Today in the economy

[Trainer Monkey]

Kirk I know the short term would be horrible but if the Govt just allowed the Big Banks to fail (bankruptcy etc) wouldn't smaller banks pick up the slack? Am I wrong in thinking that there are plenty of smaller banks that are not full of toxic assets to would move quickly to fill the void? I wouldn't even call myself an economic novice but is seems that if there is a market someone would step up. I just really hate the idea of propping up failing industries and rewarding failure.

They arent really rewarding failure right now,unlike Bush who wanted it no ties attached for the same bailout,Obama put a rider in that limits executive pay for banks asking for bailout money.
In other words,short of the execs being fire by the banks in question,their pay is being governed and if the banks wont themselves wont punish their own piss poor governance,Obama has put it in,that the government will,or no damned money.

Salary is only a tiny fraction of total earnings for bank executives. It's just a cosmetic announcement, won't have any real effect on executive earnings. Unfortunately as far as the financial crisis goes the Obama administration looks like a Bush administration third term.

Not even close son
I mean here's the ballpark,and here there is you,youre not in it
Apparently between you and Lyle,there's liberal,conservative,and Ive got to sit here being the realist

[Kirkland Laing]

They arent really rewarding failure right now,unlike Bush who wanted it no ties attached for the same bailout,Obama put a rider in that limits executive pay for banks asking for bailout money.
In other words,short of the execs being fire by the banks in question,their pay is being governed and if the banks wont themselves wont punish their own piss poor governance,Obama has put it in,that the government will,or no damned money.

Salary is only a tiny fraction of total earnings for bank executives. It's just a cosmetic announcement, won't have any real effect on executive earnings. Unfortunately as far as the financial crisis goes the Obama administration looks like a Bush administration third term.

Not even close son
I mean here's the ballpark,and here there is you,youre not in it
Apparently between you and Lyle,there's liberal,conservative,and Ive got to sit here being the realist

Hank Paulson was Bush's last Treasury Secretary. His highest ever official salary was around a million dollars a year but that's just walking around money when you live in Manhattan, send your kids to school there etc. When he retired he had over $700 million in th bank.

We can watch and see how much the execs of banks who are taking government welfare continue to earn over the next few years. I should get a nice piece of quote art or two out of it.

[Trainer Monkey]

Salary is only a tiny fraction of total earnings for bank executives. It's just a cosmetic announcement, won't have any real effect on executive earnings. Unfortunately as far as the financial crisis goes the Obama administration looks like a Bush administration third term.

Not even close son
I mean here's the ballpark,and here there is you,youre not in it
Apparently between you and Lyle,there's liberal,conservative,and Ive got to sit here being the realist

Hank Paulson was Bush's last Treasury Secretary. His highest ever official salary was around a million dollars a year but that's just walking around money when you live in Manhattan, send your kids to school there etc. When he retired he had over $700 million in th bank.

We can watch and see how much the execs of banks who are taking government welfare continue to earn over the next few years. I should get a nice piece of quote art or two out of it.

Walked away with
As in past tense

[Kirkland Laing]

Not even close son
I mean here's the ballpark,and here there is you,youre not in it
Apparently between you and Lyle,there's liberal,conservative,and Ive got to sit here being the realist

Hank Paulson was Bush's last Treasury Secretary. His highest ever official salary was around a million dollars a year but that's just walking around money when you live in Manhattan, send your kids to school there etc. When he retired he had over $700 million in th bank.

We can watch and see how much the execs of banks who are taking government welfare continue to earn over the next few years. I should get a nice piece of quote art or two out of it.

Walked away with
As in past tense

Large banks like Citi that have large brokerage and M and A divisions have modelled themselves and their executive compensation on investment banks like Goldman as over the past couple of decades the investment banks have been making all the big money. And the investment banks only exist to reward the talent that runs them. Goldman for instance share over 75% of all their profits among their partners (and it used to be 100% till the partners sold off a chunk of their firm in stock to make themselves even more money.)

Goldman has a hundred of so guys with a small share and another fifty or so with a larger share. At the end of the year they divvy up six or eight billion between them (that's roughly the Goldman yearly profit over the past few years.) Now these guys earn depending on how much they earned the firm. And in a dog-eat-dog world if some superstar lower in the firm (or a partner or rising star elsewhere) has outperformed the Goldman guy in his field then the existing guy may get the push from his partnership after years of climbing the greasy pole. People get partnerships if they bring a lot of investors with them, etc.

So individuals move from firm to firm earning on the basis of what they bring in, investors/firms who'll follow them from place to place as they trust their expertise in their field. These indiviauals will actually ask for the lowest salary possible (living expenses for twelve months usually) so that their earnings can be paid to them in other ways, deferred salary, company stock etc. That's so that it can all be taxed at a far lower rate than their salary is. They'll pay 45+% of their salary in taxes when you include NY State taxes but in the low teens on everything else.

And if they really did make a serious attempt to keep overall compensation for executives at welfare banks to a million a year then the firm's moneymakers will up sticks, taking their expertise/clients/investors to other firms and the government will be left with a shell of a firm that doesn't make any actual profits anymore as their profit-drivers have all buggered off leaving a profitless mountain of debt and disaster for the government to deal with. So the government has no choice other than to let these banks, which it will eventually own and need to run, staffed by people who can make some money when it does take them over.

[VictorCharlie]

Okay once you've nationalized the banks and cleared out the toxic assets how do you go back to private ownership? Do the CEOs and board members keep their jobs?

[Kirkland Laing]

Okay once you've nationalized the banks and cleared out the toxic assets how do you go back to private ownership? Do the CEOs and board members keep their jobs?

No, they all get the sack. The shareholders get wiped out too. The government cleans up the debt and raises as much as it can to offset the debt by creating new bank stock in the nationalised bank, which is then sold to investors. The governmwent just took over two banksa t the weekend and is in the process of doing this to them as it has with almost twenty this year and lots more to follow.

TM, some bankers will end up working for a million or half a million or whatever the government sets as a cap. There are plenty of unemployed bankers and some of the ones currently at risk of getting a government paycut will accept it as the alternatives are less attractive. This will give the government a bunch of people to point to and say see, we've done what we said we would on executive pay. But most will move to greener pastures. The govt. will actually make loopholes so they can keep as many talented people working for the welfare banks as they can.

[VictorCharlie]

So why the hell didn't we just do this from the start and not spend 700 billion and counting