Fix the hole in the Wall Street!

May 14, 2010 12:18 PM

Six Simple Ways to Fix Wall Street. "Elements of our Six Simple Steps are in the pending legislation. If they're part of what's adopted, we may get true and lasting reform. If they're not, it won't be long before Wall Street is back to business -- and bailouts -- as usual."
posted by storybored (43 comments total)

Six Simple Ways to Fix Wall Street.

Big deal -- I've got one of those at home!
posted by vorfeed at 12:32 PM on May 14, 2010 [1 favorite]

I like the fact that that he spends like 8 paragraphs saying you shouldn't trust a salesman before trying to sell his reform package.

I like this though:

2. Increase the Fear Factor. If any financial institution fails or needs extraordinary help from the government, the government should be able to claw back five years' worth of stock grants, options profits, and cash salaries and bonuses in excess of $1 million a year. That would apply to the 10 top executives, current and former, with a five-year look-back period. It would also apply to board members, present and past. (People brought in by regulators for rescues that ultimately fail would be clawback-exempt.) Anyone subject to the clawback would be permanently barred from executive positions or board seats at any institution that has federal deposit insurance or SIPC protection for brokerage customers. This provision would give executives and directors a huge incentive to make sure institutions they supervise don't take on excessive risk.

I'd make it 10 years, and why exempt $1 million a year?
posted by delmoi at 12:36 PM on May 14, 2010 [5 favorites]

Yeah, to be more serious -- I do wish we were more aggressive about demanding more back from these bailouts. When one company "bails out" another, they do it to the tune of outright purchase or majority stock options; America should do something similar. At the very least, that'd separate companies which really need emergency help from those which are cashing in.

The one about derivatives is also a good idea. Frankly, though, I think reform needs to go much deeper than quibbling over what kind of shell-games traders are allowed to play...
posted by vorfeed at 12:43 PM on May 14, 2010

"If any financial institution fails ... the government should be able to claw back five years' worth of ... salaries and bonuses in excess of $1 million a year. That would apply to the 10 top executives, current and former, with a five-year look-back period. It would also apply to board members, present and past. ... Anyone subject to the claw-back would be permanently barred from executive positions or board seats."

This is intensely ambiguous. In excess of $1 million in outlays from the corporation, or in excess of $1 million received per person? They claw back all salaries but only bonuses in the amount that exceeds $1 million? Or they claw back salaries in excess of $1 million and bonuses in excess of $1 million (allowing up to a total of $2 million per person per year)? Or they claw back any combined amounts received that exceed $1 million?

It also makes a lot of assumptions about the unanimity of corporate decision-making and systemic risk. Treating the guys behind the fall of Lehman the same as a random politically weak board member at East Pleasantville Educational Credit Union is dumb.

And where are the numbers to back this up? The irony of an article playing fast and loose with strategies to deal with those who have been playing fast and loose is not lost on me.

There's also the not entirely frivolous thing about it being possibly unconstitutional, but never mind that...
posted by thesmophoron at 12:44 PM on May 14, 2010

I'd make it 10 years, and why exempt $1 million a year?

You have got to be kidding me, right?
posted by thesmophoron at 12:45 PM on May 14, 2010

The government needs to step in to stop people from being cheated, to help capitalism...

Money worshipers are more entertaining...who needs cable.
posted by larry_darrell at 12:54 PM on May 14, 2010

A Simple Way To Go Faster Than Light That Does Not Work
posted by kcds at 1:06 PM on May 14, 2010 [1 favorite]

You have got to be kidding me, right?

Why not? (Well, I was thinking of a lower exemption, like around $200k or something) But that's how banks in Sweden work, I think. If the bank goes down, the executives are on hook for all the missing money.

It also makes a lot of assumptions about the unanimity of corporate decision-making and systemic risk. Treating the guys behind the fall of Lehman the same as a random politically weak board member at East Pleasantville Educational Credit Union is dumb.

Why is the board member at EPECU raking down $1 million a year? And btw, it's not ambiguous, he meant $1m per person. Obviously.
posted by delmoi at 1:18 PM on May 14, 2010

I'd be a lot more curious about the author if it wasn't phrased in such an absolutist manner.

Do what I say or we are all doooooooomed.
posted by edgeways at 1:24 PM on May 14, 2010

$1M per person is not an unreasonable salary for the top official at a midsize bank. I mean, you can pay less than that if you want crappy leadership. Have fun trying to claw back a bonus from the guy who was ousted four and a half years ago, though. Although the fun claim to make is that there is no meritocracy -- of course there is a meritocracy. And a pay gradient between top execs, who are not actually morons.

Is Sweden a big center of international finance? Or even Eurozone finance?
posted by zvs at 1:24 PM on May 14, 2010 [1 favorite]

Just don't do govt bailouts and the rest will take care of itself.
posted by H. Roark at 1:27 PM on May 14, 2010

H. Roark: "Just don't do govt bailouts and the rest will take care of itself."

who run bartertown?
posted by boo_radley at 1:45 PM on May 14, 2010 [4 favorites]

Just to start off, Allan Sloan has never impressed me as anything except a mainstream corporate media tool. However, he does put forward some good ideas in his article...but being a mainstream corporate media tool, he completely overlooks the elephant in the room, Too Big to Fail. If we make sure no corporation is allowed to be TBtF, while those rules he proposes would be helpful, they wouldn't be necessary. On the other hand, if we allow TBtF, then even those rules won't do the trick the next time there's one of these financial crises in about..oh, four or five years.

But don't expect anyone writing in Fortune to mention that.
posted by Jimmy Havok at 1:59 PM on May 14, 2010

Among other things, we need more criminal investigation into, and overall scrutiny of, the fraud on Wall Street that Wiliam K. Black and others have warned about.

Furthermore, we need to follow the advice of Nouriel Roubini, Simon Johnson and others and break-up the megabanks: despite the recent defeat of Brown-Kaufmann, this idea (in some form) still makes sense, and Senator Kaufman continues to be one of the most outspoken and well-informed critics [note: .pdf & long, but well worth reading] of our lack of sufficient regulation.

We need to consider banning or regulating flash trading, one possible cause of last week's "flash crash," and we absolutely must regulate derivatives.
posted by HP LaserJet P10006 at 1:59 PM on May 14, 2010 [2 favorites]

My six elements to fix Wall Street:

Paranoia
Public whipping
Napalm
Terror
Duels ... to the Pain
Hostages
posted by adipocere at 2:01 PM on May 14, 2010 [4 favorites]

Why is the board member at EPECU raking down $1 million a year?

Nobody said he was. While idiotic, the clawback is not the most idiotic part of that suggestion. And you want to go further. You, delmoi, suggest that someone who was the CTO of AIG for the year before September 11th should NEVER BE ALLOWED TO WORK IN FINANCE AGAIN. Needless to say, your idea is obviously dumb.
posted by thesmophoron at 2:11 PM on May 14, 2010

You, delmoi, suggest that someone who was the CTO of AIG for the year before September 11th should NEVER BE ALLOWED TO WORK IN FINANCE AGAIN. Needless to say, your idea is obviously dumb.

I'm not a financial whiz or anything, but why is this dumb? If a doctor were found to be practicing unethically, his license would be revoked and he would, effectively, be barred from working in health care again.

Okay, maybe I should put a "theoretically" or "ideally" somewhere in that scenario, but still, why shouldn't those in charge of driving Economic Entities of Unreasonable Scale off a cliff be held responsible just because they managed to unhook their Armani suit pocket from the door handle and jump out of the car before it went over? It seems these sorts of things don't happen over night and it's highly unlikely that OutGoing Financial "Guru" A was squeaky clean so shouldn't be held accountable when things jump the track under Current Financial "Guru" B's watch. It takes time to set up this level of debacle. It also takes a village.

Again, there may be perfectly good reasons for this and I'm not steeped in capitalistic mysticism so I'm asking legitimately why this idea is "dumb" as opposed to just "not implementable"?
posted by quakerjono at 2:26 PM on May 14, 2010 [2 favorites]

who run bartertown?

I think it's worth making a distinction between bank bailouts and no public intervention of any kind.

The thing that was said to trigger the must-act-now motions that led us to TARP was the freezing of the commercial paper market. What if the government had said, "Sorry guys, it's market discipline and the way of Lehman for all of you, but since commercial paper's fairly important to the general wheels of the economy, we'll be directly dealing in it in order to keep it humming?"

My guess is that working with existing institutions was probably seen as a quicker way to get results than the daunting task bringing a massive organization online and into lending/finance networks inside of a short period of time, but it seems to me if we'd been able to temporarily let the state operate where essential market services failed, we might have been able to get most of the benefits of the bailout combined with most of the benefits of market discipline, rather than ending up with the liabilities of both.
posted by weston at 2:26 PM on May 14, 2010 [2 favorites]

there may be perfectly good reasons for this and I'm not steeped in capitalistic mysticism

In a liberal democracy, there don't need to be reasons why NOT to punish someone. You have the burden of proof. If you're not trolling, it is unfathomable that you could attempt to make out some justification without realizing your most grievous error. So please: tell me why someone whose involvement in an enterprise ended a decade before things went awry should be blamed at all, let alone bear such a harsh burden as being banned from the industry.

Rest assured that I await your response with bated breath.
posted by thesmophoron at 2:40 PM on May 14, 2010

Lloyd Blankfein Drops $26 Million In CASH On New Apartment
posted by HP LaserJet P10006 at 2:52 PM on May 14, 2010 [1 favorite]

You, delmoi, suggest that someone who was the CTO of AIG for the year before September 11th should NEVER BE ALLOWED TO WORK IN FINANCE AGAIN. Needless to say, your idea is obviously dumb.


The idea is obviously dumb. They should be broken on the wheel instead.
posted by digsrus at 3:13 PM on May 14, 2010 [1 favorite]

On the subject of clawbacks, I really don't see how they're going to work. What should be done is a fundamental restructuring of the Wall Street bonus system. I'm a fan of raising salaries while lowering the bonus awards, or at least defering them x number of years so that traders will make bets that are safer for the firm in the long run.
posted by KingEdRa at 4:06 PM on May 14, 2010

So please: tell me why someone whose involvement in an enterprise ended a decade before things went awry should be blamed at all, let alone bear such a harsh burden as being banned from the industry.

There's middle ground between someone that left a decade before the meltdown and Joe Cassano.
posted by ryoshu at 4:15 PM on May 14, 2010

So, delmoi, if I work at AIG in 2002 and I see that there is criminal or extremely negligent/irresponsible behavior I should stay there and fight the battle to fix it so that in 2009 when everything goes to shit I don't get banned from the industry? Or would there be an exemption for quitting in protest and whistleblowing, would would essentially mean banning yourself from the industry for life?
posted by spicynuts at 4:15 PM on May 14, 2010 [1 favorite]

HP LaserJet P10006: "Lloyd Blankfein Drops $26 Million In CASH On New Apartment"

$11,000 in maintenance per month? What?
posted by boo_radley at 4:28 PM on May 14, 2010

"Rest assured that I await your response with bated breath."

Wow, that's a lot of supercilious venom for a simple question.

Was delmoi's statement overinflated? Perhaps. A better point might have been to go back 10 years and establish if an individual serving in a controlling position of a financial entity had direct responsibility for current dire straits and, if so, then demand redress, but that's an issue of overextension, not one of validity of concept.

The current system appears to encourage finance as a giant game of chicken where whoever makes it out before the hammer falls with the most money gets to ducktail his hair with Brylcreem and knock up Peggy Sue after prom. There's no real incentive NOT to behave this way because, so long as you're out of the loop, the shit sandwich you left behind is not your problem.

Again, I do not see why applying similar standards of ethical practice to financial companies and those who control them as are applied in other high-confidence professions is a dumb idea and, should someone be found to have contributed to financial calamity, permanently removing them from the profession. That was my question. You've answered it with "BECAUSE RAWR!" which I find insufficient, but unlikely to be politely elaborated on, so I guess we're done here.


Dude, it's Friday. Have a beverage of your choice and dial it down a notch.
posted by quakerjono at 4:45 PM on May 14, 2010 [3 favorites]

Have a beverage of your choice and dial it down a notch.

And what, exactly, am I supposed to be dialing back? You and delmoi have advocated punishing innocent people. I don't get behind that. Being against the punishment of innocent people doesn't make me "BECAUSE RAWR" and if insisting on justification for ruining someone's life is "BECAUSE RAWR" in your head then I think you need to reconsider your analysis.

I find it unpleasant that asking people to think through their positions is considered impolite, while vengeful anger toward people from a decade ago is not.
posted by thesmophoron at 5:06 PM on May 14, 2010

There's middle ground between someone that left a decade before the meltdown and Joe Cassano.

Yes, there is. That's exactly my point. That's why a rule like that proposed in the OP and advocated by delmoi and defended by quakerjono -- that is to say, a rule that completely ignores the difference -- is a bad rule.
posted by thesmophoron at 5:10 PM on May 14, 2010

"You and delmoi have advocated punishing innocent people."

No, if you stop frothing for a second and let the red drain from your eyes, I think what you'll see is that I advocated for nothing, but rather questioned why the financial sector is allowed to exist ethics-free while other high-confidence business sectors must maintain at least lip service. I also asked why delmoi's idea was "dumb" rather than non-implementable.

"I find it unpleasant that asking people to think through their positions is considered impolite, while vengeful anger toward people from a decade ago is not"

Interesting. Because I find it incomprehensible when someone lambastes others after what appears to only be a superficial reading of their comments and then directly and decidedly misinterprets them for asking a question.
posted by quakerjono at 5:19 PM on May 14, 2010 [1 favorite]

"defended by quakerjono"

See. This right here. I defended nothing. I advocated nothing. I asked why the financial sector seems to be allowed to behave in a way that no other high-confidence business sector is and why it's a "dumb" idea, rather than an overextended idea, to hold those responsible accountable for their actions even if they're not currently in power at the time of the meltdown. So far you've failed to address those questions completely and even if you did at this point, I'd hold your answers in a certain amount skepticism as you clearly have some sort of self-righteous persecution complex.

If anyone ELSE can calmly explain why, however, I'd be more than happy to listen.
posted by quakerjono at 5:29 PM on May 14, 2010 [3 favorites]

The reforms that are designed to make the market better, may do so. I have a vested interest in some and so won't comment as to which, but I think it is possible as a general matter.

However, the reforms that are designed to punish future bad guys are almost certain to be impose vast administrative cost while no more preventing the crisis of 201_ or 202_ than Sarbanes-Oxley prevented the crisis of 2008. The market may not be perfect but it is very good at preventing recurrences of precisely the same sorts of failings. Stupidity and greed always repeat themselves in sufficiently novel form as to evade refighting-the-last war regulations.
posted by MattD at 5:38 PM on May 14, 2010 [1 favorite]

The only tool I have is a hammer, so to me fixing Wall Street simply involves smashing a lot of things into walls and pieces of wood.
posted by Joey Michaels at 5:42 PM on May 14, 2010

quakerjono: I don't know what makes you think I'm "frothing" or anything else. The concept as stated applied to all executives, board members, etc. for the past ten years. It's nice that you'd like to imagine some other kind of idea was being forwarded, but it wasn't. There was one idea, and one idea only, and it was a bad and vengeful and dumb one. Nobody ever, not once, not here, not anywhere connected with this thread, ever suggested "hold[ing] those responsible accountable for their actions" -- they suggested punishing everyone ever connected to the company involved.

You did not ask "why the financial sector seems to be allowed to behave in a way that no other high-confidence business sector is" - you asked why we shouldn't punish innocent people. In particular, the idea that delmoi was forwarded had the implication of "the CTO of AIG for the year before September 11th ... never be[ing] allowed to work in finance again." When this was brought up as the logical extension of delmoi's unsound idea, the implied position being that we shouldn't endorse such a rule, you asked - why not?

I've asked you instead to explain why we should. You have yet to answer. Instead you seem to engage in ad hominem attacks ("frothing" "superficial"), completely mischaracterized my tone and comments ("BECAUSE RAWR!"), and done enough well-poisoning to kill a small village ("even if you did at this point, I'd hold your answers in ... skepticism"). That kind of behavior isn't welcome on Metafilter. If you want to say that my ideas are bad or even dumb, then go ahead and criticize the ideas. If you honestly think punishing innocent people is a good idea, I'm open to hearing your justification, though I assure you that you'll never convince me. But attacking other members of the site is not an okay thing to do.
posted by thesmophoron at 5:42 PM on May 14, 2010

Why is the board member at EPECU raking down $1 million a year?

Nobody said he was. While idiotic, the clawback is not the most idiotic part of that suggestion. And you want to go further. You, delmoi, suggest that someone who was the CTO of AIG for the year before September 11th should NEVER BE ALLOWED TO WORK IN FINANCE AGAIN. Needless to say, your idea is obviously dumb.

You posted the comment before mine, asking why someone who worked at a Community Credit union should have to pay if it went under. And the answer is -- under the outlined proposal -- they wouldn't, because they'd be making less then a million a year.

I proposed a lower exemption, like around $200k, which I think is reasonable. I don't think it would be a huge loss if they couldn't work in finance again, a new crop of potential Wall-Streeters graduates from Harvard and Yale every year. A little collateral damage never hurt anyone.

So, delmoi, if I work at AIG in 2002 and I see that there is criminal or extremely negligent/irresponsible behavior I should stay there and fight the battle to fix it so that in 2009 when everything goes to shit I don't get banned from the industry? Or would there be an exemption for quitting in protest and whistleblowing, would would essentially mean banning yourself from the industry for life?

Obviously there should be an exemption for whistleblowing. Also, I think it would make sense to limit it to people who were responsible, or in the chain of command or loop on the actual problematic trades. So someone who worked insuring boats at AIG wouldn't get hammered, just the FP people.

Yes, there is. That's exactly my point. That's why a rule like that proposed in the OP and advocated by delmoi and defended by quakerjono -- that is to say, a rule that completely ignores the difference -- is a bad rule.

It would foster a culture of responsibility.
posted by delmoi at 6:07 PM on May 14, 2010 [1 favorite]

if I work at AIG in 2002 and I see that there is criminal or extremely negligent/irresponsible behavior I should stay there and fight the battle to fix it so that in 2009 when everything goes to shit I don't get banned from the industry? Or would there be an exemption for quitting in protest and whistleblowing, would would essentially mean banning yourself from the industry for life?

Darned good questions which speak to the depth and complexity of the issue(s). Fixing Wall Street is like fixing Germany after WW2. What you really want to do is toss everybody involved into a pit and let them resort to cannibalism or whatever. But in the end, it just ain't that simple, not even remotely. What we've currently got in Wall Street and the attendant culture is something along the lines of Hunter Thompson's description of the entertainment biz

"... a cruel and shallow money trench where good men die like dogs and thieves and pimps run free. There is also a negative side."

Welcome to high-end capitalism in the 21st Century. The fixes won't be quick and we're all going to get slimed, assuming we haven't already.
posted by philip-random at 6:22 PM on May 14, 2010

"I don't know what makes you think I'm "frothing" or anything else"

"dumb"
"trolling"
"Rest assured that I await your response with bated breath."

Should I continue? Tone counts.

You did not ask "why the financial sector seems to be allowed to behave in a way that no other high-confidence business sector is" - you asked why we shouldn't punish innocent people."

Direct quote from my first post:

"why shouldn't those in charge of driving Economic Entities of Unreasonable Scale off a cliff be held responsible just because they managed to unhook their Armani suit pocket from the door handle and jump out of the car before it went over?"

"When this was brought up as the logical extension of delmoi's unsound idea, the implied position being that we shouldn't endorse such a rule, you asked - why not?"

No, I asked why it was dumb and suggested that it was maybe an overextension of blame, but the notion of making financial drivers ethically and legally accountable, and making that accounting rather severe, didn't seem "dumb" to me or out of line with what happens in other high-confidence business areas.

"I've asked you instead to explain why we should. You have yet to answer"

Clearly we shouldn't punish those who are not demonstrably guilty of wrongdoing and I have never, despite your interpretation, advocated that we should so I feel no need to "defend" a position I have never adopted or answer that. You, however, called the idea "dumb" in whole and parcel and I wondered what was the issue with applying an ethical standard with legal teeth and demonstrable consequences to finance.

"That kind of behavior isn't welcome on Metafilter."

I just really don't have a response for this, other than I'm glad Metafilter finally has such a sterling protector and clear advocate for what is and is not allowed on it. I'm sure the moderators will be pleased.

"If you want to say that my ideas are bad or even dumb, then go ahead and criticize the ideas."

And here we have the issue. I do not now and have never wanted to say any of these things. I simply wanted to understand your ideas and was immediately met with hostility. With this sentence and those above it, I think I finally do understand them, however, and the underlying motivation is clearly not an advocacy for sound fiscal policy or a clear defense of the innocent.

" If you honestly think punishing innocent people is a good idea, I'm open to hearing your justification, though I assure you that you'll never convince me. But attacking other members of the site is not an okay thing to do."

For the final time, I have not at any point in this thread said I was in favor of punishing innocent people. I challenge you to produce ANYTHING I have written in this thread, in the whole of my admittedly small posting history of Metafilter stretching back to 2007 or, indeed, to ANY of my writing anywhere where I have advocated for the punishment of innocent people.

In any event, I've finally gotten my answer from you, so thanks for that.
posted by quakerjono at 6:54 PM on May 14, 2010 [2 favorites]

We need less and less derivatives regulation, but I should have to pay Use Tax on something I bought at a yard sale. Right.
posted by RobotVoodooPower at 6:57 PM on May 14, 2010

If you honestly think punishing innocent people is a good idea

Nobody's innocent on Wall Street. Or if they are, tell it to this guy. Those Gordon Gekkos know their crime syndicate has largely been given a pass, and they should all thank their lucky stars they're not being run out of town by an angry mob.
posted by HP LaserJet P10006 at 8:05 PM on May 14, 2010 [1 favorite]

ruining someone's life

Oh you have got to be fucking kidding me. Your life is going to be ruined because you have to look for a new career (or, with your millions, just retire early)? Not being able to work in the financial industry is the default state. The world is overwhelmingly composed of people who do not get to work in the financial industry for seven- and eight-figure salaries and they are getting a little bit sick of the whining of those who do.
posted by enn at 8:16 PM on May 14, 2010 [3 favorites]

However, the reforms that are designed to punish future bad guys are almost certain to be impose vast administrative cost while no more preventing the crisis of 201_ or 202_ than Sarbanes-Oxley prevented the crisis of 2008.

This is due in no small part to the SEC being severely underfunded. The regulation might work if we took it seriously and spent some money on enforcement.
posted by krinklyfig at 5:48 AM on May 15, 2010

"In a liberal democracy, there don't need to be reasons why NOT to punish someone. You have the burden of proof. If you're not trolling, it is unfathomable that you could attempt to make out some justification without realizing your most grievous error. So please: tell me why someone whose involvement in an enterprise ended a decade before things went awry should be blamed at all, let alone bear such a harsh burden as being banned from the industry. "

how long have you americans been aggressively selling sub-prime mortgages and then securitizing them and selling them on as CDOs? 5 years? 10 years? 15 years?
posted by marienbad at 12:59 PM on May 16, 2010

It doesn't really matter what laws they pass. They passed a lot of laws after the great depression.

After a generation no one will be alive who can remember what happened and history doesn't speak nearly as loudly as rich, greedy people with good public relations departments and lobbyists. All the laws will slowly be rescinded or simply no longer enforced.

I guess the best we can hope for any new laws is that it won't happen again in the next ten years or so.
posted by eye of newt at 9:20 PM on May 17, 2010

After a generation no one will be alive who can remember what happened and history doesn't speak nearly as loudly as rich, greedy people with good public relations departments and lobbyists. All the laws will slowly be rescinded or simply no longer enforced.

One generation of regulation is good enough for me. If people had taken the attitude after the Great Depression that the new regulations would only last a generation, so it wasn't worthwhile to do anything, we wouldn't be enjoying the current level of prosperity that we're now pissing away.
posted by Jimmy Havok at 10:15 PM on May 17, 2010 [1 favorite]