Goldman Sachs Non-Cash Bonus?

So today Goldman Sachs says their top people will get a bunch of shares that they will not be able to sell for 5 years rather than cash.

Insiders know that Goldman has had an ROE of some 20-40% over the last 30 years -- so that's is not such a bad investment. They also know that they can Goldman folks can get cash from banks very easily against future bonuses (and stock).

Outsiders first think -- hey, that should get them thinking long term. Then they say -- those Goldman guys must be really well off to be able to forego their cash bonuses. And how about taxes on those stock grants -- capital gains rate when sold? Perhaps the British and French special tax on bonuses is not so outrageous?

Seems like Mr. B should stick to making money -- and get better help on the PR side of things.

Then there is Mr. P -- trying to pay off $20B to the government while taxpayers are guaranteeing some $400B in assets -- so that he can freely compensate his people.

Special Bankruptcy for Too Big to Fail

In the past, I have supported regulations, additional fees, etc. to discourage institutions from becoming and remaining "too big to fail."

The concept of living will, etc. are intriguing -- but seems rather impractical.

What has been impressive is the speed in which the government was able to put Chrysler and GM through bankruptcy.

The "easy" solution to "too big to fail" seems to be [legislated] bankruptcy for large financial institutions (and other conglomerates). This should definitely mandate speedy process. The good bank, bad bank is probably worth including as well.

If the government needs to fund the good bank temporarily -- we need to make sure tax payers get preferred returns to old equity AND DEBT holders.

G20 Statement of Goal without Plan

This seems to be a critical part of the recent G20 Finance Ministers' statement: "We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies, consistent with price stability and long-term fiscal sustainability, until recovery is secured," the statement said.

Federal reserve (and most central banks) is supposed to foster full employment and manage long-term inflation.

It would seem that monetary policy alone has been insufficient in doing this – and, in fact, has exacerbated bubbles.

The key to G20 success would seem to be the concrete steps to achieve PRODUCTIVITY growth that allows for expansion while minimizing inflation. In this, the finance ministers would have to enroll the central banks to support a broader fiscal/monetary policy.

But this would seem to question the past/future role and independence of central banks.

G20 Bank Action

While over-regulation is certainly possible -- putting some structure to bank compensations seems appropriate. Historically, bank executives seemed too eager to try to compete with investment banks and hedge funds to recruit people (and overpay them) and take risks with such (betting a lot of bank capital). This is all while being subsidized by the public with low cost deposit funding.

With stronger bank capital requirements -- still think the issue are: (a) the need for better regulators (not smarter ones who know they are smart and powerful -- more effective ones), (b) deposit insurance premiums that better reflects the risks of particular banks, and (c) a more dynamic concept of risk capital (and one that allows for lower capital requirements during recessions -- rather than killing banks by making them sell assets during the worst market conditions to meet static requirements -- CAPITAL LEVELS ARE SUPPOSED TO BE LOWER DURING DIFFICULT PERIODS).

Hopefully, in addition to regulation -- hopefully the G20 will also consider organizing themselves so that all countries do not overinvest in the same things. One idea would be a bidding process for certain technology areas (with the proceeds of the bids going to develop lesser countries).

Ted Kennedy

Just a citizen's note for Senator Kennedy's passing.

In 50 years of public service, clearly had much greater impact than his brothers.

Hopefully, this will provide impetus for Caroline to take up the torch.

And hopefully the healthcare reform will become his final legacy.

Putting on my socially liberal hat -- I think most people will agree that health insurance is one of the most regressive aspects of peoples' lives, perhaps of greater import than regressive social security/payroll taxes, regressive sales taxes, and a tax system which allows the rich to have lower effective tax rates than the middle class.

People who can pay more should pay more for healthcare (particularly since they tend to get better healthcare).

And all of this state boundary issues, better rates for those with more leverage (big companies vs. small businesses), defensive medicine (from lack of tort reform), regulatory costs for new medicine, inadequate use of technology, etc. -- really needs to be addressed too.

Nokia Netbook and Apple Tablet with Handset

And an idea for Nokia which in its desperation seems to be coming out with a Nokia netbook. . .

This would also apply for Apple's new tablet PC -- they should have an easily accessible, bluetooth HANDSET (you remember those things we used to hold up to our ear and talk into -- with the POTS phones).

If they wanted to be fancy -- they could add a small touch screen that would allow it to make phone calls.

Plugging in headsets or pulling out blue-tooth ear pieces (and sticking in your ear) -- just doesn't seem as "spontaneous" as answering a phone call or as dialing an impromtu call.

The digital purist can think of many reasons why handsets are gone for good -- but some of us are old enough to have fond memories of those things.

Sometimes convergence can take a step -- back to the F.

SEC explanation on Merrill deal ‘puzzling’

Sounds like one of those "conspiracy theory" cover ups.

Seems like Ken Lewis could have made it more difficult for Bernanke to be renominated today.

Some would like the judge on this case to discover enough before the senate confirmation. It is amazing how people are publicly supportive of Bernanke but are privately criticizing him.

Of course, Paulson can take some responsibility for the Merrill deal going forward despite the disclosure -- to many in the industry was clearly sufficient for material adverse (at least enough to renegotiate the terms -- let alone let them pay out the bonus).

If Bernanke gets a second term, John Thain may have a shot at the Treasury position.

Equity Holders of Financials -- the Fodder

So the government is making money on Goldman Sachs (GS) and now even Citi (C) -- well we should remember: (a) the past screw ups in supervision, (b) messed up mark-to-market accounting rules that forced financials to raise capital at very low levels as a result of short-term "pricing" on assets in illiquid markets, and (c) rescues of financials with no regard to prior equity holders.

And the prior managements (and traders) did a pretty good job of betting the ranch -- making a lot of money in good times. But in the end the equity holders took the fall.

Some would say that that is the nature of equity. I would say the equity holders should use the legal system to get some compensation from those (the government and prior managements/traders) that "screwed them over."

Compensation Czar powers need legislation

With this debate about whether past contracts should be honored for TARP institutions, people seem to forget that most of these institutions would have been bankrupt if it had not been for those funds.

Most would agree that past compensation agreements were founded on wrong assumptions as to the risks taken by traders/executives with shareholder/taxpayer capital. And the usual concept that they are "upside oriented" -- the incentives are to take a lot of risk because there is a lot to gain if things go well and little to lose if things go badly (can usually just blame the markets).

Congress need to provide the compensation Czar with the powers to selectively declare contracts void -- just as if these institutions had gone through bankruptcy.

Bernanke and Regulating Gambling in the Equity Markets

Understand that the futures show 70% chance that Bernanke will be reappointed. The experts seem to say that Obama would want someone else -- but the market believes it understands Bernanke and would "punish" Obama, itself? if a change were made. Particularly with the likely and "unpredictable" Mr. Summers.

Well, Mr. Bernanke put out all the stops (and creatively too) to pump money into his sphere of financial industry players. Clearly another bubble is being created. And this whole monetarist economics is really the "lazy man's economics" -- just push a button on the computer, lower rates, give money to financial institutions, and hope there is trickle down to the economy. Historically, just created bubbles and allowed the financial institutions to pay big compensation to their management, a lot of perks, and, of course, lots of money to traders that take bit bets with other peoples' money.

And if I may concur with those that say the equity markets is very similar to horse racing and other gambling endeavors. I think I might actually vote for similar regulations -- and even have some qualifications for people to bet in the markets (and usually lose money). That would include retail and fund managers.

My favorite -- mezzanine market. Especially in developing markets, the focus of capital investment and trading should be on CBs etc.

MSFT needs to buy PALM

Considering MSFT's move to put Office on Nokia Symbian phones, it would seem that MSFT finally is recognizing the eventual threat of mobile operating systems, and browser based operating systems (like GOOGs), browser based Office imitations, and, of course, smart devices (that cost more than laptops now).

MSFT's dismal failure in developing a Windows Mobile that works reasonably fast (as the old Palm OS did/does) and has a decent interface like the iphone and work-alikes -- has to be one of MSFT's biggest failures. Guess that would have to follow giving up the search space and the VISTA fiasco.

It may be that the faster smartphone hardware now available and the incremental interface improvements (much as Windows began to catch up with Apple on interface in the early 90s) will finally allow Windows Mobile to be usable. In fact, Window Mobile is great for its ability to interface with a lot of different native and connected hardware and O/S -- it's just soooo slow.

But rather than take that chance -- MSFT should just buy PALM. This would give them multi-tasking plus a hardware platform to merge with their Zune platform.

Actually, perhaps a Nokia or Samsung will move faster and buy PALM.

ROE of Nations

Have and have nots has been a topic of a lot of debate, but --

It would be helpful in gauging the effectiveness of economies if economists would develop a measure -- ROE of Nations -- based upon the output of countries relative to their wealth, whether in natural resources, fiscal resources and even whether they have places/history that tourist are attracted to -- as well as "off balance sheet assets" like paintings and jewelry (and even castles), valued not based upon current trading value (but in PV of future earning potential).

So countries that benefited from empire building in the past (UK, Netherlands, Germany) or have a lot of natural resources (Russia, Middle East, Australia) can gauge their competitiveness, and potential for greater competitiveness -- relative to countries with little historical wealth (Scandinavia, Japan, Korea).

Guess this would fall in the category of measuring countries based upon purchasing price parity adjustments.

Central Banks fooling with short-term interest rates

The economy seems to be getting better -- in a v-shaped recovery -- despite the "fashion" of economists and other gloom and doomers.

The Fed? Doing nothing. Guess they are resting from all the hard work.

Senator Schumer and others seem to like the Fed -- as the master regulator. They seem to have quite the position -- create problems, solve them, get more money and power, create bigger problem.

The Fed has to stop fooling with the short-term interest rates. History has repeatedly shown that artificially low interest rates (like real interest rates below zero and below any sense of risk adjusted rates) creates economic distortions and asset bubbles.

But the Treasury and Fed continue to favor their friends at financial institutions. They say lowering the short-term rate, steepening the yield curve, making financial institutions more profitable -- will have a trickle down effect, and help the economy.

This is the work of intellectuals -- that say pushing a button on their computer to lower the interest rates -- will be the easy way to push the economy up and down.

This recovery has been the work of Keynesian stimulus, the hard work of employees/managers making the best of things, and the unfailing consumer -- with the ambition, optimism, and courage to ride out these storm visions (created by the intellectuals and the media).

Fed, and Central Banks around the world, please keep short-term interest rates above the risk-adjusted real rate. Stop the asset bubbles. The "quantitative easing" was good. Let's funnel the money directly to companies and consumers -- purchase of commercial paper, policy banks that support exports and research and investments, subsidies like cash for clunkers that have a multiplier effect on spending.

Clearly, many benefit from the ups and downs of the markets (and perhaps economies). I think real people benefits from low volatility, low transition cost -- a steady opportunity for people to better their lot in life.

And the Fed should work for the real people.