22, 2009 [2 favorites]


Will bank 4 food!

the job :P
posted by kliuless at 10:57 AM on February 22, 2009


I'm going to admit, first off, that I know absolutely nothing about banking and investment. I can't even balance my checkbook, and I make less per year than a New York banker's nanny. I'm a prole, through and through.

I don't need to understand banking, though, to know when a premise is manipulative crap. I could literally feel my class rage buttons being pushed through the ether. The exorbitant salaries of the top bankers in this country are a drop in the bucket compared to our national debt and the money currently hemorrhaging from the world economy. Did bankers cause the national debt? Nope. Did they cause the bleeding wound in our economy, yes...and no....they all played the game, and by the rules of the game, not playing isn't an option.

$500K a year seems exorbitant to me, but I live in a hovel and eat at Taco Bell. I also don't manipulate large chunks of the world's currency. I will likely never really understand how to even begin to do that. If someone knows how to do it, and for God's sake, even likes to do it, then kudos. It's something that needs to be done, in the world that exists, despite all my Marxist pipe-dreams.

Why not set it up in a sales salary format? A "minimum" wage of $500 - 800K, and then percentages on top of that based on performance? Despite my inbred disgust at much of the CEO lifestyle, I have to admit that I would hate to have my meager salary cut by nearly half by government edict. I like my Taco Bell.
posted by The Light Fantastic at 10:59 AM on February 22, 2009


Like jonp42 says, I would be thrilled to accept that salary in exchange for not being a complete fuckup. I have a head start, of course, so maybe it's not a fair deal.
posted by odinsdream at 11:00 AM on February 22, 2009 [2 favorites]


I believe Obama's plan is for the salary to be capped at $500k. They can have all the bonuses they want, but they don't vest until the U.S. taxpayer is fully repaid. At that point, we have no more stake in the business and if they wanna pay their dudes ridiculous sums again, well, that's their business. First though, they pay us back.
posted by jamstigator at 11:01 AM on February 22, 2009


$500k a year? To hell with that.

A competent banker should be able to live on $500.00 a month, or even $500.00 a year.

Hell, it should be a mandatory part of their training. It should be a fundamental basic skill. If most of the rest of the world can do it it should be a piece of cake to a genuine financial wiz.
posted by loquacious at 11:05 AM on February 22, 2009 [8 favorites]


Did they cause the bleeding wound in our economy, yes...and no....they all played the game, and by the rules of the game

Except when they didn't. In 2000 Henry Paulson tried to get the net capital rule lifted. Him and his buddies failed to do so, but they were successful in 2004. The end result? Insane amounts of leverage (hi Bear and Lehman!). If the bankers don't like playing by the rules they get them changed.

Take a look at Phil Gramm. For my money, he is the single most responsible person for this entire mess thanks to his "market reforms." He is also an executive at UBS, a bank that has been helping wealthy Americans evade taxes.

Rules? Rules are for little people. Madoff ran a $50 billion scam, hadn't purchased a single security in 13 years, and he's lounging in his $7 million apartment. Stanford ran a scam that may be bigger than Madoff's and he hasn't even been arrested.

Rules don't apply to these people. They better hope torches and pitchforks don't apply either.
posted by ryoshu at 11:13 AM on February 22, 2009 [11 favorites]


Smart people tend to pick jobs that they will enjoy doing and jobs that present a challenge.

That's true, but in the financial sector no-one really has a passion for the job in the same way that talent in other sectors (such as research or design) do. This may be an unfair generalisation, but the reason people usually go into the financial sector is because they have a passion for making lots of money. Both the best and worst talent in the city will have the same goal.
posted by benwad at 11:20 AM on February 22, 2009


Interesting that we're not concerned about the likelihood of a brain drain among our educators, who make, on average, about $41k per year.

"IF... financiers were school teachers..."
[related, cf. viz. and btw "U.S. Bailout = 74 Marshall Plans ( and counting… )"]

Bailouts should be no fun - "The representative of the taxpayers in such negotiations would seem to have by far the strongest hand at the table. The threat point is to let the company go into bankruptcy, and the limit on what the taxpayers are willing to contribute should be the direct benefit to taxpayers (as opposed to benefits to the other four parties). If your company doesn't like our terms, fine, go your own way, and we'll prop up the next domino in line instead. If properly implemented, the taxpayers should leave the negotiating table pleased with the deal they achieved, and everybody else should leave battered, comforted only by the knowledge that, had they not made those concessions, things would have been even worse."
posted by kliuless at 11:22 AM on February 22, 2009 [1 favorite]


By the way, if anyone is interested in getting in on the ground floor of a fantastic business opportunity, I'm offering very attractive and flexible terms on a new and exciting experience-based retail franchise that's well integrated with a robust supply and support chain.

We're still working with marketing on the clever name, but let's just say it involves torches, pitchforks and the genuine heads of bankers on the ends of a pike. People can bring their own bankers in to a number of retail storefront locations and decorate their banker any way they wish by choosing items from a menu, either in pre-packaged combinations or ala carte. Franchise owners are encouraged to be creative to adapt to local markets, so if your customers demand nun-chucks, tar and feathers, boiling hot oil or other less traditional decorations and accessories, by all means, let your creativity run wild. We're not like those other franchise opportunities where you're locked in by contract to an inflexible supply chain.

Buy in now. It's going to be so huge it'll make Krispy Kreme and Starbucks look like as lame as Build-a-Bear.
posted by loquacious at 11:27 AM on February 22, 2009 [5 favorites]


that reminds me of the cheney dunk tank
posted by kliuless at 11:29 AM on February 22, 2009


if my postulates hold true, then the talent would just migrate to other sectors like engineering or science.

I have met an ibanker or two who had the mind to not only do engineering but probably do it quite well. I recognize the talent funneling process generally lets through people who are smart and willing to work hard. I know finance has been filling up with quants with PhD's in the hard sciences.

But if you really want to make $200k+ in engineering, you have to not just be smart and willing to work hard, you have to be genuinely inventive and entrepreneurial, and I think you have to have a bigger passion for it more than most of the suits I've met do.

As for science... well, maybe if Finance's power to draw brains toward it reduces, perhaps Philip Greenspun's observations about the relative merits of science as a career will be somewhat mitigated.

Law or medicine seem like more likely destinations for dollar-motivated talent discouraged by prospects in the financial sector.
posted by weston at 11:34 AM on February 22, 2009


$500K a year seems exorbitant to me, but I live in a hovel and eat at Taco Bell. I also don't manipulate large chunks of the world's currency. I will likely never really understand how to even begin to do that. If someone knows how to do it, and for God's sake, even likes to do it, then kudos. It's something that needs to be done, in the world that exists, despite all my Marxist pipe-dreams.

How are your own feelings of inadequacy an excuse for sky-high salaries? I'm sure there are millions and millions of Americans who make less then $500k yet feel that they could do the bankers job with the right training. Some are probably wrong, but some are probably right. I'd guess more right then wrong. Seems like anyone with a decent grasp of math could handle it.
posted by delmoi at 11:36 AM on February 22, 2009


Oh I want to add, finance as it's practiced today is probably pretty difficult, but that's because they've built these complex systems in order to compete with each other to make the big-bux from a fixed pool of resources. But an economy doesn't need black box statistical arbitrage or credit default swaps to function. Those complicated systems can make bankers lots of money in the good times (and kill everyone in the bad times, apparently) but if everyone gave them up everything would still be fine, and less intelligent people could be used.
posted by delmoi at 11:41 AM on February 22, 2009 [2 favorites]


What I don't understand: there just have to be people out there who could run these banks who don't demand money whether they win or lose, but rather require payment if they succeed in the job. Why don't the boards hire those people? How is that not possible?

As already touched on, boards are generally in favor of overpaying executive talent. Do yourself a favor and figure out who serves on the board of your company. Since I don't know who you people work for, let's take an example that kind of refutes my point: Apple. Notice a pattern? Everyone but Al Gore is (or was) a CEO.

Traditionally what happens is prospective CEOs, when an offer is made, bring in a "compensation specialist" to convince these guys that "hey, your job is tough, you deserve lots of money" or "hey, we all know how easy it is to start a new company. My client could be working for himself; this opportunity cost demands compensation."

So what does Steve Job's contract look like? Last I heard, it was a 1 dollar salary and copious options. This is close to the kind of compensation you're after. And it's the exception because Steve founded Apple and his name is deeply intertwined with it. I doubt his workings with Pixar worked the same way. And when he's gone, observe how his replacement is compensated.
posted by pwnguin at 11:41 AM on February 22, 2009


These sorts of articles, along with the "hero" whiner at the Chicago exchange who blamed homeowners who let their banks talk them into bad loans for our crashing economy, makes me think pitchforks and torches are a safe investment now. Possibly tar, feathers, and fencerails also.

It's like we cloned (the popular conception of) Marie Antoinette/pre-Revolution French aristocracy and they've been running Wall Street.

Or conversely, like turning over rocks and watching slimy little bugs scatter away from the hateful, hateful sun, screaming at the injustice of it all.
posted by emjaybee at 11:42 AM on February 22, 2009


This is truly the perfect coda to the Bush-Cheney era of plutocratic hubris, the final exclamation point on the fuck you! that was the Age of Failing Up. When ole George H.W.'s boy showed he didn't really have the wherewithal to manage a major league baseball team, his dad's cronies made him president. Wolfowitz - to pick another Heckuva-Job-Brownie at random - was a toxic ideological nightmare in the Pentagon, so he got the top spot at the World Bank. And now the bankers who mismanaged the global financial system into the ground suggest - straightfaced and sober-tied - that if they can't reward themselves for their failure with ten-figure salaries, the system they destroyed will suffer from the absence of their genius!

If you could sell hubris by the pound at a handsome profit, these guys would totally deserve every penny they're crying for. As it is, they deserve (but won't ever get) ten years of hardtime doing a job that produces something useful at the end of each day. A line cook or a baker, maybe, or the guy who makes change at the expressway toll booth.

And mutant, I respect the hell out of your insights into the market and love your contributions here, but these smug vacuous greedheads are about 2.8-billionth in the line of those deserving sympathy for the mess they've made. "Excreted" is an apt choice of phrase - this was the fecal waste of a diseased system, and if we could be assured (though we can't) that it all would be fully flushed away, we should be nothing but grateful.

I knew these sorts of people on their way up (before I ran screaming from a highfalutin B.Comm. program), and I watched in horror and revulsion as the dimmest wits among them got most quickly accustomed to the idea of being masters of the universe. I wouldn't have trusted one in ten of them to wash my car, and when I bailed for the lumpenprole ranks of the liberal arts ("what are you going to do with that?") they treated me like I'd contracted leprosy on purpose.

I don't care that they habituated maximum reward for a bare minimum of skill, and though I try not to wish too much ill on anyone, I do hope the road they now find themselves on is rocky enough to shake the last gilt tatters of privilege from their pockets and knock a little humility and respect for their fellow man into them. Like you, though, I doubt that'll happen. Many of 'em are probably already failing further up as we speak.
posted by gompa at 11:45 AM on February 22, 2009 [9 favorites]


we're paying these people as if they're taking huge personal risks, but their own wealth is never in jeopardy.

That x100, people.
posted by five fresh fish at 11:49 AM on February 22, 2009 [1 favorite]


That Times article? That kind of crap is how you got the French and Russian revolutions.

IIRC, that crappy French revolution resulted in the US becoming a democratic republic. Isn't the US Constitution essentially the post-revolution French Constitution?


Also, we need more Mutants in banking.
posted by five fresh fish at 11:52 AM on February 22, 2009


Do these folks live so "hand to mouth" that a couple of years at 500K would bankrupt them? Plus, did they not get a significant bonus last year?
posted by tabgilbert at 11:52 AM on February 22, 2009


gompa, do you speak of folks from McKinsey? When I meet one, in my head there is they voice of a crusty olderster from a 30s movie muttering about no-nothing college boys.

I have personally bailed people out. While they were living on my dime, because their own stupidity had left them dime-less, it did seem that they should respect my views on appropriate spending. (Doesn't happen, never expected it to happen, but still.)
posted by Lesser Shrew at 11:56 AM on February 22, 2009


How are your own feelings of inadequacy an excuse for sky-high salaries? I'm sure there are millions and millions of Americans who make less then $500k yet feel that they could do the bankers job with the right training. Some are probably wrong, but some are probably right. I'd guess more right then wrong. Seems like anyone with a decent grasp of math could handle it.

Nice, Delmoi - I love how you always start a response with an insult...keep it classy!

The "anyone with a decent grasp of [blank] could do it" makes a great underdog movie. Little guy makes good, see how the top guys in the biz are just really overpaid hacks! It makes a nice, heartwarming fiction that keeps us all hopeful and gives us something to talk about over our beers at the end of a long, underpaid day.

Like it or not, people in capitalist societies tend to get paid based upon [I said TEND, people, stand down!] the relative rarity of their talent. I am well organized, computer literate and good with logistics -along with about 800 million other people in the world. I also don't like to work more than 6 or 7 hours a day and don't want to think about work when I get home. I'm willing to sacrifice a lot of potential earning for that privilege. If my job goes under, I will easily get another with relatively equal pay and expectation.

If anyone who was "relatively good at math" could be a banker - they'd be a fricken' banker. It's obvious just through simple logic that this is the case. Some of it may be a certain easy in brought about by being born into the biz, but there's a definite acuity and drive that is lacking in a large amount of the population. The idea that a rich elite is hogging all of the simple, high paying jobs from an equally able underclass is a great fiction, but I think we've seen through history what happens when you put all of the experts in a society against the wall.

Bankers like to be bankers. I'd rather be poor than be forced to be a banker. Really. I'm happy to be a beta child.
posted by The Light Fantastic at 12:04 PM on February 22, 2009 [3 favorites]


KokuRyu: Rather than moralizing that high pay for certain workers (ie, CEOs and people in finance) is somehow "bad" (and earning a combined household income of $36K is relatively "good" in comparison), why not measure performance versus paycheque:


Have you even read the article?
If we were going to follow your suggestion then we should go to these complaining bankers houses and take ALL their stuff. They messed up their companies so badly, their performance should only be measured in the negative.
posted by Iax at 12:05 PM on February 22, 2009


Am I the only one who was dissapointed that the link was to news article instead of a new tower defense game? *loads up field runners just one more time*
posted by ssmith at 12:06 PM on February 22, 2009


Have you even read the article?
If we were going to follow your suggestion then we should go to these complaining bankers houses and take ALL their stuff. They messed up their companies so badly, their performance should only be measured in the negative.


Fine by me. I'm not the person paying them $500K. All I know is, I don't earn $500K a year, and there's a reason for that. A) I'm not smart enough. B) I didn't set out in my 20s on a career path that would allow me to earn $500K. C) Based on performance, some of these folks are entitled to earn a seven-figure salary.

I am friends with a career banker who earns a significant salary, and I can tell you he is smart, and he is motivated, and he gets results. It's one of those (rare?) instances where compensation is determined by merit.

But, Iax, I would encourage you to read my links to Surowiecki's stuff.
posted by KokuRyu at 12:11 PM on February 22, 2009 [1 favorite]


Metafilter: we need more mutants in banking
posted by mr_crash_davis mark II: Jazz Odyssey at 12:17 PM on February 22, 2009


I wouldn't care how much these people were paid if it wasn't my money doing the paying.
posted by vorpal bunny at 12:24 PM on February 22, 2009 [5 favorites]


But in New York, where a new study from the Center for an Urban Future, a nonprofit research group in Manhattan, estimates it takes $123,322 to enjoy the same middle-class life as someone earning $50,000 in Houston, extricating oneself from steep bills can be difficult.

There's an analysis of the fallacious reasoning of the "$120K in New York is middle class" argument, on Ask Doctor Math [previously].
posted by piers at 12:25 PM on February 22, 2009


IIRC, that crappy French revolution resulted in the US becoming a democratic republic. Isn't the US Constitution essentially the post-revolution French Constitution?

U.S. Constitution ratified June 1788. Storming of the Bastille July 1789.
posted by stargell at 12:31 PM on February 22, 2009 [2 favorites]


Related: see Bank Nationalization: "As American As Apple Pie," in which even Paul Krugman and George Will would seem to agree on temporary nationalization of the nation's banking system:

Krugman: "We have nationalized 14 banks already this year. We don't call it that but there were 14 banks, two a week that the FDIC seized because they didn't have enough assets to pay their depositors. The Federal Deposit Insurance Corporation says, 'ok, we are taking over. We are cleaning out the stockholders.' We are going to do exactly, as Nouriel said, we should be doing for some major banks. So actually nationalization as properly understood is probably as American as apple pie."

Will: "With credit now treated essentially as a public utility, the difference between what we have and what nationalization would be is marginal. One number: the market capitalization of Bank of America is $19 billion; since October they have received $45 billion in public funds. So what's the difference?"
posted by ornate insect at 12:32 PM on February 22, 2009 [1 favorite]


Another thing - I am totally infuriated by people advocating free market approaches to pay or anything else when - at the same time - they are receiving government bailouts. This isn't capitalism red in tooth and claw, it is just plain red.
posted by vorpal bunny at 12:33 PM on February 22, 2009 [2 favorites]


Sorry is this has already been discussed, but I have to leave soon and don't have time to read the thread, but the $500K cap description in the post title is misleading. The $500K cap is a guideline that was put forward in a press release by the Treasury on Feb 4, after Obama gave a speech on his guidelines for exec comp. There is as yet no rules or regulations enforcing the cap. The cap is only really for those financial institutions which receive exceptional assistance from the government. Those entities that receive bailout money as part of a regular capital access program can get out of it by disclosing compensation and instituting a say on pay vote for shareholders (a nonbinding, advisory shareholder vote on exec comp). Also, the recent stimulus bill institutes new (well mostly rehashed and strengthened) exec comp restrictions and does not mention the $500K cap. The status of the cap is uncertain. Also, the cap only applies to institutions that receive money going forward (although it is slightly unclear whether it would apply retroactively to those institutions that have already received exceptional assistance, such as Citibank. Also, any institution is allowed to pay more if they pay their execs in restricted stock (or similar incentive comp) that only vests upon the repayment of all monies to the govt. Just wanted to make sure the actual parameters of the cap are clear.
posted by Falconetti at 12:47 PM on February 22, 2009 [4 favorites]


Related: What Cooked the World's Economy? It wasn't your overdue mortgage (a few weeks old, but worth a read).
posted by ornate insect at 12:52 PM on February 22, 2009


What nobody ever says- and I don't know if that's because it's something they don't know or don't want to acknowledge- is that CEOs don't make millions and millions of dollars because they work hard, or because they're that valuable, or any of the usual excuses. CEOs make more money than some third-world cities because the system of corporate compensation is created, structured, supported, and administrated by CEOs and their friends and associates for the purpose of putting obscene amounts of money into the hands of people just like them.
posted by Pope Guilty at 1:03 PM on February 22, 2009 [11 favorites]


Salary, shmalary. If I were Obama, I'd force every head of a bank to read more Nassim Taleb.
posted by wastelands at 1:14 PM on February 22, 2009


U.S. Constitution ratified June 1788. Storming of the Bastille July 1789.

Huh. I coulda sworn the US Founders took their lessons from the French.
posted by five fresh fish at 1:20 PM on February 22, 2009


It is literally impossible to overemphasize that truth, Pope Guilty. The system is designed to screw the rank and file, and to massively benefit the wealthy to excess.

There was a time the USA taxed the ultra-wealthy at a 90% rate. Hell, even during bloody Reagan's time it was 50%. Now they pay sweet-fuck-all.

You can not sustain a society under these rules.
posted by five fresh fish at 1:23 PM on February 22, 2009 [3 favorites]


Here's the thing about a wall street brain drain. It's good. Wall Street is not a particularly good place to put all your smart people. Think of the sort of benefit that a brilliant mind in wall street is able to produce vs. the benefit that a brilliant biologist, or engineer, or physician is able to produce. If you brain drain wall street those smarts don't vanish, they just go some place else where they're probably more productive.
posted by I Foody at 1:30 PM on February 22, 2009 [1 favorite]


Of course there still might be a "brain drain" on Wall Street, but if my postulates hold true, then the talent would just migrate to other sectors like engineering or science. Is that really such a bad thing?

"Talent" does not necessarily come packaged with a sense of responsibility. We've seen how these people run banks; do we really want them building bridges?
posted by dilettante at 1:50 PM on February 22, 2009


I have no problems with clawbacks when there has been gross negligence.
me neither but that's not what's generally being discussed. people want to have money back from highly-paid employees because the financial situation of the companies. that's like demanding the car salesman give back half his salary because your ride broke down.

A competent banker should be able to live on $500.00 a month, or even $500.00 a year.
in rwanda. with one leg. and only one eye. oh, and let's tie a snake around their necks. because ... wait no, this is just dumb.

wall street brain drain. It's good. Wall Street is not a particularly good place to put all your smart people
I agree. that dumb bitch at burger king always gets my order wrong and tries to give me cold fries.

they just go some place else where they're probably more productive.
your definition of productive is off.
posted by krautland at 1:52 PM on February 22, 2009 [2 favorites]


I coulda sworn the US Founders took their lessons from the French.

You have that exactly backwards. The French National Assembly's Declaration of the Rights of Man and of the Citizen was based pretty directly on the US Declaration of Independence.
posted by mediareport at 2:20 PM on February 22, 2009


"is America truly looking to become a nation of unskilled restaurant servers?"

Server is not an unskilled job.
posted by Mitheral at 2:21 PM on February 22, 2009 [5 favorites]


What do you call 5000 dead Wall Street bankers at the bottom of the ocean?
A great tragedy involving our financial sector.
...
Wait, I'm not telling that right.
posted by dances_with_sneetches at 2:21 PM on February 22, 2009 [1 favorite]


...can the bankers even live on 500k a year?

I...I just...I tried but...I don't care.
posted by turgid dahlia at 2:29 PM on February 22, 2009 [1 favorite]


There's an old saying in software engineering: Never write your programs as clever as possible. Debugging is twice as hard as writing the program in the first place, and if you spend all your available mental capacity writing the program, you are by definition too stupid to fix it.

I think there's a Wall Street corollary somewhere in there. Maybe: Never write instruments as clever as possible. Owning is twice as hard hard as selling them.
posted by pwnguin at 2:32 PM on February 22, 2009 [1 favorite]


I don't even make 500K/lifetime.
posted by fuq at 2:33 PM on February 22, 2009 [1 favorite]


You have that exactly backwards. The French National Assembly's Declaration of the Rights of Man and of the Citizen was based pretty directly on the US Declaration of Independence.

And both were influenced by philosophers like Locke and Voltaire - the Declaration basically paraphrases Locke in some parts. It's not like the French revolted just because it seemed to work out pretty okay over here.


And let the CEOs keep their grotesque salaries. Just make fucking around with the national and global economies on such a grand scale a capital offense. Let's hear 'em complain about 'brain drain' when it has entirely different connotations.
posted by logicpunk at 2:43 PM on February 22, 2009


I think a lot of economists forget that individuals are going to die. If a CEO sees that his company is going downhill, and sees that he could severely cut his pay and work hard for years to keep it afloat and around for another generation, or gut the company with executive bonuses and let it hit the ground, I think we both know what he'd do.
posted by mccarty.tim at 3:03 PM on February 22, 2009 [1 favorite]


IIRC, that crappy French revolution resulted in the US becoming a democratic republic. Isn't the US Constitution essentially the post-revolution French Constitution?
The U.S. revolutionary war ended in 1779 (as you know) and the constitution was signed in 1787. The French Revolution began two years later, and ended in 1799, according to Wikipedia. So I'm pretty sure the answer is no. Obviously there were influential French thinkers who influenced the founding fathers in the U.S.
Nice, Delmoi - I love how you always start a response with an insult...keep it classy!
Always? I think there may be some kind of selection bias at work here.

Also, the reason I phrased it that way is that your initial comment basically made the claim that because you personally didn't think you could handle running a bank that no one else could. That is to say, your own personal feelings about how adequate you were form the basis of why you think bankers need to get paid a ton of money. My point was, you don't actually know how well you or anyone else would do, and opinions differ.
The "anyone with a decent grasp of [blank] could do it" makes a great underdog movie. Little guy makes good, see how the top guys in the biz are just really overpaid hacks! It makes a nice, heartwarming fiction that keeps us all hopeful and gives us something to talk about over our beers at the end of a long, underpaid day.
I didn't say anyone could do it, I said millions. If you took one out of every 280 people in this country, you'd have a million. You really think the top 1% in this country couldn't handle running a bank?

But more to the point, the people who were paid the big bucks failed and if the government hadn't stepped in they wouldn't be making any money at all. Their companies would have failed and they'd be queuing up at the unemployment office like everyone or looking for other jobs, probably at lower pay.

That's one of the key points here. The rich, highly paid wall street people failed. In other words, what would be the consequence of replacing every banker with some smart person willing to work for $500k/year? Would they cause a global economic meltdown and plunge the world into another great depression? Well, that's not any worse then what we've got now!. Top scientists, university professors, engineers all make less then that and those professions require considerable brainpower. In fact, if you removed the greediest risk takers from the equation and replace them with people who just want to do a good job and go home to their families I suspect you would actually end up with a more stable banking system.
If anyone who was "relatively good at math" could be a banker - they'd be a fricken' banker
...
Bankers like to be bankers. I'd rather be poor than be forced to be a banker. Really. I'm happy to be a beta child.
You realize these two statements are contradictory, right?

Again, if you put in the $500k salary cap, you could hire many more people and make banking an easier job, less time at the office, tons of vacation time, etc. Rather then attracting the biggest assholes, you could attract normal people and have them work much less.

--

Let me try to explain what I'm talking about with an extended metaphor. Imagine a casino where people came and played million dollar poker games, by which I mean games where there would be about a million dollars in chips on the table.

In this example, rather then taking a rake (a portion of each pot for the casino) this place paid a certain percentage bonus on top of each pot. Obviously, this place would attract the worlds best poker players to come and play. If a regular guy came off the street and tried to play, he'd get killed.

Now lets say that a new law was passed mandating that only a thousand dollars worth of chips can be on a poker table at a time. The world's best players would leave, and players who were merely very good would replace them. The best players might go do something else, maybe get jobs on Wall Street or something.

So what does this have to do with Wall Street? Well, the rules of Texas Hold 'em are fairly simple. Almost anyone can play, but very few people can play at the highest levels and those that can make millions of dollars. Likewise, the basics of running a bank are pretty straightforward. You take deposits from people and you loan out money at a rate higher then what you pay as deposits. You have to be able to evaluate the loans and determine if the person you're going to loan the money too will be able to pay it back, for consumer loans these days all you have to do is run a credit check online. For business loans, you'd need people with expertise in the business you're loaning the money too. And there are tons of people who work in small and regional banks doing this all the time. I doubt most of them make $500k either.

On the other hand, you have something like wall street where "The Masters of the Universe" converge and invent all types of interesting derivatives that require complex mathematics in order to compute how much they are worth at any given time, that's going to winnow out the people capable of doing it, but those thing's aren't' necessary for a functioning economy

Now here's where it gets tricky. Those people built those complex systems on substructures that they themselves didn't really understand, and they all failed. They'd all be making $0 now if the government hadn't bailed them out. So how much are these people actually worth? I would argue that they are worth nothing at all, because that's how much they'd get paid if not for government intervention. I've got no problem with companies paying their C level executives whatever they want, if I think it's too much, I just wouldn't invest, but with TARP, as a tax-payer (not to mention a citizen of the U.S.) I don't have a choice.

When you buy a company, you get to say how much people get paid, Since the government is the true owner of these companies, the government has every right to pay people whatever it wants.

The argument that the banking system would fail without these people is ludicrous, because the banking system has already failed. The only thing keeping the banking system running is the Federal government.
Like it or not, people in capitalist societies tend to get paid based upon [I said TEND, people, stand down!] the relative rarity of their talent.
First of all, there are plenty of rare talents that don't pay very well at all. You know those beer bong champions or people who win eating contests? They don't make much.

--

And actually, I'm not for salary caps, I think they should just put a huge 75% at 500k and 95% at 2 million tax on bonuses paid by all banks. That way, the assholes could still compete with eachother (because let's face it, what they really care about is making more then the other guy) and the government would reap the reweards.
posted by delmoi at 3:12 PM on February 22, 2009 [11 favorites]


Krautland: wall street brain drain. It's good. Wall Street is not a particularly good place to put all your smart people
I agree. that dumb bitch at burger king always gets my order wrong and tries to give me cold fries.
Do you want me to take this seriously? I think pretty much none of the people from wall street will go onto working in fast food. There are however a great many jobs in other fields that use the same sort of mental faculties that finance types use. They would probably go there. Long term if finance is less lucrative maybe more kids would choose medicine or pharmacology or engineering.

they just go some place else where they're probably more productive.
your definition of productive is off.
Maybe. I don't know how you'd have any idea. It isn't as though finance is superlatively productive. My model allows for some value in allocating capital to comparatively worthwhile projects and management of risks. That said, a lot of finance is adversarial, it operates on the greater fool theory. So a great deal of effort and human capital is being spent on not being the greater fool. For an individual firm the financier productive but for the economy as a whole he is less productive. Add to this the fact that finance is such a chaotic system that being smart doesn't help a whole lot. Predictions are seldom better than chance. Risk models are fucked.
posted by I Foody at 3:22 PM on February 22, 2009


If by "brain drain" they mean ridding us of the geniuses who based an entire economy on the concept that "real estate never decreases in value, so we can base EVERYTHING on it, and hell, leverage it 4 or 5 times!" then I'll be there personally to help apply the stents.
posted by Devils Rancher at 3:41 PM on February 22, 2009


oh and btw as predicted by nemo: "There will be a 1-2 week debate over executive comp, then some token gesture for the lawmakers to point to as they hand $1 trillion to our largest and worst banks."
posted by kliuless at 3:49 PM on February 22, 2009 [1 favorite]


Those school fees are pretty high. Maybe Obama could look into instituting some kind of free schooling program for all U.S. children? The money to subsidize the program could come out of our taxes, and everyone under, say, eighteen years old could have access to it. We could open up branches all over the country. Has anyone ever proposed this kind of "public" schooling? It seems like it might be able to work.

COMMUNISS!
posted by Devils Rancher at 3:49 PM on February 22, 2009


Firstly, my viewpoint on this is that the banks stopped being banks(taking deposits and lending) or casinos(taking a cut) and became investors. As we've seen pretty much every 'investor' just got skinned. Now, the idea was that investors are a certain part of the economy and banks were a different part - turns out they weren't.

Secondly, people with money(and I mean real money - the oil rich, football players, sports stars, royalty, enterpreneurs, governments, your pension fund) decided they were willing to pay 2and20 for having their money invested for them - meaning a 2% upfront fee and 20% of any gain(Some paid more, apparently some are offering cheaper deals now ...

Lets just assume for a moment that the upfront fees get consumed by your costs of business - nice office, computers, lawyers etc - so in order to get paid 500k you need to make your client 5 times that - 2.5mio. Sounds impressive ... but how much money did your client give you?

If you only know David Beckham then managing his 10mio means he's quite happy with your 25% return, but if it was Michael Jordans 50mio he may only be ok with your 5% return.

So who do you know with money? Because that is what it's really about ... I doubt Greg Coffey is particularly worried about a pay cut.

All this said - banking CEO's strategic decisions over the last 10 years mean they should all be destitute - but that's with the 20:20 benefit of hindsight
posted by fistynuts at 3:59 PM on February 22, 2009


That's one of the key points here. The rich, highly paid wall street people failed. In other words, what would be the consequence of replacing every banker with some smart person willing to work for $500k/year? Would they cause a global economic meltdown and plunge the world into another great depression? Well, that's not any worse then what we've got now!. Top scientists, university professors, engineers all make less then that and those professions require considerable brainpower.

Right. But what you don't seem to understand is that the MD of Morgan Stanley's utilities M&A desk didn't "fail," in any meaningful sense. Neither did the number two guy on Merrill's rates structuring desk. Or Citi's assistant head of Japan cash equity sales. In fact, these individuals failed to a far lesser extent than did, say, Barney Frank or Chris Dodd. You can pick nits, I suppose, and argue that one of these guys should have nagged their boss, or their boss's boss*, about the risks that the bank as a whole was taking, but none of the parties I have listed has failed any more than, say, a competent line worker in Detroit. The actual number of people who set capital and risk policies at banks is probably smaller than you'd think. And they set these policies with some degree of regulatory oversight.

Indeed, the whole notion of "failure," well, that's rather tough. Moldbug does a pretty thorough job of explaining the mess, when he states that:

Paulson's bailout is, if anything, far too weak. Our financial system is part of the government. The proper first step is to stop lying about this. This means nationalizing the banks. This is not an expansion of government, but a recognition of its actual size. It is not an expenditure, but a revision of accounting to reflect reality.

He's right about that, I think, and given the seething from 90% of America (89% of which doesn't know a TCE ratio from a Tier One ratio, and has a coin flip's chance of guessing on which side of the balance sheet to look for provisions or customer deposits**), I'd reckon that whether or not the deposit-taking banks are fully nationalized, TPTB in Washington are going to be looking for their pound of flesh for a long, long time. What we're going to see happen (and though I wouldn't bet my life on it, I think it's pretty likely) is that if a compensation cap is placed on the employees of bailout beneficiaries, firms like Goldman Sachs*** are going to:
1. Shrink their balance sheets as quickly as possible (so much for opening the credit spigots),
2. Perform as many rights offerings as necessary as quickly as possible, in order to
3. Pay the TARP back as quickly as possible,
4. Hire the best people from the four zombies (maybe we shouldn't count Wells Fargo),
5. Pay those people well over $500,000 per year,
6. Take share just about everywhere.****

* Or run a hedge fund that specializes in shorting bank shares
** No surprise that "Wall Street" was able to take America for such a ride, given the rampant financial illiteracy in the place (and elsewhere, I suppose).
*** Maybe Morgan Stanley or the trust banks can too, but it's not quite as easy to see a bridge between here and there.
**** As a client of these big banks, for things like research and execution, I can tell you that the difference between what I'd pay for "acceptable performance" and "great service" is pretty small, but when you multiply it by enough clients and you divide it by the small number of people it takes to actually deliver the service, the big compensation packages make perfect sense.
posted by Kwantsar at 4:21 PM on February 22, 2009 [2 favorites]


While I am quite upset with people that failed at their jobs getting the kind of compensation packages they do, this line from delmoi stuck out to me:

You really think the top 1% in this country couldn't handle running a bank?

I really do think that they couldn't, at least not in the current and recent financial worlds. I don't think 1 in a hundred people could do MY job, and I think actually running a bank would be much more demanding than what I do. I don't think I could do it, and I'm fairly good at math and managing large systems.

Let's not swing too far in the direction of underestimating the difficulty of the existing in the system the banks have created for themselves, no matter how justifiably upset we are at their hubris and greed.

Whether or not it SHOULD be this difficult is another question entirely.
posted by flaterik at 4:22 PM on February 22, 2009


If by "brain drain" they mean ridding us of the geniuses who based an entire economy on the concept that "real estate never decreases in value, so we can base EVERYTHING on it, and hell, leverage it 4 or 5 times!" then I'll be there personally to help apply the stents.

Four or five? Make it a hundred!
posted by delmoi at 4:22 PM on February 22, 2009


Right. But what you don't seem to understand is that the MD of Morgan Stanley's utilities M&A desk didn't "fail," in any meaningful sense. Neither did the number two guy on Merrill's rates structuring desk. Or Citi's assistant head of Japan cash equity sales. In fact, these individuals failed to a far lesser extent than did, say, Barney Frank or Chris Dodd.

Well, after we nationalize the banks any profit centers can be sold off right away and the new buyers can pay people whatever they want. And I certainly agree that the democrats are responsible for this as well. They were central to the non-regulation of CDSs and other nonsense, and they certainly supported the Paulson bailout, on and on.

Our financial system is part of the government.

These days it's more like the government is part of, and subservient to, the banking system. Our choice is nationalization of the banking system, or bankification of the nation.
posted by delmoi at 4:27 PM on February 22, 2009 [1 favorite]


I Foody: Risk models are fucked.

I'm dying laughing over here. I forget who it was, but at least one of the financial wizard companies was modeling MBSs with real estate always appreciating. My dog has better risk analysis skills than that and he licks his own ass.

Devils Rancher: Now, the idea was that investors are a certain part of the economy and banks were a different part - turns out they weren't.

Phil Gramm everyone! Hey Phil, take a bow. What's that Phil? You have something to say?
GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.
You might want to ask Iceland how they are doing. Or England. Or Germany. And it is funny how you mention JP Morgan. They are slightly better off than the others, but I'd love to see their level 3 assets. How are Citi and BofA doing, Phil? Those banks are massively diversified.

I hear you can get BAC and C for an absolute steal right now! That's assuming they aren't both sent to receivership thanks to the very policies you pushed. But hey, if you are so confident in this financial system you helped create, Phil, I'd suggest dumping all of your money into Citi. Common or preferred, it won't really matter once they are nationalized.
posted by ryoshu at 4:27 PM on February 22, 2009 [1 favorite]


How far down does this income limit apply? Wasn't there something similar on the first bailout? It only covered something like the top dozen earners. At these banks there are hundreds if not more people earning well over $500k. (sorry if the answer to this is obvious but I have been a little under the gun on other things lately)
posted by caddis at 5:11 PM on February 22, 2009


You might want to ask Iceland how they are doing. Or England. Or Germany. And it is funny how you mention JP Morgan. They are slightly better off than the others, but I'd love to see their level 3 assets. How are Citi and BofA doing, Phil? Those banks are massively diversified.

As I pointed out here, the worldly and sainted Canadians have integrated (universal?) banks. I would also point out that BBVA and Santander seem to be holding up better than the Cajas. Your England cite neglects HSBC and Standard Chartered, which happen to be two of the most diversified (and strongest, relatively) banks in the world. Given the vanishingly small number of untroubled financial institutions globally, I'd say that your argument (by induction? I can't really tell) is pretty specious.
posted by Kwantsar at 5:35 PM on February 22, 2009


How ironic - Wall Street crying poor over a brain drain, when they already have the solution to that problem.

Here's a precis of how it works:

First, you divide up the Wall St workers into tranches according to IQ.

The tranches are then reinsured against any potential losses they make with their dealings. The lowest tranche - the particularly stupid & underperforming financiers - are riskier, and therefore reinsured at greater cost.

Thus backed by insurance, Wall Street staff - regardless of their actual intellectual capabilities - can then be regarded not as potential liabilities to their companies, but as assets. And these human capital assets can then be leveraged to bring more intelligence into the brokerage firms.

Do this kind of thing enough times over, and before you know it, Wall Street will have more intellectual firepower at its disposal than many billions of times the sum total of all human intellectual endeavour & productivity in all of history.

It's absolutely foolproof, really.
posted by UbuRoivas at 5:41 PM on February 22, 2009 [26 favorites]


"yet what is up with people decrying that these ceo's took what they could get, that they played the game we all engage in better than most of us did? how is this anything more than jealousy?"

Well, first off, people aren't necessarily decrying that, and weren't when you started your whompin'. What folks were complaining about was the notion that these poor orphan bankers couldn't afford to do with any less.

Hey, guess what happens when no one can afford private schools that cost $96,000 per year? Those private schools don't cost $96,000 a year anymore, and folks that felt entitled to them may have to focus their energy on things that are a bit more attainable for everyone, since they're no longer the super-elite and have taken a step towards becoming "everyone."

This is the trickle-down, folks. I know you'll like it less than tricklin' up, but that's gravity for ya.
posted by klangklangston at 5:53 PM on February 22, 2009 [1 favorite]


1) Write a class-baiting article about poor-little-rich bankers.
2) Sit back and collect the page views.
3) ????
4) Profit Keep the Times from going bankrupt.
posted by evidenceofabsence at 6:51 PM on February 22, 2009 [1 favorite]


Kwanstar, I'm sure there are some banks that are doing okay, all things considered. That probably has to do more with leverage than being a financial supermarket. But as you pointed out, one of the problems is that certain divisions of Citi may have been doing well, while others are dragging down the entire company.

(Speaking of Citi...)

Now we have these enormous institutions that are "too big to fail" and a bunch of entitled bankers that want the tax payers to eat the losses while they retain all of the benefits. The bankers get to keep their ill gotten gains and then whine about how it's so unfair to have the mean ol' government capping salaries while it tries to clean up the enormous pile of shit the bankers have left behind.
posted by ryoshu at 7:26 PM on February 22, 2009


And speaking of HSBC... It's not quite a "well capitalized" statement, but I'm not going to go long on them ;)
posted by ryoshu at 7:38 PM on February 22, 2009


I am more in favor of a dual mode form of compensation. Plan one, you get 500k, and if you do good you get a raise. Plan two we will start you @ 2.5 million. You fuck us and we put your head on a pike and display it on Wall Street for your peers to admire. Frankly, I am amazed that no one has busted a cap on Bernie Madoff, not that he has much to do with this. Tire of watching that snickering puke doing hard time in his penthouse.
posted by jcworth at 8:22 PM on February 22, 2009 [2 favorites]


If anyone who was "relatively good at math" could be a banker - they'd be a fricken' banker
...
Bankers like to be bankers. I'd rather be poor than be forced to be a banker. Really. I'm happy to be a beta child.

You realize these two statements are contradictory, right?


Que? You're going to have to explain that to me, because I have no idea how you came to that conclusion.
posted by The Light Fantastic at 9:51 PM on February 22, 2009


"Bankers" is nebulous term. Banks employ all sorts of people. In my experience, even back office and HR people in banks earn a huge premium on the same roles in non-banks. That's not because the skills are in short supply.

The banks pay well because they earn hods of cash: the same reason they can afford to pay traders millions of dollars. Because they earn hods of cash. I have no problem with that per se because I'm not in the business of telling people what their jobs are worth, however obscene I may find the pay of sportspeople, or movie stars. Somewhere out there, an African farmer or a Vietnamese street cleaner probably finds my pay obscene too.

The issue I have is accountability. Banking is, like it or not, a strategically important industry. It's not like Joe Schmoe betting his rent in Vegas. When investment bankers make bad decisions, underestimate risk and lose gargantuan sums there is no real option to say "tough". They aren't losing their money. The worst than can happen is they get laid off.

In that sense, investment bankers are operating like a casino that takes punters' money but cries bankruptcy when the odds have turned. That's the problem I have: that the only way banks and investment bankers (as a group, rather than very specific individuals) can earn the megabucks is by operating in a system that takes dumb risks with other people's money.

Capping pay is like putting a plaster on an abcess: it hides what is unsightly, but doesn't deal with the underlying problem of riskier and riskier banking practices in the quest for unsustainable, phantom profits. Sort out the business practices and the absurd levels of pay simply won't be there for the average banker.
posted by MuffinMan at 3:57 AM on February 23, 2009 [1 favorite]


When we were in college, my best friend did a summer internship at Goldman Sachs. The division she interned in had a weirdly large number of ex-football players from Duke at all levels, and none of them were particularly stand-out in terms of intelligence. They were, at best, average. From the way she described it, it seemed they had gotten by on their connections.

But maybe the Duke football team had to pass rigorous intelligence tests in order to make the team. We know the wizards they tend to recruit for lacrosse.
posted by anniecat at 6:53 AM on February 23, 2009


I Foody Wall Street is not a particularly good place to put all your smart people
uhm... they weren't put there, this is chairman mao's china. they chose to go there. that statement also implies that they work to serve the public. that's not entirely untrue but their service comes in the form of taxes. a person is no lesser a human being because they didn't choose to become a teacher.

Do you want me to take this seriously?
are you really asking me to explain my funnies? you'll have to pull my finger first. (you made this german feel very unfunny for a second, which is saying a lot, but then I realized you live in washington, which gave me a more convenient explanation.)

For an individual firm the financier productive but for the economy as a whole he is less productive.
I disagree with the last part of that statement.

Risk models are fucked.
I agree with that statement - as I always do.

ryoshy My dog has better risk analysis skills than that and he licks his own ass.
maybe your dog knows something you don't? we should investigate.
posted by krautland at 7:33 AM on February 23, 2009


maybe your dog knows something you don't? we should investigate.

Feel free, but you should buy him a treat first.
posted by ryoshu at 8:35 AM on February 23, 2009


If anyone who was "relatively good at math" could be a banker - they'd be a fricken' banker
...
Bankers like to be bankers. I'd rather be poor than be forced to be a banker. Really. I'm happy to be a beta child.
You realize these two statements are contradictory, right?
Que? You're going to have to explain that to me, because I have no idea how you came to that conclusion.
The first statement says, basically, that anyone with the ability to be a banker would be. The second statement says that you wouldn’t want to be a banker, regardless of whether or not you could do it or not.

In order for the second statement to be true, it has to be possible for people to not want to be a banker, regardless of their abilities. In order for the first to be true, it has to be that everyone who has the ability to be a banker has to want to be a banker.

Also I have to wonder: How is it that you don't feel like you're capable of being a banker, but you do think you're capable of judging whether or not other people are capable of being bankers, despite the fact that you don't know anything about them other then that they are not currently bankers. You don't know what they look like, you've never met them, never heard or read anything they have to say, and yet, you just know they couldn't do it, even though you don't know enough about "it" to do it yourself.
posted by delmoi at 1:52 PM on February 23, 2009


a treat? you underestimate how charming I can be.
posted by krautland at 2:08 PM on February 23, 2009



Also I have to wonder: How is it that you don't feel like you're capable of being a banker, but you do think you're capable of judging whether or not other people are capable of being bankers, despite the fact that you don't know anything about them other then that they are not currently bankers. You don't know what they look like, you've never met them, never heard or read anything they have to say, and yet, you just know they couldn't do it, even though you don't know enough about "it" to do it yourself.
posted by delmoi at 1:52 PM on February 23 [+] [!]

------------

I don't know how to lay an egg, BUT, I can tell you if an egg is rotten very quickly. :-)

posted by Jumpin Jack Flash at 3:30 PM on February 23, 2009 [1 favorite]


The first statement says, basically, that anyone with the ability to be a banker would be. The second statement says that you wouldn’t want to be a banker, regardless of whether or not you could do it or not.

Don't be obtuse. I'm not even going to start in on your logic chain. You should try and get out more.
posted by The Light Fantastic at 4:39 PM on February 23, 2009


Don't be obtuse. I'm not even going to start in on your logic chain. You should try and get out more.

I'm not sure how to respond to this without being a dick, but I don't think the person who believes bankers who would be out of a job if it wasn't for US government bailouts deserve high salaries because that's what "the market" has decided has much credibility calling other people "Obtuse".
posted by delmoi at 8:25 AM on February 24, 2009 [1 favorite]


I heard part of a radio discussion last night, perhaps NPR, relating to bank nationalization. The expert commentator pointed out that there is an idea currently being repeated to the populace that the taxpayer/depositors of the troubled banks are somehow unable to manage or oversee the banks themselves. He dismissed it as an absurd argument. It seems to boil down to a trust as competence issue at some point, and if we don't mind our own money, the incentive for abuse will always be there, and it will always happen, and we will always be surprised because that's not the snake oil they sold us.
posted by Brian B. at 6:50 AM on February 25, 2009


<quote veracity="legend:urban;">
They should get a job with Microsoft, where you'll never need more than 640k for any job
&lt/quote>
posted by davemee at 5:27 AM on February 27, 2009


Kwanstar: Looks like HSBC isn't doing so well.
Trading in shares of HSBC Holdings was suspended in Hong Kong Monday at the banking giant's request, pending "the announcement of a corporate action." The banking giant is due to announce its 2008 earnings report later in the day. Trading in the shares is expected to resume Tuesday. The Wall Street Journal reported that HSBC plans to curtail its foray into U.S. consumer lending by pulling back from key businesses. HSBC, which commands a weighting of more than 11% in the Hang Seng Index, is also widely expected to announce a multibillion-dollar share sale plan. HSBC shares ended down 0.9% on Friday.
They must be "well capitalized."
posted by ryoshu at 6:23 PM on March 1, 2009


HSBC Seeks $18 Billion in Capital and Cuts 6,100 Jobs

"On Monday, it said it would shut down [Household International], renamed HFC and Beneficial, and cut 6,100 jobs. It said its U.S. retail bank and credit card businesses would remain intact."
posted by oaf at 1:17 AM on March 2, 2009


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