Comments on: So Now We Know . . .

By: More Reactions to the New Bailout Plan - Economix Blog - NYTimes.com

More Reactions to the New Bailout Plan - Economix Blog - NYTimes.com — Wed, 11 Feb 2009 20:16:25 +0000

[...] James Kwak, The Baseline Scenario: “I’m not a huge fan of executive compensation caps, as I think they are something of a sideshow. But I think the general approach of playing nice with banks and their shareholders is a mistake, because it leads to intransparent subsidies like the privately-financed bad bank is sure to be.” [...]

By: Ron Abate

Ron Abate — Wed, 11 Feb 2009 05:22:05 +0000

I think we can all be kind of glib about our solutions because we don’t have to make the decisions and don’t have to live with the consequences. Letting two or three major international banks fail (Swedish banks had nowhere near the international exposure and Sweden is not America) could unleash market psychology consequences that are unknown and maybe more devastating than allowing the banks to continue in business and work through their problems, which are now also the consequence of a rapidly deteriorating economy that very few predicted.

Frankly, except for a very few of us, every American contributed to the current situation by living for years well above their means. We are as much to blame for the current crisis — by over borrowing, by over leveraged investments, and by the poor lifestyle choices we have made — as the bankers, who essentially gave us what we wanted.

Government also is to blame. Not only did it not properly regulate, it encouraged and even demanded lending to poor credits, which contributed to the mortgage problem, and it (at all levels of government) did not manage its own finances in a prudent and conservative way. Our representatives gave us what we wanted. Now we are gong to pay for it.

By: Kong Jie

Kong Jie — Wed, 11 Feb 2009 02:13:51 +0000

Compensation caps as implemented are so porous anyone can get around them. To be serious about a cap, you not only fix a number, but also the type of compensation allowed.

For example: $1 million, salary compensation only, 30% of which is performance-based. No options, stock, benefits or gifts allowed. You want a chauffeur, a golf membership, a nice apartment? Pay for it out of your own salary. You want stock? Buy it yourself. To do any less would be like pinching one end of a balloon. And even with this, I’m not sure that people won’t eventually find a loophole.

The rest of the plan is just too vague. If they haven’t worked out the details, they shouldn’t have bothered to announce it. It doesn’t just disappoint the market, it saps confidence in the government’s competence.

By: Stefan

Stefan — Tue, 10 Feb 2009 23:21:44 +0000

Here’s the problem: Nobody knows what anything is worth right now. Do you know what your house is worth? Probably not. How could you? Have you tried to sell it lately? Find any comers? It’s not worth half of what you paid, if you bought it in the last 5 years. Americans are going to have to get used to the fact that we are only half as wealthy as we thought we were a year ago. Our standard of living must decline precipitously, in equal measure.

And so it is with the banks. Monetary value can only exist in a market where there is a buyer and a seller. Banks can just “hang out” and wait for the market to recover. But our economy cannot wait until then for our credit markets to re-open. The best thing that can happen now is rapid failure, where values promptly reach a bottom. Then we can all begin to rebuild together from there. Decisiveness requires political backbone.

By: Geoffrey Morton-Haworth

Geoffrey Morton-Haworth — Tue, 10 Feb 2009 21:27:58 +0000

The market reaction says it all. The deeper you see the more you trust – so fudging reassures no one. Only specific action to address local issues can be credible.

By: Vidal

Vidal — Tue, 10 Feb 2009 20:06:08 +0000

Why would one political party reject “the programs” if it’s essentially the same package from a republican administration forwarded by a democratic one?

I think the reason why we have similar stimulus packages is because essentially mainstream/powerful economists are pushing for very laissez-faire, don’t manage the banks, policy prescription. It’s partly a reaction to political realities regarding the banking system, an irrational fear of “socialism” along with a prevailing economic paradigm also fearful/weary of government intervention.

By: Charles R. Williams

Charles R. Williams — Tue, 10 Feb 2009 19:01:16 +0000

This is insane. Axelrod wants to put the bankers in stocks and throw rotten tomatoes at them and put a couple trillion in their back pockets to manage as they see fit. Geithner wants to be nice to them and put a couple trillion in their hands to manage as they see fit. This is nothing but the Bush-Paulson plan increased in size by an order of magnitude and covered over with a veneer of slick public relations and “transparency.” A catastrophe for the American taxpayer and, combined with a permanent expansion of government masked as economic stimulus, a prescription for a decade-long recession.

How does this differ from what the Japanese did in the nineties? The Japanese economy could afford it but ours cannot.

Let us hope the Congress balks and if these programs go forward let us hope that at least one political party unanimously rejects it.

By: KnotRP

KnotRP — Tue, 10 Feb 2009 17:25:01 +0000

> I’m not a huge fan of executive compensation caps, as I think they are something of a sideshow.

The DRIVING FORCE of all this is somehow a sideshow?!?!?!?
Incentives drive behavior. We have the mess we have because of the incentive system….if we treat it as a side show, we’ll be filling the hole while the executives continue digging
themselves a gold mine.

By: Luis Enrique

Luis Enrique — Tue, 10 Feb 2009 16:34:50 +0000

Can you think of any reasons why it might make sense for somebody in Geithner’s position do come up with something weaker than you’d like, at first glance? I’m not sure (which is why I’m asking you) but perhaps, for example, if he came down too heavily the private sector response would be unhelpful. I’m thinking of possibilities like groups of traders quitting and getting some private backing to start up new brokers, or M&A guys leaving to set up new M&A boutiques, and this taking business away from all these banks who now owe the taxpayer billions. I’m not sure if these possibilities I’ve dreamt up make any sense, but that’s not so important – what I’m getting at is that people in the industry may have been telling Geithner “if you screw us too hard, we’re going to do … [whatever]“. I guess what I mean is, that if we were thinking in principle agent terms, he has to have everybody’s incentive compatibility constraint in mind, and that might mean going easier on the banks than might otherwise seem desirable.