We Need to Cap Banker Pay at a Really Low Level!

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I hope you read the piece below about banker’s pay.  You might disagree, but it’s important to think about.




Now on to what I read…




1. Markets

Back in black! The Dow rose 47 points, putting it in the black for the year.  Disney, Coke and Boeing were all upgraded by large banks.  In addition, the weekly jobless claims number was good.




Everyone is waiting for Friday’s employment numbers. The rate is expected to increase from 9.7% to 9.8% and the median forecast is for a loss of 25K – 75K jobs (depending on who is doing the survey).  I’ll be writing about the report on Monday.




Greece is offering approximately $6.7 billion of ten-year bonds.  There was heavy bidding on the offering.  The yield is approximately 6.3%.  This is approximately 3% higher than the benchmark risk-free mid-swaps rate.  It is a 3.26% premium over ten year German bonds.




2. Economy

There was contrasting economic data released on Thursday. The weekly jobless claims number was lower than the prior week.  There was some fear that this number was going to go back over 500K.  Instead it was 469K.  But, unit labor costs declined in Q4 – indicating no inflation fears and maybe no purchasing power for consumers.  The ten-year note increased 4.32 to yield 3.61%.




The weekly jobless claims number. Initial jobless claims was 469K, a 29K decrease from the 498K reported last week.  The four-week moving average is just under 471K.




Labor productivity increased at a 6.9% annual rate during Q4. This was a 7.6% increase in output, but .6% more hours were worked.

From Q4 2008 to Q4 2009, productivity increased 5.8% (output declined .2% and hours fell 5.7%).

Unit labor costs fell 5.9% in Q4.  This means productivity increased faster than compensation.  Unit labor costs fell 4.7% from a year ago.  This is the largest four-quarter drop since the data has been collected (1948).




New orders for manufactured goods were up 1.7%. Excluding transportation, orders increased .1%.  New orders have increased nine of the last ten months.




Good same store sales. Comparable store sales at retailers increased 4% for 28 companies.  This was the best report in six months.  In addition, approximately 82% of retailers beat earnings expectations.  It helped to keep inventories low – fewer markdowns.  Interestingly, Destination Maternity had a 9.3% drop in February sales.  I’m wondering if that means couples are not having babies because of the recession or women are buying their stretch pants elsewhere.  I’m pretty sure that if I keep sitting in front of this computer, I’m also going to need some stretch pants.




What a shock – the FHA may be in trouble. Some economists from the NY Fed and NYU say that the FHA is in worse shape than they are letting on.  The study authors said that approximately 40% of mortgages insured by the FHA are under water and as many as 14% may be at least 15% under water.  The FHA estimates that at 6%.  While we don’t know that this study is correct, the FHA has taken its market shares from 2% to 25% — and that in itself creates risk.




3. Politics

The jobs bill. The House voted 217 – 201 for a $15 billion jobs bill.  Now, the Senate must approve the bill.  This is the bill which gives a payroll tax credit to employers who hire people who have been unemployed for at least two months.  Separately, the Senate is currently working on a bill to renew tax cuts and provide emergency assistance for the unemployed.




Too big to fail? The TARP oversight panel said that it was clear that the markets believe that some financial institutions are too big to fail.  A Treasury Department representative said that there is no guarantee for these institutions.  Of course, the market temporarily lost the belief in the government backstop after Lehman failed – and that didn’t work out that well.  Unfortunately, I’m not sure that “too big to fail” is a bad thing if we’re going to have companies that create systemic risk.




4. Lets Bring Back the Robber Barons

I read a really interesting article today, “Lets Bring Back the Robber Barons.”  I’ve put the link below.  The basic idea was that we need the entrepreneurs who develop new products that create new jobs (“Market Entrepreneurs”).  We don’t need the “Political Entrepreneurs” – those people who game the political system to make a fortune as the result of government subsidies.  We can’t think badly of these people who get filthy rich – they will benefit society along the way.




Three paragraphs from the bottom, the author wrote something that I didn’t understand.  He transitioned (or didn’t transition?) into talking about Sheila Blair (FDIC Chief) attacking bank bonuses.  It seems that the author was arguing that we can’t worry that a few people are going to get filthy rich (like the robber barons) – because those are the people who will create jobs.




I don’t know if I misunderstood the author, as I believe he was saying that the bankers are just a necessary by-product of the robber baron attitude that we need.  I thought that this was hilarious, since the bankers really fall into the category of “Political Entreprenurs” (as described by the author) rather than “Market Entrepreneurs.”  Regardless, let me give you a totally different spin.  I agree with the author’s sentiment on the robber barons, but I completely disagree with the thought that the bankers are just a necessary by-product.




As a general rule, bankers are smart guys (and they are mostly guys) who are hard working, ambitious and love money.  And there’s nothing at all wrong with any of  that.  The problem is that we’ve got these smart, ambitious people working in a profession that creates very little value for our society.  What if bankers were not allowed to make more than $250K / year in the US?  What would happen?  Most of these people would find a way to make oodles of money elsewhere.  They would start businesses and create jobs.  If we lost share to the Europeans and the Asians in banking…the joke would be on them in the long-term.  We’d be creating companies and value.




We have a real problem in this country.  So many of our smartest people are either working on transactions (M&A, trading, etc.) at banks or fighting over scraps (lawyers at law firms).  It’s a total waste of brainpower and ambition.  We need these people doing something useful.




Maybe the way to promote capitalism is to force these guys to actually do something valuable.  I want people to get rich – but do it by creating value for society.  One of the funny things in life is that sometimes things are the exact opposite of what we expect.  Maybe the greatest move towards capitalism would be to regulate salaries.

http://www.realclearmarkets.com/articles/2010/03/04/bring_back_the_robber_barons_98370.html




5. Random

What a messed up world we live in. The House Foreign Affairs Committee endorsed a resolution (by a 23-22 vote) declaring the Ottoman-era killing of Armenians to be genocide.  This happened almost 100 years ago!  Turkey immediately recalled their ambassador from Washington.  Just to be clear…Obama was against this and tried to stop it and when George W. was in office he was also opposed to this.  This is your Congress at work.  (Of course, it may be that I’m just sympathetic to Turkey because I’m still hearing about things that I did wrong when Jenny and I were dating.  That was also almost 100 years ago.)




I’ve written three pages and I haven’t mentioned the Chinese government. Three officials from the Chinese company that sold tainted milk were sentenced to close to five years in jail.  The irony is that the alleged culprits received a shorter sentence than some activists who have complained about the government’s reaction to this disaster.
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