Cafe Hayek - Latest Comments in A little perspective

Re: A little perspective

Crusader — Sat, 21 Mar 2009 09:57:29 -0000

BTW, as a programmer I know that all this funny money is just some values in a database. All you have to do is go make an UPDATE query and POOF another trillion! Yay for hi-technology!

Re: A little perspective

Martin Brock — Fri, 20 Mar 2009 19:52:14 -0000

I've explained ad nauseum why it makes more sense to use the old team than bring in a new team. You choose to ignore it and I see no upside in explaining yet again.

I choose not to take for granted your nauseating rationalization for handing out these bonuses to officers of corporations receiving billions from taxpayers after "investing" billions in "troubled assets".

Re: A little perspective

Martin Brock — Fri, 20 Mar 2009 19:46:01 -0000

So, if you earn, say, $500K running your own non-TARP funded business and your spouse makes $80K working for a bank, the government will confiscate an additional $297K of the money you earned running your business ...

If you earn, say, $500K running your own non-TARP funded business and your spouse makes $80K working for a bank and your spouse received a $330k bonus from the trillions dolled out to banks by taxpayers, the government will confiscate $297K of the money dolled out ...

Just wanted to insert that little detail, since you inadvertently omitted it.

Re: A little perspective

Methinks — Fri, 20 Mar 2009 10:49:29 -0000

You can start learning our new national anthem here.

Re: A little perspective

Methinks — Fri, 20 Mar 2009 10:39:35 -0000

Actually, this is much worse than it sounds.

The bill levies the 90% tax on HOUSEHOLDS earning in excess of $250K.

So, if you earn, say, $500K running your own non-TARP funded business and your spouse makes $80K working for a bank, the government will confiscate an additional $297K of the money you earned running your business over and above the normal income tax levied on the first $250K. Nah, that'll have no incentive effect.

Wage caps are here.

Re: A little perspective

Mike Laursen — Fri, 20 Mar 2009 09:12:11 -0000

When considering questions of constitutionality, I couldn't care less about these AIG "innocent victims". I'm worried about the precedent. I'm worried about who will be targeted next time.

Re: A little perspective

John — Fri, 20 Mar 2009 08:38:17 -0000

There are no Fourth Amendment rights, they've been superseded by the Drug War.

Re: A little perspective

Methinks — Fri, 20 Mar 2009 08:33:01 -0000

Martin,

There's a reason I used "cash flow" & "P&L" instead of "revenue". You obviously required an explanation of my analogy. I provided a very detailed one.

You don't have a clue what a CDS is. I have no idea what you're ranting about now as I have no idea what a "CDF" is. And it's pretty clear that you don't know how those books are run, so your posturing and righteous indignation rings...how did you put it? HOLLOW.

Why pay a bonus ahead of any evidence supporting this presumption?

If you'd bothered to read...they normally don't. But, in a bankrupt company their is no upside for the traders and other employees (who did NOT make the decisions that ultimately brought down AIG but executed based on the parameters set for them by AIG risk management which, in turn, took their orders from upper management). There is, however, PLENTY of downside. There is a huge incentive for them to leave. AIG would have to pay them the non-existent upside to get them to stay long enough to unwind the business. They did this with the government's blessing as Treasury approved the contracts. If they wanted a new team, they should have let the old one go. Good luck getting a new team to come in for less money, but that's not my problem. What the government did was pull a bait and switch. That is a problem which has implications for future contracts with TARP firms.

I've explained ad nauseum why it makes more sense to use the old team than bring in a new team. You choose to ignore it and I see no upside in explaining yet again.

AIG isn't receiving hundreds of billions in order to avoid the collapse of their company. The company is collapsed, Martin. It insured fixed income instruments at par and didn't have enough capital to pay out par. so, it should have gone bankrupt. Instead, our friendly Mafia stepped in to pay out par with your money and mine. Instead of the counterparty taking the 60% hit on the insured assets, you and I are. The traders did not make this critical decision to undercapitalize the operations. Scapegoating them may be emotionally satisfying, but your anger would be more accurately directed toward the band of thugs that forced you to eat a loss on a contract you didn't enter into.

Incidentally, I don't really care if you think $250K is a reasonable payment to you. Upon reflection, I think that you would agree that your uninformed opinion about the value of these people's labour is entirely irrelevant.

Re: A little perspective

Randy — Fri, 20 Mar 2009 08:22:23 -0000

"Ignoring the role of actors in the "private sector" is absurd."

The first step in solving a problem is to define the problem. The problem is Fascism. How do we solve Fascism? Kill the roots and the tendrils will whither.

Re: A little perspective

Superheater — Fri, 20 Mar 2009 08:18:22 -0000

"It's not a bill of attainder regardless, because it doesn't declare anyone criminal. It only declares them obliged to transfer money to the state, in this case money the state first transfered to a corporation owned by the state that in turn transferred it to them."

Oh, so it merely violates their fourth amendment rights against unreasonable search and seizure. I feel so much better.

Re: A little perspective

John — Fri, 20 Mar 2009 07:41:37 -0000

Like ex post facto matters. Not that I have any sympathy for sex offenders, but forcing these people to register onto a registry that didn't exist when they were convicted certainly constitutes ex post facto. However nobody cares because sex offenders are considered sub-human.

Same thing with these bonuses, Constitution be damned as long as we get our revenge.

Though the bonuses are nothing but a red herring to distract us from the tens of billions of dollars funneled to foreign banks and other institutions (which I'm sure are giving out much bigger bonuses than AIG).

Re: A little perspective

Robert Semmes — Fri, 20 Mar 2009 07:30:03 -0000

Even if it isn't a bill of attainder, it is an ex post facto law, right?

Re: A little perspective

Martin Brock — Fri, 20 Mar 2009 07:28:44 -0000

But it's not on display only in the Congress and the Whitehouse. Ignoring the role of actors in the "private sector" is absurd. This problem didn't begin last year when Congress handed Paulson the reigns to a trillion dollar bailout bandwagon. It has been going on since the day I was born and for ages before that.

Re: A little perspective

Randy — Fri, 20 Mar 2009 06:19:53 -0000

What concerns me, Martin, is the blatant fascism on display in the Congress and the Whitehouse. Without that AIG would already be history.

Re: A little perspective

Martin Brock — Fri, 20 Mar 2009 06:05:22 -0000

Seriously, I can't believe that anyone still thinks the serious issue here is whether or not these traders should be getting bonuses.

It's not. Again, I'd be happier if AIG burned every dollar it has received from the TARP and Fed "systemic crisis management" programs, literally burn the dollars, if their paper, erase them if they're bits, remove them from existence.

I don't understand why you think the "innocent victims" in this political drama are officers of this quasi-private, fascist enterprise promising themselves millions of dollars guaranteed by taxpayers as a reward for taking billions of dollars guaranteed by taxpayers and handing it to counterparties in their scheme to create "market investment" returns for wealthy individuals and corporations, like state and corporate pension funds, as well as foreign banks holding the "assets" of other wealthy individuals and corporations, like foreign state and corporate pension funds. Why is that?

Re: A little perspective

Martin Brock — Fri, 20 Mar 2009 05:57:28 -0000

So, is the US Government no longer required to pay its debts?

Personally, I'd like to see the U.S. Government renege on many of its debts; otherwise, my children and I must pay them. A bunch of armed men promise to pay themselves lots of cash, and their promises are automatically sacrosanct? When did this position become "libertarian"?

Re: A little perspective

Mike Laursen — Fri, 20 Mar 2009 05:43:35 -0000

Your standard for whether the Constitution has to be followed is how you feel about it? Hmm, come to think about it, that's how many in Congress deal with constitutionality.

Re: A little perspective

Randy — Fri, 20 Mar 2009 05:30:26 -0000

So, is the US Government no longer required to pay its debts? These people were/are US government employees. The congressmen themselves have stated this to be the case repeatedly. They were/are performing on the contract, and now the employer, the US government, is refusing to pay them in accordance with the terms of the contract.

Seriously, I can't believe that anyone still thinks the serious issue here is whether or not these traders should be getting bonuses.

Re: A little perspective

Martin Brock — Fri, 20 Mar 2009 03:24:51 -0000

... I find it unreasonable for the political class to subject these individuals to this kind of confiscation while they simultaneously enable these same companies to continue paying off creditors.

I find it incredible to call the CEO of AIG "outside of the political class".

And if being titled "CEO of AIG" places someone inside of the political class, so that his taxpayer financed, million dollar bonus is not properly titled "this kind of confiscation", I suppose the guys who want million dollar bonuses financed by taxpayers must title themselves otherwise.

Re: A little perspective

Martin Brock — Fri, 20 Mar 2009 03:10:17 -0000

How is an AIG contractor different from a road construction worker contracted to work on a taxpayer-financed highway?

Well, for one thing, I can't name a single "road construction worker" who has ever received a million dollar bonus. That is a difference. If we're only handing these AIG contractors some welfare checks while their company collapses until they find a better offer, maybe the checks valuably satisfy our Christian sentimentality or something, but do we really need to make AIG's contractors, specifically, into millionaires in a single year?

How much better does that really make me feel? A million dollars' worth? That's a hell of lot of sentiment I'm suppose to have for the welfare queens of the finance-industrial complex. Are we so sentimental over guys who have their legs blown off in Iraq?

Re: A little perspective

Mike Laursen — Thu, 19 Mar 2009 21:44:05 -0000

So any transfer from taxpayers that anyone receives is "their labor" as long as a statesman or some intermediary signs a contract? That's what "labor" means now?

Well stated. In fact, you've succinctly stated one of the arguments the cheated AIG contractors should make: How is an AIG contractor different from a road construction worker contracted to work on a taxpayer-financed highway?

Re: A little perspective

Martin Brock — Thu, 19 Mar 2009 20:59:49 -0000

Their labor has simply been confiscated.

So any transfer from taxpayers that anyone receives is "their labor" as long as a statesman or some intermediary signs a contract? That's what "labor" means now?

Re: A little perspective

Martin Brock — Thu, 19 Mar 2009 20:53:55 -0000

Those traders are not going to receive anything resembling the normal cut of their P&L, but now you're saying they shouldn't be paid at all?

No. The only issue we're discussing is an excise tax on bonus payments to employees with income exceeding $250,000 of banks receiving more than $5 billion from the state. And if banks want to opt out of this requirement, they can return the bailout money. How does this tax result in anyone not being paid at all? Most people have a hard time understanding how a $250,000 annual income is not being paid at all.

Re: A little perspective

Martin Brock — Thu, 19 Mar 2009 20:46:28 -0000

Would you pay $10MM for him to generate $30MM of cash flow?

I'd pay him a dollar to generate $30MM of cash flow if possible, and I hope I'm paying for profits and not simply for cash flow. Cash flow can be unprofitable, in which case paying for more of it seems counterproductive.

Generating huge cash flow this year by selling CDFs that require much greater payouts next year, because the CDFs underestimate risk, doesn't seem to merit any bonus. Maybe waiting to see if the CDFs really have estimated default risks profitably is a better strategy.

You would if without him you would not net at least $20MM and another employer is bidding close to $10MM for him.

Right. That's a question though. I don't presume the answer. I don't presume that a particular trader, or a leader of a team of traders, and only this particular trader or leader, can generate a particular cash flow profitably. Why pay a bonus ahead of any evidence supporting this presumption?

He would not work for you if you didn't pay him at least the market rate.

These assertions are tautological, but you don't provide any evidence for the underlying assumptions. We aren't discussing a massively profitable company. We're discussing a company receiving hundreds of billions of dollars from the state to avoid a "systemic meltdown".

Here's what I actually know. Some guys are saying that, having now received the hundreds of billions of dollars needed to avoid the collapse of their company, they really need to pocket millions themselves. I don't actually know that particular persons, and only these particular persons, can generate the profitable cash flow. I only know that you pose this hypothetical.

Re: A little perspective

Methinks — Thu, 19 Mar 2009 19:28:11 -0000

"nominal salary" is your term. "waiter [working] for $3/hour base comp" is your analogy. If I made you from straw, I must be a very gifted artist, lovely lady.

Sigh.

When you pay a trader, you're essentially buying the cash flow he generates - his P&L. You're just purchasing a stream of cash flows, just as with any other asset. The market bids for the trader's expected profit. Would you pay $10MM for him to generate $30MM of cash flow? You would if without him you would not net at least $20MM and another employer is bidding close to $10MM for him. He would not work for you if you didn't pay him at least the market rate.

However, to variabalize your costs, you would pay him $150K base salary and the rest in bonus (which will be directly tied to and vary with his P&L, of course). $150K relative to a $10MM expectancy is "nominal". He would never agree to work for you for $150K because his market value is much higher.

You can think of it as a sales person working on commission with a nominal salary if you don't like the waiter analogy. Don't get your knickers in a twist because the numbers are bigger.

Now that we have that straight, back to AIG...the guys they are trying to retain to wind down the business may have been good traders with high market values who were subject to the decisions of upper management. That happens all the time in fixed income derivatives because these trades are too complicated for one trader to perform and make all the decisions. There are usually several traders and a couple of quants pricing any one contract. The risk management - how much they are willing to do and with which counterparty is done much higher up in the firm. That's not up to the trading group. Of course, the traders may NOT have been the creme de la creme but AIG needed them more than they needed AIG at that point, so AIG paid up to get them to agree to stay and unwind the book.

They should have just left. And I bet they wish they had.

just to cut you off at the pass, - yes, they have places to go. All traders lose money and unless the money was lost through fraud, no potential employer would refuse to hire them on that basis.

Another point, of course, is that other than AIG, many trading operations within banks made a lot of money for the banks last year - particularly equity derivatives. The banks lost money everywhere else. Those traders are not going to receive anything resembling the normal cut of their P&L, but now you're saying they shouldn't be paid at all? Fine, next year they won't be at an American TARPed out bank to generate the P&L and I'm sure that the majority of outraged Americans truly believe that will make them better off.