I know painfully little about the financial crisis but some of my recent reading has been about how to handle the fact that the banks got us in trouble in the first place so is a punishment appropriate. Earlier I vaguely bought into the "Economist" magazine kind of view, which was that its huge mess and the banks were responsible but now we have to get out of it, and lets be realistic, we need to work with them on it so we can't get all medieval on their asses and so on. But read an interesting transcript of an interview recently :
where a high profile guy is saying that we should go to the extreme and 'break the power' of the bankers. Felt like he has a point. I was fantasizing about what could be done to punish them. Perhaps we (well not 'we', but 'they' as in the American govt. or American people) could say that all the banks don't give any salary to their first line officials at all for x years, or until they pay back the govt money, and also take away all their 2008 bonuses. The fundamental case is very strong -- when you've wreaked havoc on the world economy and so many people are out of a job because of you, its completely reasonable that you should be quite stringently penalized financially, especially as you've made enough money over your banking career to never have to ever contemplate being close to a median national income in your life ...
Opinions ?
10 comments:
setting aside the sequence of your posts as coincidence, here is some o'nion.
to what extent did corporate pay practices, esp. those in the financial sector, get us (them) here? this is not as easy as deciding that CEO pay was excessive. while dictating pay would be hugely satisfying, its effectiveness in getting us out of this mess would depend on the answer. in my honest o’nion the answer tells us that the effectiveness would be very limited.
on a different note altogether, i would quickly agree that getting us out of this mess is not the pressing matter. i am for slowing things down and sharing things more equally. and while we are at it some justice and retribution would be just dandy.
Heres what is at the heart of the financial crisis.
A bunch of numbskull, pompous, economists created an extraordinarily imprecise but overly hyped model called the Black Scholes model to value derivatives. They assumed rare events occurs with much lower probability than they actually do, because they were mathematically impotent (their math skills were never quite high reaching as their ego.) This led to people thinking all kinds of risks vanish because they had hedged them away. It turns out these risks were not hedged away at all. So a bunch of riskless positions became highly risky positions and no body wanted to take on these positions. The value of these positions dropped dramatically because no one wants them. And so on the cycle continues.
Can we hand out some medieval punishment to the economist fraternity? Especially the winners of the fake nobel prize.
if only the second commentator replaced economists with capitalists, BS model (btw that's what it is) with free markets, and derivatives with peace and prosperity...
since that is clearly not happening let's just swim around in another part of the turd pool.
A lateral thought here...
Whatever got us here - the issue is how to get out now...
This financial mess has entered a chicken and egg situation now...
No amount of bailout and funding by govts can help restore financial confidence unless there is confidence in consumers to start spending again... And that confidence will not return unless there is financial stability and consumers are relatively more assured of their jobs and an earning next month and thereon.
Most govts - including the most capitalist ones like US are already doing socialist-like bailouts now. (Communists must be laughing their heads off - thinking - we told you capitalism rots). Absolute free-market and total lack of supervision has brought the state of affairs to this standstill - and now Obama needs to decide how much salary or bonus execs can take or whom they can hire and whom they can not hire (H1Bs).
So maybe govts need to take this socialist bailout model somewhat further for a while - and like he capped the salaries of all top execs in Banks - put a embargo on job cuts for 1 year.
Why? Simple... the only reason there is no revival today is because no one is sure enough of continued earnings. Those who are out of jobs cant spend since they have no earning, and those still have earnings are too scared to spend. Its a vicious cycle which will not end quickly unless those who have earnings today are relatively assured. Now obviously its counter intuitive to say companies cant lay off...if they are not making profit. But if a company needs to cut costs by laying off 5% staff let them instead be asked to cut salary levels across by 10% instead to save the costs. This assures sustained income to those who stay - though lower income.
Of course there is always a question of - this would encourage low performers. Let us just bear with that bottom 5% excuse for now... The embargo isn't for life anyways... just as bailouts aren't endless.
And well... if US implements it - Europe wont be far behind. They are anyways far too conservative on labor laws.
And at a different level all together - it works far more better for companies - since employees are more focused and loyal now - since they spend less time worrying and chatting about who's getting the boot next. There are no geographical rivalries within organizations and neither are there anxieties of any kind.
to !!!...
voila !!! the party begins anew!
Capitalism has been written off several times before whenever economic cycles have taken severe downturns. It will come back, although obviously in a modified version. New theories will be proposed, new nobel winners will be created. Sorry, communisn is not coming back.
Hahahaa...true.. Communism isnt going to come back in future...
Its already back here - with so many bailouts and almost nationalization of erstwhile capitalist icons.
:-)
Dear Arbit -- nobody is writing off capitalism so you don't have to be a lone ranger defending it :-).
Question being discussed is : is it appropriate and feasible to kick some asses for creating the crisis.
A very nice statement from someone is "If a company is too big to fail, its too big to exist". Compelling logic.
One also wonders if, in the community of nations the statement above applies to the US.
Here's another cute site:
http://www.lolfed.com
and Krugman's NYT blog is a great place to follow the crisis
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