tag:blogger.com,1999:blog-170019522024-03-07T22:00:31.269-05:00ProxylandCorporate governance and other oxymoronsUnknownnoreply@blogger.comBlogger186125tag:blogger.com,1999:blog-17001952.post-61709321293101755642009-03-06T13:01:00.001-05:002009-03-25T10:46:39.143-04:00One Blog Closes, Another Opens<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj89iunWwQR8WlOrvE0_pnOa_2bx1ZdyehhcOGV-IizMqfE4CGFOZbpowHmGj_0zjd_9NImr-t6GgyLZmJ6NsnMXRrDFQba__jvXvzcYEFKVRj1DnvEjhajqAERJ49SObRCFFX1/s1600-h/images.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 140px; height: 93px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj89iunWwQR8WlOrvE0_pnOa_2bx1ZdyehhcOGV-IizMqfE4CGFOZbpowHmGj_0zjd_9NImr-t6GgyLZmJ6NsnMXRrDFQba__jvXvzcYEFKVRj1DnvEjhajqAERJ49SObRCFFX1/s320/images.jpg" alt="" id="BLOGGER_PHOTO_ID_5309407199045824290" border="0" /></a><br /><br /><br /><br />Big news, dear readers.<br /><br />Today I’m bidding a bittersweet farewell to <em>Proxyland</em> and launching a new blog called <a style="font-style: italic;" href="http://www.thebigdo-over.com/">The Big Do-Over: Fixing Financial Regulation.</a><br /><br />Why would anyone leave Proxyland, with its lush golf courses and private runways? Well, I started this blog back in 2006 because I saw that the folks supposedly monitoring America's boardrooms and C-suites (institutional investors, regulators and the mainstream media) suffered from an acute cynicism deficiency. Since they don’t sell cynicism supplements at The Vitamin Shop, I thought I’d take my personal surplus of the stuff and dole it out here for a while. It’s turned out to be a fascinating gig, though I’m slightly disappointed that I failed to save the world.<br /><br />Here in March of 2009, the Cynicism Index is moving in an inverse relationship to the Dow, our 401(k)s, and everything else that we so desperately wish would go the hell up. So there's not much point in sitting here and cracking wise about the fact that corporate governance is an oxymoron. Everyone GETS IT now, and there’s tons of good writing out there that hammers the point home, day after day.<br /><br />So I'm taking the next flight out of Proxyland, though the archives will remain here for as long as Blogger.com says it’s OK.<br /><br />Meanwhile, the rough beast called financial regulation, its hour come round at last, will be slouching over to <a href="http://www.thebigdo-over.com/"><span style="font-style: italic;">The Big Do-Over</span></a>. I hope you'll put on a ratty bathrobe and slouch along with us. Pretty please, with my underemployment on top? (As an enticement, I'm serving virtual donuts on the new site.)<br /><br />Many of the topics I've covered here, including executive compensation and corporate governance, will pop up frequently on <span style="font-style: italic;">The Big Do-Over</span>, since no doubt they'll be the subject of who knows how many brilliant regulatory proposals.<br /><br />Here's my <a href="http://www.thebigdo-over.com/2009/03/hi-and-welcome-to-big-do-over.html">first post </a>on the new blog.<br /><br />Many thanks - and a zillion billion virtual stock options - to everyone who’s ever visited Proxyland!<br /><br /><span style="font-size:85%;"><span style="font-style: italic;">image credit: wendyswizardofoz.com (no relation)</span></span>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-17001952.post-46585040262527919562009-02-17T12:27:00.026-05:002009-02-18T07:14:38.565-05:00Stimulus Plan Attacks Executive Compensation: Stay Tuned<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjteAK03TMDQCMFAspG-u6Id6YAojwz4vmRyfGnjuQmAdBksfdrPihTDUba-Se0-jwtpujjfTwxuviy0T9Z_8n3AldUZ-_z7em0N714nuDfky1w96jY4BCf8047EVvcYMECscK9/s1600-h/ufo.jpg"><img id="BLOGGER_PHOTO_ID_5303823581652396786" style="margin: 0px 10px 10px 0px; float: left; width: 124px; height: 124px;" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjteAK03TMDQCMFAspG-u6Id6YAojwz4vmRyfGnjuQmAdBksfdrPihTDUba-Se0-jwtpujjfTwxuviy0T9Z_8n3AldUZ-_z7em0N714nuDfky1w96jY4BCf8047EVvcYMECscK9/s320/ufo.jpg" border="0" /></a><br /><div><br /><br /><br />Everyone knows about the <a href="http://news.yahoo.com/s/ap/20090216/ap_on_sc/falling_debris">freaky fireball </a>that plummeted through the Texas sky last weekend. In an unrelated development, a fireball suddenly appeared in the skies over Proxyland on Friday. That one, however, has been identified: it’s Title VII of the <a href="http://www.rules.house.gov/bills_details.aspx?NewsID=4149">stimulus bill</a>, and it’s zooming straight toward Wall Street’s compensation structure.<br /><br />The administration, stunned by the amount of heat Congress packed into these compensation provisions, would like to tone them down. But as <a href="http://www.foxnews.com/politics/first100days/2009/02/15/white-house-considers-changes-executive-pay-limits-outlined-stimulus/">Fox News gleefully reported</a>, Barney Frank doesn’t want to negotiate. “<em>This is not, frankly, the Bush administration, where they're going to issue a signing statement and refuse to enforce it</em>,” Frank said. “<em>They will enforce it</em>.”<br /><br />It’s long been obvious that our entrenched executive compensation culture is every bit as crazy as that poor Nadya Suleman. And like Nadya, it doesn’t realize how nutty it looks to the rest of us. So you can't blame Congress for trying to put an end to the insanity. Politically, this is a no-brainer: how can elected officials - after appropriating billions in taxpayer money to save mismanaged banks - stand by and do nothing while those banks assert their inalienable right to bonuses?<br /><br />This doesn’t mean the route Congress chose, which essentially bans TARP takers from paying any incentive compensation except restricted stock, is the right one, or that it will have the desired effect. (Harvard’s <a href="http://online.wsj.com/article/SB123483031127995587.html">Lucian Bebchuk </a>– a prominent critic of public company compensation – fretted over the bill’s structural flaws in an opinion piece in yesterday’s <em>Wall Street Journal</em>.)<br /><br />Yes, Congress is wielding some awfully blunt instruments here, and that’s a bit scary. (It would have been fun to see them test out the <a href="http://proxyland.blogspot.com/2009/02/let-us-now-praise-ubs-home-of-malus.html">“malus” approach</a>, which could foster a much-needed multi-year approach to compensation.) Also, the legislation could fall victim to loopholes. Or, as those on the Street predict, maybe all of the “talent” will stream out the door, and it’ll turn out that we actually miss them.<br /><br />But here’s the part that fascinates me. This country is on the verge of conducting a simple experiment, one the private sector would never have gotten around to on its own: <strong>Pay senior executives less, and see what happens</strong>. The truth is that no one has the faintest idea how this will work out. Maybe aliens will invade and the world will swiftly end. Or maybe, just maybe, companies will end up being better run, and good things will happen<br /><br /><br /><em><span style="font-size:85%;">Image source: anomalymagazine.com</span></em></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-29417081523783948442009-02-11T11:10:00.018-05:002009-02-11T12:00:04.198-05:00Geithner's Financial Stability Plan, Or Whatever<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj74-YKPAxNF4EFxM4Mo-6q1ebbo81aH7rUoW6Xift6M4jB8HcDv-wvXzz_4322acGPGTtcyKlSVfkLN-1IUiEorZbKCi6Wsk3zzGjTKyijMIGhxXOjPUaqv28WjNxogR81MCMd/s1600-h/stick+shift.jpg"><img id="BLOGGER_PHOTO_ID_5301574886191448946" style="margin: 0px 10px 10px 0px; float: left; width: 95px; height: 96px;" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj74-YKPAxNF4EFxM4Mo-6q1ebbo81aH7rUoW6Xift6M4jB8HcDv-wvXzz_4322acGPGTtcyKlSVfkLN-1IUiEorZbKCi6Wsk3zzGjTKyijMIGhxXOjPUaqv28WjNxogR81MCMd/s320/stick+shift.jpg" border="0" /></a><br /><br /><br /><br />C’mon now, everyone. Cheer up. At least Tim Geithner is easier on the eyes than Hank Paulson, whose face seemed to have the words “we’re all gonna die” written on it no matter what he was saying.<br /><br />Yesterday's stock market plunge, everyone says, was about the plan’s vagueness and skimpiness and not its content. As we’ve all heard a gazillion times, the markets yearn for certainty, which the administration cluelessly dangled but didn’t deliver. Still, I wish the markets would just grow up and accept the fact that certainty, which seems to have been an illusion anyway, has packed up and moved to an undisclosed location. Somewhere in outer Brooklyn, is what I’m hearing.<br /><br />There are things to like in this "not-yet-a-plan" <a href="http://www.financialstability.gov/docs/fact-sheet.pdf">Financial Stability Plan</a>. While the bad bank idea presents huge practical issues – the difficulty of <a href="http://proxyland.blogspot.com/2008/09/bailout-vigil-day-6-or-7.html">pricing crappy assets</a> tops the list – I’m inclined to support it because <a href="http://www.amazon.com/Trillion-Dollar-Meltdown-Rollers-Credit/dp/1586485636">Trillion-Dollar Meltdown </a>author <a href="http://www.propublica.org/article/talking-with-the-trillion-dollar-meltdowns-charles-morris-109">Charles Morris</a> said something nice about it in an interview back in October. I've heard this guy speak, and if there's such a thing as a wise man, he's it. (Another thing Morris said in that interview, by the way, was this: "<em>In the real world, this is going to be a total mess no matter how it's done. Government is a very blunt instrument</em>.")<br /><br />Also, I think Geithner genuinely understands that the government's actions need to be a lot more consistent and predictable. Under Paulson, the TARP bore an uncanny resemblance to me driving a stick shift: lurching, stalling, grinding the gears and generally frightening everyone else off the road. Transparency is crucial, too; it's encouraging that, as <a href="http://bailoutsleuth.com/">BailoutSleuth</a> noted today, Geithner has begun to publish reasons why Bank X, Y or Z got TARP money.<br /><br />A less encouraging thing is that a click on the webcast link posted on the new <a href="http://www.financialstability.gov/">Financial Stability website </a>brings up not Geithner’s speech, but a video of some Hank Paulson press conference from last December. Well, maybe we’re all gonna die after all.<br /><br /><em><span style="font-size:85%;">Image source: forums.tannerworld.com</span></em>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-4143199452367761002009-02-10T09:36:00.020-05:002009-02-10T16:53:59.710-05:00Home Is Where the TARP Is, John Mack Discovers<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFt3LUtLSh-2NYuUw7K55oB5bHFoThB3y6PLx4zW7WLHcc-8OUnzPHAunrmZ-pC6mLSJmxHiY241BtzenmpDBYAvx-nIlHEvXFmcfgjP077voRZJEM2mfs9E7uMeFhC_n5e-aF/s1600-h/kirstendunst.jpg"><img id="BLOGGER_PHOTO_ID_5301185460647839234" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 93px; HEIGHT: 124px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFt3LUtLSh-2NYuUw7K55oB5bHFoThB3y6PLx4zW7WLHcc-8OUnzPHAunrmZ-pC6mLSJmxHiY241BtzenmpDBYAvx-nIlHEvXFmcfgjP077voRZJEM2mfs9E7uMeFhC_n5e-aF/s320/kirstendunst.jpg" border="0" /></a><br /><br /><br /><br />Word has it that <a href="http://finance.google.com/finance?q=NYSE%3AMS">Morgan Stanley </a>wants to break up with the Treasury Department <a href="http://www.marketwatch.com/news/story/Morgan-Stanley-CEO-looks-repay/story.aspx?guid=%7B3E4F64E0-CAC6-48BC-B752-5DB02B1C5F0D%7D">by returning all the money</a> it got under the TARP Capital Purchase Program. Perhaps demonstrations by a housing group called <a href="https://www.naca.com/index_main.jsp">NACA</a> are helping Morgan Stanley's CEO, John Mack, fall out of love with the $10 billion he got from Hank Paulson.<br /><br />Last weekend <a href="http://cityfile.com/dailyfile/4311">NACA protestors visited Mack's home in Rye, New York</a>, chanting and sporting T-shirts that said, "<em>Shame On You, CEO</em>." Despite the fact that this slogan doesn't even rhyme - (I suggest "<em>Yo, CEO! Your bonus must go</em>!") - I suspect this unpleasantness will make Mr. Mack even more anxious to yank the Marie Antoinette wig off his head and give it back to Kirsten Dunst, who looked damn cute in it in that movie.<br /><br />Much as Morgan Stanley would like to throw the money back at the Treasury Department like a woman hurling her engagement ring at her ex-fiance, the best Mr. Mack could muster - according to reports from a special shareholder meeting - was a lame statement that they hope to begin paying it off "<em>as soon at it is feasible</em>."<br /><br /><a href="http://finance.google.com/finance?q=NYSE%3AGS">Goldman Sachs </a>feels the same way. Its <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=a3xTcf52kEZM&refer=home">CFO, David Viniar, said so </a>while speaking at a conference last week. Among the TARP features that Goldman isn't crazy about, Viniar hinted, are the executive compensation restrictions (though he termed them "<em>minor</em>," which they still are for most TARP recipients, despite all the fuss). When will Goldman pay back its $10 billion? "<em>As soon as we can</em>," said Viniar.<br /><br />Let's put "<em>as soon as we can</em>" on a T-shirt, and then everyone can wear it when their mortgage lenders or credit card companies request a payment.<br /><br /><span style="FONT-STYLE: italic">p.s.: Since I lacked the foresight to clear today's schedule for Tim Geithner's "</span><span style="FONT-STYLE: italic">moment in the sun</span><span style="FONT-STYLE: italic">," I probably won't post about it until tomorrow, by which time every other human being in North America will have blogged, tweeted, podcast or penned a haiku about the revamped bailout program. Please know that this will not discourage me.</span><br /><br /><em><span style="font-size:85%;">Image source: people.com</span></em>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-17001952.post-45945553176644915462009-02-05T12:50:00.027-05:002009-02-05T22:54:15.569-05:00Let Us Now Praise UBS, Home of the "Malus"<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiePDFmxb2XanaU6MBGje7E1-dfvQGMpFzA9oxwNVVWnEexcksYfuI-9WrB832egOQagVbnLgN7aQCiziXU_wmQochhjK7EAYXeaJAbnr1vLEeNZX1Q_b9zs1AQ2zvAVAR7gtfq/s1600-h/chocolates.jpg"><img id="BLOGGER_PHOTO_ID_5299374968439641378" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 135px; CURSOR: hand; HEIGHT: 124px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiePDFmxb2XanaU6MBGje7E1-dfvQGMpFzA9oxwNVVWnEexcksYfuI-9WrB832egOQagVbnLgN7aQCiziXU_wmQochhjK7EAYXeaJAbnr1vLEeNZX1Q_b9zs1AQ2zvAVAR7gtfq/s320/chocolates.jpg" border="0" /></a><br /><br /><br /><br />The Swiss are different from you and me. At least when it comes to their corporate culture.<br /><br />About a year ago, when <a href="http://finance.google.com/finance?q=VTX%3AUBSN">UBS</a> reported what then seemed like a huge loss, I <a href="http://proxyland.blogspot.com/2008/02/over-there.html">marveled</a> that it used the word “<em>devastating</em>” to describe the state of its mortgage operations. It was hard to picture U.S. firms - which at that point were still blaming everything on "<em><a href="http://proxyland.blogspot.com/2008/01/gone-with-wind.html">headwinds</a></em>" - using such blunt language.<br /><br />And UBS has accepted the need to reform its compensation practices, an attitude we all wish we could locate somewhere on Wall Street. So this seems like a good time to remind everyone about the executive compensation plan the bank announced back in November, which really hasn't gotten the publicity it deserves.<br /><br />The UBS system - how cool is this? - now utilizes “maluses” along with bonuses. As the <em>Times</em> (the British one) <a href="http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5176083.ece">explained</a> last fall:<br /><br />"<em>Just as bonuses (Latin for “good”) are paid out for good performance, maluses (“bad”) will be meted out if the bank subsequently makes losses or if the employee misses performance targets, UBS said. The maluses could wipe out all previously agreed share bonuses and two thirds of all cash bonuses under stringent new rules designed to align the interests of executives and traders with those of shareholders.</em>"<br /><br />A <a href="http://www.forbes.com/2009/02/05/obama-executive-compensation-opinions-contributors_0205_ingo_walter_2.html">nice piece today by Ingo Walter on Forbes.com </a>praises the malus idea. Walter points out that “<em>in good times, the combination of the rising tide and the use of leverage often makes it impossible to tell good traders from bad ones, with most people generating decent to spectacular returns. It is in bad times that the wheat separates from the chaff. This is precisely why compensation should have a multi-year structure, with bad performances subtracting from the bonus pool in the same way that good performances add to it</em>.”<br /><br />Maluses, I'm giddily in love with you. I'm sending you Swiss chocolates for Valentine’s Day.<br /><br /><em><span style="font-size:85%;">Image source: neuchatelchocolates.com</span></em>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-3493304057274445702009-01-30T13:22:00.041-05:002009-01-31T11:05:31.553-05:00Executive Compensation: Real Change, Maybe, Finally?<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOZTA3ZQJQM3MFvfy5Ay3Z7GcslKGvWNFuVy9dcrlbIRrTbHFrIc-Hjn-msfKhU6rMoJSoUvZRj2tR4so66GrSBzMOh0ZuoicIp6zaGfuAZGqiUHWAax1PQ1DdEiKmQrrZb1MR/s1600-h/beyonce.jpg"><img id="BLOGGER_PHOTO_ID_5297159271617557874" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 93px; CURSOR: hand; HEIGHT: 124px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOZTA3ZQJQM3MFvfy5Ay3Z7GcslKGvWNFuVy9dcrlbIRrTbHFrIc-Hjn-msfKhU6rMoJSoUvZRj2tR4so66GrSBzMOh0ZuoicIp6zaGfuAZGqiUHWAax1PQ1DdEiKmQrrZb1MR/s320/beyonce.jpg" border="0" /></a><br /><br /><br /><br />I’ve been documenting the excesses of Proxyland for - OMG! - three years now. Yet when my son, watching CNN with genuine bewilderment, asked me how bailed-out companies could think it’s OK to buy new jets, redecorate their offices, and so forth, I didn’t know what to say.<br /><br />Actually, I had an answer, but I was afraid he’d think it was lame. Maybe you will, too, but here it is.<br /><br />It’s long been clear to me that Proxyland is a special place, governed by its own set of mores. To those living within its boundaries, its extravagant customs have come to seem normal and its huge payouts well-deserved. While this mindset is by no means limited to Wall Street (remember <a href="http://proxyland.blogspot.com/2007/01/off-their-rockers.html">Home Depot</a>?), it's most pronounced there.<br /><br />I’m not a shrink, but I believe this is a psychological phenomenon. A very real one. You might call it <em>mass self-serving self-delusion</em>. (This insular mentality also fueled the subprime phenomenon, in which Wall Street hawked garbage-in-gold-out securitized products and rating agencies gave them a hearty thumbs-up.)<br /><br />Now, so much taxpayer money has poured into Proxyland that its walls have been breached. Average folks, many of whom didn’t know the place existed, are poking their heads in and looking around with astonishment and disgust. As David Pitofsky and Matthew Tulchin said in an <a href="http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1202427824382">excellent law.com article </a>this week, “<em>the debate over executive pay has fundamentally changed from a shareholders' issue to a taxpayers' issue</em>.”<br /><br />That's a big change. Between the growing horde of torch-wielding citizens and the <a href="http://proxyland.blogspot.com/2008/10/scaling-down.html">broad powers Tim Geithner has to restructure compensation under the TARP </a>- should he choose to use them - it's possible real change could come to compensation practices in Proxyland. (Reports from Davos say <a href="http://www.reuters.com/article/GCA-Davos2009/idUSTRE50T4I220090130">the “bonus culture”</a> may be on its way out elsewhere, too. )<br /><br />On top of all that, Joe Biden wants to throw Wall Street bonus-payers <a href="http://www.boston.com/news/politics/politicalintelligence/2009/01/obama_biden_out.html"><em>"in the brig."</em></a><br /><br />In honor of this possibility, let's revisit Beyonce's recent rendition of <a href="http://www.youtube.com/watch?v=T-pzlZPRvx8">"At Last"</a>.<br /><br /><br /><em>Image source: people.com</em><br /><br /><br /><em></em>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-20818891007305867932009-01-28T10:43:00.023-05:002009-01-30T16:18:13.397-05:00Kozlowski Writes To Thain: A Haiku<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhS3BJhl4G496WxyIeX8yt1MlEhswuICyQHNwHOhoGHtNL2jbj7oJgX_2rkra8s5XqSfSI1opr8AC640hX64aP5-4dlVvSt9VK5YlL_zGe5D_YrTEE_6azLRMkF1ys-ZvRMFMu5/s1600-h/quill+pen.jpg"><img id="BLOGGER_PHOTO_ID_5296372682309766242" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 95px; CURSOR: hand; HEIGHT: 127px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhS3BJhl4G496WxyIeX8yt1MlEhswuICyQHNwHOhoGHtNL2jbj7oJgX_2rkra8s5XqSfSI1opr8AC640hX64aP5-4dlVvSt9VK5YlL_zGe5D_YrTEE_6azLRMkF1ys-ZvRMFMu5/s320/quill+pen.jpg" border="0" /></a><br /><br />My <a href="http://money.cnn.com/2002/09/23/pf/saving/q_tyco/">trash can</a> beats <a href="http://www.nydailynews.com/money/2009/01/24/2009-01-24_canned_merrill_lynch_ceo_john_thains_spe.html">yours</a>.<br />Cost eight hundred bucks more, man.<br />Gold-plated, too! Sweet.<br /><br /><br /><br /><br /><em>p.s.: I've made a factual correction to this haiku. (Has that sentence ever been written before?) Press reports differ on the price of Mr. Thain's wastebasket ($1200 versus $1400), but I'm now going with the higher number. Dennis Kozlowski reportedly paid $2200 for his exceptional receptacle.<br /><br /></em><br /><em><span style="font-size:85%;">Image source: allposters.com</span></em>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-73773864128920980192009-01-26T14:24:00.075-05:002009-01-30T16:17:51.330-05:00Stock Options Aren't Compensation, Decreed the OTS<div align="left"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFN6To4t0ogZtNI4mt3N2AvPU9fdCGkzFGxpjOaZy9bKs_axdy1BGWGyFgqJ8bqmZ7n0fJh-xMQDgdED9MXC0QwlEWnmgTPa0s_qm_cDNJQSm2LI9DFatLovCq7GlvPs4XQ4EV/s1600-h/tootsie+rolls.jpg"><img id="BLOGGER_PHOTO_ID_5295703928930146962" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 115px; CURSOR: hand; HEIGHT: 115px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFN6To4t0ogZtNI4mt3N2AvPU9fdCGkzFGxpjOaZy9bKs_axdy1BGWGyFgqJ8bqmZ7n0fJh-xMQDgdED9MXC0QwlEWnmgTPa0s_qm_cDNJQSm2LI9DFatLovCq7GlvPs4XQ4EV/s320/tootsie+rolls.jpg" border="0" /></a><br /><br /><br />I hope the new administration is testing the waters down there in our nation's capital. I mean that literally. I fear someone has been pumping Clueless Juice into the hallway fountains at certain federal agencies.<br /><br />Check out this bizarre tidbit from the Office of Thrift Supervision, one of those financial regulators we've all come to know and love. Last Thursday <a href="http://files.ots.treas.gov/74847.pdf">the OTS revised the corporate governance guidelines</a> that its examiners are supposed to apply when they evaluate the "safety and soundness" of OTS-regulated banks. Among other stuff, the revision removed a loony sentence about executive compensation that's been lurking in these guidelines since at least 2003. (Haven't had time yet to dig back and see when it first appeared.)<br /><br />The sentence said:<br /><br />“<em>OTS does not ordinarily consider the grant or exercise of stock options as compensation unless they are sufficiently material in amount or conditioned upon factors that result in incentives that cause supervisory concerns</em>."<br /><br />How strange is that? Stock options are, and always have been, compensation. Absolutely, unequivocally, uncontroversially. (Yeah, there are some nuances from the IRS point of view, but that's not what the OTS is talking about.) This is like saying: "We don't consider Tootsie Rolls to be candy, unless you eat more than 75 in one sitting."<br /><br />I guess that if a bunch of lobbyists showed up to convince me that Tootsie Rolls aren't candy, they'd make it all sound very sensible. Of course, I'm only speculating that lobbyists had something to do with this. I don't know how the hell that sentence got in there. It may have been the water.<br /><br /><br /><em><span style="font-size:85%;">Image source: centurynovelty.com</span></em> </div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-24473939100253698242009-01-15T10:07:00.101-05:002009-01-30T16:17:40.898-05:00Sleep-Blogging Mary Schapiro's Confirmation Hearing<div align="left"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKmX2dnfKvRkUDEY33ROzQZgDeoIroi42hkjXGNOwkKDiOxqq7fBgObqlsw73uEo728vHGvRGNhUfoiO1yM45Z6stg-qVulaA9TXGHkGPi-mwAaF1F6EWGmOnjC3ZmL9u3pKRI/s1600-h/maryschapiro.jpg"><img id="BLOGGER_PHOTO_ID_5291545864707387858" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 71px; CURSOR: hand; HEIGHT: 91px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKmX2dnfKvRkUDEY33ROzQZgDeoIroi42hkjXGNOwkKDiOxqq7fBgObqlsw73uEo728vHGvRGNhUfoiO1yM45Z6stg-qVulaA9TXGHkGPi-mwAaF1F6EWGmOnjC3ZmL9u3pKRI/s320/maryschapiro.jpg" border="0" /></a><br /><br /><br />Having survived my <a href="http://proxyland.blogspot.com/2009/01/live-blogging-congressional-oversight.html">live-blogging of the TARP Congressional Oversight Panel hearing </a>yesterday, I thought I'd head over (virtually) to today's <a href="http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.LiveStream&Hearing_id=ab9dda7a-3a2f-41f9-bb69-5b0c7c4e10fb">Senate Banking Committee confirmation hearing for Mary Schapiro</a>. I will skip the Senators' opening statements and drop in when it's Ms. Schapiro's turn to talk. If she's still conscious at that point, she'll have passed her first test.<br /><br />While we're waiting for the committee members to complete their oratory, let me say that I hate to be mean, but I'm not a big fan of this nomination. Since 1996, Ms Schapiro has spent most of her time running Wall Street's main "self-regulatory" organization, which in its latest permutation is called FINRA. Year after year, folks from this organization have swarmed through Wall Street firms, performing examinations, making rules and writing reports. Dunno why, but I just have a feeling they may have missed something here and there. If I were writing Ms. Schapiro's performance reviews, I don't think I'd recommend her for a big promotion.<br /><br />10:38: OK, she's making her opening statement. She has a nice feminine voice, verging on breathy. I imagine this comes in handy when speaking to male Senators. Her statement, to me, is bland and boring.</div><div align="left"><br />Ah, Chris Dodd is asking why FINRA examiners didn't catch Madoff.<br /><br />Schapiro responds: There's currently a "<em>stovepipe</em>" approach to regulation. Her excuse, in other words, is that FINRA had jurisdiction over Madoff's broker-dealer activities, but not his dealings as an investment adviser. (Stovepipe? A new one on me; the usual buzzword for this concept is "silo.")<br /><br />Responding to a question about how everything got so screwed up, she says she warned Chairman Cox last August about an increasing "<em>migration</em>" of activities out of regulated entities. (Wait, is she saying it took her till August of 2008 to figure this out? Or did she mean 2007? Rather late, either way.)<br /><br />10:48 am: Schapiro says credit rating agencies shouldn't be compensated by the firms whose products they rate. Not much of a shocker there.<br /><br />10:51: Richard Shelby: Thinks the federal government may have to take over insurance regulation. In passing, he disses the NY State insurance department, which regulated AIG. He asks her how she'd restructure the regulatory system, saying he's not sure the Fed should be given a bigger role than it has now.<br /><br />Schapiro's response: She seems to like the Fed as a systemic risk watchdog. She says it's the SEC's job to protect investors. (She's not taking the bait to bash the Fed and reach for more SEC authority. In fact, she mentions the possibility of the SEC being merged with other regulators.) On insurance, she thinks federal regulators should be involved if an institution poses systemic risk.<br /><br />I don't hear any vision or novelty in her answer.<br /><br />10:58: Credit rating agencies again. She suggests there should be some kind of oversight board for these guys. Or at least that's what I think she's suggesting, as she's making an analogy to FASB and PCAOB.<br /><br />11:02: She wants to "<em>take the handcuffs</em>" off the SEC's enforcement division. She also wants to build a stronger Office of Risk Assessment. But we'll never be able to catch everything, she says.<br /><br />11:07: Question about <a href="http://proxyland.blogspot.com/search/label/WMDs%2FProxy%20Access">proxy access</a>.<br /><br />Schapiro responds: It's time for the U.S. to join the 40 foreign jurisdictions that already have proxy access. The devil is in the details, she says, but she's clearly signaling a change from the Cox approach. I believe the folks at union pension funds just ran out to get doughnuts. Time to celebrate!<br /><br /><em>Sorry, forgot to "time stamp" from here on in. I can't imagine you really care</em>.<br /><br />Another question (not sure which Senator is talking) about regulatory reform. Schapiro seems to say the federal government should have authority over anything that poses systemic risk. No one asks her who is going to figure out which products, activities and firms are creating systemic risk, or how we're going to get it right next time. (Judging from her earlier answer, it looks like she'd be willing to rely on the Fed for that.)<br /><br />She's asked about the uptick rule and short selling. Says she'll look at all that and see if the rule should be re-instituted.<br /><br />Question about "<em>revolving door</em>" at the SEC. Schapiro responds that she worries about people leaving the SEC to work in the industry, but she also worries about restricting this so much that no one will want to work for the agency in the first place. An eternal dilemma for federal agencies, and she doesn't suggest any specific solutions. The panel seems satisfied, though.<br /><br />Ah, finally someone (Menendez?) asks her to respond to criticisms of her past performance and the idea that she is a "<em>predictable and safe</em>" choice but not a "<em>robust</em>" one. (Sorry, can't see the members' nametags, and I'm not enough of a Senate geek to recognize all the faces.)<br /><br />Schapiro responds: She started her career as an enforcement attorney, and she intends to "<em>ignite passion</em>" in the Commission's enforcement lawyers. She calls <a href="http://online.wsj.com/article/SB123194123553080959.html">today's WSJ's article </a>unfair. She has been and will be aggressive, there'll be no sacred cows, etc.<br /><br />Very nice, but this all misses the point. It's not just about her commitment to enforcement after the fact, but her ability to catch potential disasters before the fact. And her track record isn't so good on the latter.<br /><br />Question about investor education/literacy: She wants the SEC to develop plain English explanations of stuff for investors and distribute them all over the place. (Yes! <a href="http://www.centerforplainlanguage.org/">Plain English </a>rocks.)<br /><br />Dodd asks her to comment on the <a href="http://www.nytimes.com/2009/01/12/business/12schapiro.html?_r=1&scp=2&sq=finra%20lawsuits&st=cse">lawsuits over the FINRA merger</a>. They're frivolous, she says.<br /><br />OK, Mary's done. Dodd is acting charming to her kids. A lovefest.<br /><br />In fact, the whole hearing has been a perfunctory lovefest. Eric Holder, eat your heart out. </div>Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-17001952.post-22844168006780522402009-01-14T09:13:00.070-05:002009-01-30T16:17:32.211-05:00Live-Blogging the Congressional Oversight Panel Hearing<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-QDlNWiLVQAVvrEnuUigfl4C5-MvmKVEI6HQqocA-AkZgnzB3DjJMjteHEaD77_swlCZmrzYcMo9qYrfYz51pmEGR5ICQ9VKvHuPsh_RPfqeEovjQ24SQZKCTLYbqhkU4feSA/s1600-h/cop.jpg"><img id="BLOGGER_PHOTO_ID_5291155766729836994" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 103px; HEIGHT: 142px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-QDlNWiLVQAVvrEnuUigfl4C5-MvmKVEI6HQqocA-AkZgnzB3DjJMjteHEaD77_swlCZmrzYcMo9qYrfYz51pmEGR5ICQ9VKvHuPsh_RPfqeEovjQ24SQZKCTLYbqhkU4feSA/s320/cop.jpg" border="0" /></a><br /><br /><br /><br />I'm just sitting down to live-blog, intermittently, the <a href="http://cop.senate.gov/video/video-011409-hearing-regulatoryreform.cfm">hearing</a> of the TARP Congressional Oversight Panel, or COP. This hearing is about regulatory reform, BTW, not the panel's <a href="http://cop.senate.gov/documents/cop-010909-report.pdf">ongoing inquiry into what on earth Hank Paulson has been up to</a>.<br /><br />This isn't my first try at live-blogging a hearing, but the soporific effect of droning Congressmen has foiled my past attempts. However, this isn't a Congressional hearing, so perhaps I can stay awake.<br /><br /><strong>Chair Elizabeth Warren</strong> gave her introduction, and now the panel members are each giving statements.<br /><br />9:08 am - Damn, I forgot there's a Congressman on the COP - <strong>Republican Jeb Hensarling</strong>; he's speaking now. Must try not to fall asleep. I think he's warning against an overreaction that might lead to overregulation. Thanks, Jeb, but I'm going to worry about that one later.<br /><br /><strong>Damon Silvers of AFL-CIO</strong> followed, but my toast was popping up so I missed him.<br /><br />9:19 am - <strong>Former Senator John Sununu</strong> just made a good point - that it's not just what regulations you have, but how those regulations operate in practice. I feel like people don't say this often enough.<br /><br />9:24 am - <strong>Richard Neiman, NY State Banking Supervisor</strong>: Not much of interest. Sorry, Mr. Neiman.<br /><br />Now cometh the witnesses: (here's the <a href="http://cop.senate.gov/hearings/library/hearing-011409-regulatoryreform.cfm">witness list</a>).<br /><br />9:29 am - <strong>Gene Dodaro, acting head of the GAO</strong>: Regulatory system is outdated, has gaps, etc. New products, like credit default swaps, aren't sufficiently regulated. But we must avoid "<em>unanticipated consequences</em>" of any changes we make. (Well, Gene, how does one take steps ahead of time to avoid unanticipated consequences? Do you see any flaw in that concept?) He notes that no one regulator is charged with looking at risks across the whole system. Yes indeedy, that's been a problem.<br /><br />9:46 am - Hensarling says prosecutors are focused on terrorism and don't investigate and prosecute fraud these days unless it's earth-shaking. An interesting point - is he right, and is this an underestimated factor in the meltdown?<br /><br />9:48 am - Dodaro has what I'd swear is a classic New York accent - and a face to match it - even though Wikipedia says he grew up in Pennsylvania. He really ought to be starring on Law and Order. Oops, my attention is wandering. Detailed Q&As going on about pros and cons of different federal regulatory structures, involvement of states, etc. State regulators, says Dodaro, give you "<em>eyes and ears on the ground</em>" so we should keep them in place.<br /><br />10:05 - Second panel is seated. Warren just made a comment about having trouble with people's names and this being like a "<em>confusing dinner party</em>." No wonder I'm so hungry.<br /><br />10:07 - <strong>Sarah Bloom, Commissioner of the Maryland Office of Financial Regulation</strong>. Her not-so-thinly-veiled message seems to be that the state regulators have been doing their jobs, but the feds have not. From her state "<em>foxhole</em>," she says, she's watched "<em>classic regulatory capture</em>" take over in Washington. Go, Sarah. Oooh, she even managed to mention Katrina and FEMA. She claims the states were on top of subprime lending and saw the flaws of the Basel capital accord (you know, that brilliant decision to let the banks calculate their own risk and decide how much capital they needed).<br /><br />10:13 - <strong>Joel Seligman, President of the University of Rochester and serious securities law guru in his past life</strong>: Lays out his broad principles for a new system, including: (1) let's make a clear distinction between emergency moves and long-term restructuring, and (2) financial regulation should be comprehensive, including all products, folding in insurance companies (AIG, anyone?), credit rating firms, investment advisers. We have a "<em>partial</em>" regulatory system at the moment. In his new dream system, the Fed would be at the top. He also mentions "<em>private rights of action</em>" as being part of the regulatory structure. This means lawsuits, by those dreaded trial lawyers. Wow, I didn't expect that one, but I kind of like it.<br /><br />10:19 - <strong>Robert Schiller, Yale economist</strong>: Brags that he's written 2 books about this subject, and seems to be implying "why haven't you guys read these already?" He wants to "<em>democratize finance</em>." Government should subsidize personal financial advice and financial education. He agrees with Elizabeth Warren's idea of a "Financial Products Safety Commission." We need to improve risk management. He wants to create "<em>continuous workout mortgages;</em>" i.e., in recessions the mortgage payment and principal would automatically adjust down. Good luck with that one, Bob. Have a nice drive on Utopia Parkway.<br /><br />10:22 - <strong>Joseph Stiglitz, Columbia economics professor and Nobel laureate</strong>: This bailout, and past bailouts, reflect the failure of our system to meet basic requirements, like evaluating creditworthiness. In fact, America's financial system is pretty much a failure overall -- lack of transparency, flawed incentive structures that foster risky, short-term behavior. Good regulation can attract capital and encourage creativity. Derivatives should be approved by that wonderful Financial Products Safety Commission that could exist in the future. TARP has failed because there's been no regulatory reform accompanying it. We could have used $700 billion to create a new institution - huh? sounds intriguing but he's not explaining it. I kind of expected more from Nobel Prize Guy.<br /><br />10:30 - <strong>Marc Summerlin, Managing Director at the Lindsey Group</strong> (who is this person? I must look him up): Fed should take a more active role in preventing bubbles and mitigating boom/bust cycles, and in fact the Federal Reserve Act says so. (I'd like to hear more about that part.) Fed has created "<em>a bias toward overvalued assets</em>." Buying a house with no down payment "<em>is not home ownership; it is renting with risk</em>." Nice point. Also, binding leverage ratios work and we should have more of them, he says.<br /><br />10:37 - <strong>Peter Wallison from the American Enterprise Institute</strong>: Regulation itself introduces moral hazard, because people think the government is on top of things. There is no policy reason why the government should take responsibility for preventing business failures - let 'em fail. Regulation hasn't been working, so why have more of it? (Gee, you'd think this guy was from the American Enterprise Institute or something.) It is "<em>a very bad idea</em>" to empower an agency to identify "too big to fail" institutions because you end up with numerous Fannies and Freddies that have a competitive advantage over purely private firms. So what does he want to do? Require more transparency about the risks that firms are taking, and pay more attention to short selling and hedge funds.<br /><br />Question period starts: Elizabeth Warren goes directly to Wallison's argument that regulation hasn't worked. She refers to the "regulatory capture" that state regulator Sarah Raskin described and asks him: isn't it really "<em>non-regulation regulation</em>" that has failed here?<br /><br />Wallison (who still believes in oxymornons like <a href="http://proxyland.blogspot.com/2009/01/ok-its-that-time-again.html">market discipline</a>) answers that creditors, not regulators, are the ones that can effectively "regulate," as long as there's transparency. Warren invites Raskin to respond. She says she believes regulation has worked, again praising state regulators. I hope she's right, though I'd feel better if she weren't a state regulator who fears being legislated out of existence.<br /><br />Seligman comments that <em>"effective regulation can increase confidence</em>." But "<em>non-regulation regulation</em>" can undermine that confidence. (Will the oxymoron "non-regulation regulation" spread and become the new catch phrase for policy geeks?)<br /><br />Hensarling, being a good Republican, apparently woke up when Wallison mentioned Fannie and Freddie; he asks for comments on the role of the GSEs. Summerlin says Fannie/Freddie had an incentive problem - they could "<em>privatize profits and socialize losses</em>." So the government backing made things worse, right? asks Hensarling</span>. Yeah, I guess, says Summerlin.<br /><br />Silvers from the AFL-CIO, who's been strangely quiet, asks Seligman about regulatory consolidation. Seligman talks about balancing the useful expertise of separate regulators (e.g., for securities and commodities) against the danger of regulatory arbitrage.<br /><br />Silvers asks Raskin how Fannie/Freddie mortgages have performed versus purely private sector mortgages. She doesn't really answer the question.<br /><br />Silvers asks Stiglitz what he thinks of the Fed as a regulator. Stiglitz says the Fed was "<em> too easily captured in the spirit of the bubble</em>." It must become more explicit about its mandate, and that must be to create financial stability, not just to monitor inflation. And it should be more "<em>representative.</em>" In Sweden, he notes, labor has representation at the central bank. I'm proud of the American Enterprise guy for not immediately jumping up and calling Stiglitz a socialist just for mentioning Sweden.<br /><br />Gotta go now - you're on your own.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-91777778008154550772009-01-06T11:52:00.039-05:002009-01-30T16:17:21.873-05:00What Citi Got for Christmas: Its Very Own TARP Program<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5o86h7s9_D7q_jsqgUt3qzm0I91sWTmI4Di1FVj3kTTs0tEuhN12mkgkDCpKpNOF7VZQMp6n-GQjaeNvOQLpr4cNe2j52mgCZa2hm0rKIpdo5I06MxN0OYiNnHqDE4ghzOWUh/s1600-h/bear.jpg"><img id="BLOGGER_PHOTO_ID_5288234789541663970" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 112px; HEIGHT: 150px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5o86h7s9_D7q_jsqgUt3qzm0I91sWTmI4Di1FVj3kTTs0tEuhN12mkgkDCpKpNOF7VZQMp6n-GQjaeNvOQLpr4cNe2j52mgCZa2hm0rKIpdo5I06MxN0OYiNnHqDE4ghzOWUh/s320/bear.jpg" border="0" /></a><br /><br /><br />I’ve never set foot in a Build-A-Bear-Workshop, and I fervently hope I never will. But I'm trying to keep up with the activities at Hank Paulson's Build-A-Bailout Workshop.<br /><br />Every time we look up, Mr. Paulson has adorned his bailout with a new frill or furbelow. His latest flourish, announced on January 2, is called the “Targeted Investment Program.” In its <a href="http://www.treasury.gov/press/releases/hp1338.htm">press release</a>, Treasury explained that this was the program “<em>under which the Citigroup investment that was announced on Nov. 23 was made</em>.” An odd statement, since no such program existed back then.<br /><br />In fact, as late as last week, the Targeted Investment Program failed to make an appearance in Treasury's <a href="http://www.treas.gov/press/releases/reports/123108%20cop%20response.pdf">December 30 response letter to the Congressional Oversight Panel</a>, which proudly outlined 19 other bailout programs and initiatives.<br /><br />Before the January 2 press release, as I pointed out in <a href="http://proxyland.blogspot.com/2008/12/tarp-mysteries-abound-including.html">this post</a>, there were only two publicly announced programs that could have covered Citi’s November handout: the Capital Purchase Program (CPP) or the Systemically Significant Failing Institutions Program (SSFI), otherwise known as AIG-Land.<br /><br />Turns out there was, as Bill Clinton used to say, a Third Way: Mr. Paulson injected more cash into Citigroup, then invented the Targeted Investment Program (TIP) to explain what he'd done. Funny, the <a href="http://www.treasury.gov/press/releases/hp1338.htm">Treasury's official description of the TIP</a> looks an awful lot like its <a href="http://www.treas.gov/initiatives/eesa/program-descriptions/ssfip.shtml">official description of the SSFI</a>. But the TIP is broader; it lets Treasury come to the rescue when there’s a “<em>loss of confidence</em>” in an institution and the markets are freaking out, while the SSFI requires the threat of an institution's “<em>disorderly failure</em>.”<br /><br />Gee, if all it takes to get bailed out is for people to lose confidence in you, Mr. Paulson could be bailing himself out any day now.<br /><br /><em>Note: I've corrected this post. An earlier version said that Treasury's response letter to the Congressional Oversight Panel listed all the programs in effect under the TARP. Actually, Treasury just said it was listing "many of the actions" it had taken. My mistake aside, the letter's failure to mention either the TIP or the huge Citi bailout is just plain weird.</em><br /><em><br /><span style="font-size:85%;">Image source: PR Newswire</span></em>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-33412687559058062712009-01-02T19:44:00.076-05:002009-01-16T16:55:26.604-05:00Financial Oxymoron of the Year: The Envelope, Please<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBD1Wsd9D4i-kLXh9S609NoE0ocNAEbGH6x6XI2IBqBw58zievBmY6txVrlMsuVakvxIfx1QOliAl7UrG20mvmWFXZ36U7XN-Qu6jmFirrU4WMEbNDI7zpbDi1H3r12Bz4POyt/s1600-h/bubbles.jpg"><img id="BLOGGER_PHOTO_ID_5286919125512886898" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 131px; CURSOR: hand; HEIGHT: 150px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBD1Wsd9D4i-kLXh9S609NoE0ocNAEbGH6x6XI2IBqBw58zievBmY6txVrlMsuVakvxIfx1QOliAl7UrG20mvmWFXZ36U7XN-Qu6jmFirrU4WMEbNDI7zpbDi1H3r12Bz4POyt/s320/bubbles.jpg" border="0" /></a><br /><br /><br />OK, it's that time again. (Or maybe it was that time a few days ago, but whatever.) Here comes Proxyland's second annual, and slightly renamed, <strong>Financial Oxymoron of the Year Award.</strong><br /><br />Whatever you might say about <a href="http://alphaville.ftdata.co.uk/lib/inc/getfile/3623.jpg">2008</a> - and you've probably said it - this was a great year for oxymorons. Our 2007 <a href="http://proxyland.blogspot.com/2007/12/and-winner-is.html">co-winners </a>- <em>risk management</em> and <em>financial engineering</em> - pulled a Brett Favre and returned to competition. As the subprime market unraveled early in the year, <em>mortgage-backed securities</em> looked like the oxymoron to beat. In September, Fannie and Freddie's <em><a href="http://proxyland.blogspot.com/2008/09/big-and-fuzzy.html">implied guarantee</a></em> edged ahead.<br /><br />As the year wore on, analysts warned of an Oxymoron Bubble. Nearly every two-word phrase on the business page seemed to qualify. To wit:<br /><br /><em>financial services</em><br /><em>financial system</em><br /><em>market discipline<br />government oversight</em><br /><em>business judgment </em><br /><em>free market</em><br /><br />Let's throw in <em>Federal Reserve.</em> And is it too soon to add <em>modern civilization?</em> OMG, I need to get a grip.<br /><br />No way can I decide, so I'm just going to treat these cute oxymorons like a bunch of Wall Street traders at bonus time. In other words, everyone wins! But if you twist my arm to pick one, I'd probably go with <em>market discipline</em>, which <a href="http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3427">a certain Mr. Greenspan once called</a> <em>"the first line of regulatory defense in protecting the safety and soundness of the banking system</em>."<br /><br />Oh, and Happy New Year --which is not, as of yet, an oxymoron.<br /><br /><br /><span style="font-size:85%;"><em>photo credit: photoshoptalent.com</em></span><br /><br /><a href="http://www.blogger.com/http//www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3427"></a>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-21553490646674329742008-12-15T19:59:00.034-05:002009-01-06T12:56:42.987-05:00TARP Mysteries Abound, and Citi is One of 'Em<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheXoV7GVZL8L5rZ4N39VtzHtx7CI9vozUabzdxW-8Sp_Nm1k_Ka9lhwUR-fdh6RtFUv5ckW-JU-J98bV0on1-ve43JnSjvk5sUlCYQNHmYRKmTiXYh1KmIPrXD_xPzrN6qIew5/s1600-h/schoolbooks.jpg"><img id="BLOGGER_PHOTO_ID_5280193292764106722" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 116px; CURSOR: hand; HEIGHT: 116px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheXoV7GVZL8L5rZ4N39VtzHtx7CI9vozUabzdxW-8Sp_Nm1k_Ka9lhwUR-fdh6RtFUv5ckW-JU-J98bV0on1-ve43JnSjvk5sUlCYQNHmYRKmTiXYh1KmIPrXD_xPzrN6qIew5/s320/schoolbooks.jpg" border="0" /></a><br /><br />(<em>Update: The mystery has been <a href="http://proxyland.blogspot.com/2009/01/what-citi-got-for-christmas-its-very.html">solved</a>! Read all about it</em>.)<br /><br />Last week's 38-page <a href="http://www.house.gov/apps/list/hearing/financialsvcs_dem/cop121008.pdf">report</a> by the <a href="http://cop.senate.gov/">Congressional Oversight Panel for Economic Stabilization </a>– or the COP, as they cutely call themselves - asked ten questions about the TARP. Ten very good questions. To save Mr. Paulson and Mr. Kashkari some time, I’ll boil the ten down to two:<br /><br />1. <em>Hey, is there any rhyme or reason to what you guys are doing with that TARP money, or are you just making it up as you go along? </em><br /><p><em>2. Have all those billions done any good, and how the heck would you know anyway?</em></p><p>Buried in one of the ten questions is a Citigroup-related mystery. Why, asks the COP, has Treasury made Citi – but not the other banks receiving TARP funds - play along with the FDIC’s mortgage modification program?<br /><br />One possible explanation: Citi’s second bailout may have taken place not under the humdrum CPP (Capital Purchase Program) but the more hands-on PSSFI (Program for Systematically Significant Failing Institutions). If so, Citi is now keeping company with the likes of AIG. I recently heard a smart lawyer say that it was "<em>unclear</em>" which program the second Citi bailout fell under. Why is it unclear? Because, I assume, no one wants to tell us. And if no one wants to tell us, the answer seems obvious.<br /><br />The first time Citi got TARP money, its <a href="http://sec.gov/Archives/edgar/data/831001/000114420408058279/v129150_8k.htm">8-K</a> said the money came from the Capital Purchase Program. The second time, however, the <a href="http://sec.gov/Archives/edgar/data/831001/000095012308016585/y72849e8vk.htm">8-K</a> just said the bank was getting dough under the TARP, with no mention of the CPP, which seems a bit suspicious.<br /><br />I can understand why Treasury wouldn't want to come out and call giant Citi a “failing institution." That sounds way too scary. Perhaps they should follow the lead of the Australian educators who've <a href="http://www.news.com.au/couriermail/story/0,23739,24750968-27197,00.html">banned</a> the term “failure” from schools, replacing it with “deferred success.”<br /><br />Dear Citigroup: Happy holidays, and please accept our sincere wishes for your deferred success.</p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-67948350176076790672008-12-08T13:23:00.062-05:002008-12-15T10:48:52.365-05:00The Unbearable Weirdness of TARP Contracts<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh58jqJoqkPXnQ0HGVQPy3Z1wWHqDqYtNf-hTGeQKwEnbd3btGs4eaaDsHLR8KnhLWbERjSDsQOj3JpMWFQ7tcsrB8BWME6oZGRx38EMnCepok5gvmNboWTFOjw_-e4ZoTFjQ6f/s1600-h/katyperry.jpg"><img id="BLOGGER_PHOTO_ID_5277511634329711026" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 102px; CURSOR: hand; HEIGHT: 136px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh58jqJoqkPXnQ0HGVQPy3Z1wWHqDqYtNf-hTGeQKwEnbd3btGs4eaaDsHLR8KnhLWbERjSDsQOj3JpMWFQ7tcsrB8BWME6oZGRx38EMnCepok5gvmNboWTFOjw_-e4ZoTFjQ6f/s320/katyperry.jpg" border="0" /></a><br /><br /><br />In my <a href="http://proxyland.blogspot.com/2008/12/tarp-money-lend-if-you-like.html">last post</a>, I complained that our esteemed Treasury Secretary was handing out cash to banks without making sure they'll use it to help un-freeze the credit freeze.<br /><br />To be fair to Mr. Paulson (not that we're ever unfair), <a href="http://www.ustreas.gov/press/releases/reports/spa.pdf">the standard agreement that banks sign to get cash infusions</a> does contain this lovely language:<br /><br /><em>"WHEREAS, the Company agrees to expand the flow of credit to U.S. consumers and<br />businesses on competitive terms to promote the sustained growth and vitality of the U.S. economy."</em><br /><br />and<br /><br /><em>"WHEREAS, the Company agrees to work diligently, under existing programs, to modify the terms of residential mortgages as appropriate to strengthen the health of the U.S. housing market."</em><br /><br />But here's the thing: These earnest promises show up only in the "whereas" clauses - part of what lawyers call the "preamble" or the "recitals" to the contract - not in the contract itself.<br /><br />I don't pretend to be a law professor, or any kind of expert on the enforceability of stuff that gets stuck in the preamble to a contract. However, as a lawyer I can say with conviction that if you really want the guy on the other side of a contract to do something, you put that in the main part of the document, not in the preamble.<br /><br />In five seconds of careful research, I found this <a href="http://www.cpss-litigation-blog.com/tp-060807172859.shtml">lawyerly blog post</a> on preambles. It says that under New York law - which, as it happens, governs these Treasury agreements - "a<em> term appearing in a recital ... is not part of the contract</em>." So maybe the banks are off the hook. Or maybe not. Bring on the law professors.<br /><br />Like so many aspects of the bailout, the deal between Treasury and the banks is fuzzy, so fuzzy that even lawyers can't figure out exactly what it is. Meanwhile, our nation is left to ponder more and more mysteries: things like "Katy Perry, why do you exist?" and "banks, are you going to lend out your stupid bailout money or not?"Unknownnoreply@blogger.comtag:blogger.com,1999:blog-17001952.post-45650959012782935742008-12-02T22:00:00.015-05:002009-01-09T18:19:58.265-05:00TARP Money: Lend It If You Like<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxYcBlUpKQ-pXLgpHVfkguhSmYmxDzkmPNX0raI8zI0m1OQjPy5rVqYQhnPDX-sgAJPPoNCR77U_rSSbt1i6i98ym568VXcRpYyW_au0TR8rv4aZ6IlRvMtn2DCvUIe6bv4h7H/s1600-h/bobdylan.jpg"><img id="BLOGGER_PHOTO_ID_5275430350109777394" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 150px; HEIGHT: 113px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxYcBlUpKQ-pXLgpHVfkguhSmYmxDzkmPNX0raI8zI0m1OQjPy5rVqYQhnPDX-sgAJPPoNCR77U_rSSbt1i6i98ym568VXcRpYyW_au0TR8rv4aZ6IlRvMtn2DCvUIe6bv4h7H/s320/bobdylan.jpg" border="0" /></a><br /><br /><br /><br />Hank Paulson was once a tree-hugger. In happier days, he served as <a href="http://www.nature.org/pressroom/leadership/art11950.html">Chairman of the Nature Conservancy</a>, though you won’t find that in his <a href="http://www.ustreas.gov/organization/bios/paulson-e.html">official Treasury bio</a>.<br /><br />Now Hank is a bank-hugger. He gives banks a few million (or a few billion), they hand him some preferred stock, and off they trot. Maybe they lend the cash to credit-starved businesses and consumers, maybe they stick it in the office Secret Santa fund. Whatever.<br /><br />The lucky recipients like to imply - but not promise - that they’ll use the money for loans. Take this artful sentence in <a href="http://sec.gov/Archives/edgar/data/1058690/000095013408021508/v50743exv99w1.htm">yesterday's press release</a> from <a href="http://www.wibank.com/">Washington Banking</a>, announcing Treasury's approval of $26 million in TARP funding:<br /><br />“<em>Our ability to meet the needs of our customers and the communities we serve will be further strengthened by these funds</em>.”<br /><br />Very nice, but does this mean the bank plans to lend out its HankBucks? Dunno.<br /><br />Perhaps I’ll send a loan application to <a href="http://centerbank.com/">Center Financial</a>, which <a href="http://sec.gov/Archives/edgar/data/1174820/000119312508244676/dex991.htm">announced a $55 million commitment from the TARP </a>last week. Center has big plans for its TARP take:<br /><br />“<em>While increasing Center Bank’s lending capacity to continue supporting the financial needs of small and middle-market businesses in our communities, the additional capital will enhance the company’s liquidity and further our ability to capitalize on strategic opportunities</em>.”<br /><br />Sounds good, but does increased “<em>lending capacity</em>” equal more loans? Again, dunno. And how much of the $55 million will they spend on "<em>strategic opportunities</em>"? And what the heck do they mean by that, anyway?<br /><br />As long as we're asking questions, here’s a musical one. You sing, I’ll play the harmonica:<br /><br /><em>How many bucks must banks get without strings<br />Before you call it a scam?</em><br /><br />The answer, my friend, is...well, I think you know.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-80328156099864897142008-11-24T10:53:00.045-05:002008-12-03T22:39:21.110-05:00Into the Lifeboat, Citigroup Bonuses!<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiChY8MezeF7oKhFNGLjKPKNiC1oKq07ZOrP9dXKZIUs3BbYWGSzdXbO9Pgz5FTSykFjYShXk_aj_Z-QcEdBn6MsgTDyY4tM75NnakTPZ1uWBo7hA6vpU11CVVeoj2Vcme99xF-/s1600-h/titanic+slide.jpg"><img id="BLOGGER_PHOTO_ID_5272270527932522882" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 124px; HEIGHT: 93px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiChY8MezeF7oKhFNGLjKPKNiC1oKq07ZOrP9dXKZIUs3BbYWGSzdXbO9Pgz5FTSykFjYShXk_aj_Z-QcEdBn6MsgTDyY4tM75NnakTPZ1uWBo7hA6vpU11CVVeoj2Vcme99xF-/s320/titanic+slide.jpg" border="0" /></a><br /><br /><br />Around the middle of last week, as <a href="http://www.nytimes.com/2008/11/21/business/21finance.html?_r=1&hp">traders joked about Citigroup and the Titanic</a>, New York City went into a deep freeze. This was fortunate, since it's harder to fling oneself over the windowsill once you've installed storm windows.<br /><br />I applaud the folks who wrote the <a href="http://treas.gov/press/releases/reports/cititermsheet_112308.pdf">818-word term sheet for Citi's asset guarantee</a>. This is an amazingly brief document, considering that yesterday I signed a 5-page agreement just to download a free software upgrade. Rounding the Citigroup deal to $300 billion, it works out to $366,748,166 per word.<br /><br />Still, they made room for this paragraph about compensation for Citigroup executives:<br /><br />"An executive compensation plan, <em>including bonuses</em>, that rewards longterm performance and profitability, with appropriate limitations, must be submitted to, and approved by, the U.S. Government."<br /><br />Please excuse the italics on "<em>including bonuses.</em>" I couldn't help myself.<br /><br />But, really, this wasn't surprising. Conservation of Bonuses is one of the natural laws of Proxyland. And just think - those two words cost us only $733,496,332.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-1431860165928901782008-11-17T11:32:00.050-05:002009-01-28T16:20:12.730-05:00Risk Management At AIG: A Few Choice Words<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh67XqxxTrgIEZS2loFjraHKK_CLELG3zkbv4aBR2vMgAx9ZmuEJEhVObIpTVUES35Z_zrRtwLkxap2hZx-5Y-G3nPJwROZiwRWb6kzn-LBIRXIvxdldevaORqkd1z9O8OH_STo/s1600-h/baloney.jpg"><img id="BLOGGER_PHOTO_ID_5269667098667389650" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 119px; CURSOR: hand; HEIGHT: 121px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh67XqxxTrgIEZS2loFjraHKK_CLELG3zkbv4aBR2vMgAx9ZmuEJEhVObIpTVUES35Z_zrRtwLkxap2hZx-5Y-G3nPJwROZiwRWb6kzn-LBIRXIvxdldevaORqkd1z9O8OH_STo/s320/baloney.jpg" border="0" /></a><br /><br /><br /><br />I’ve been busy studying <a href="http://xroads.virginia.edu/~MA04/hess/Slang/slang.html">Depression-era slang</a>. Apparently, that historic period gave us “boondoggle” (1935), “baloney” (1928) and “cojones” (1932).<br /><br />But I took a break to check out the <a href="http://www.treas.gov/press/releases/reports/111008aigtermsheet.pdf">term sheet for Treasury's latest deal with our friends at AIG</a>: last week's $40 billion preferred stock investment, which, per Treasury's <a href="http://www.treas.gov/press/releases/hp1261.htm">press release</a>, is “<em>part of a comprehensive plan to restructure federal assistance to the systemically important company</em>.”<br /><br />Having sold us taxpayers this nifty preferred stock, AIG has a month to “<em>establish...a risk management committee of... AIG’s Board of Directors that will oversee the major risks involved in AIG’s business operations and review AIG’s actions to mitigate and manage those risks</em>.”<br /><br />I take it, then, that AIG - whose risky deals have made it a recidivist recipient of behemoth bailouts - still does not, um, have such a risk management committee? And that Mr. Paulson didn't make them set one up when he lent them $85 billion in September?<br /><br />How is this even possible?<br /><br />Hank, Hank, Hank. This is the kind of thing that makes folks think this bailout boondoggle is a buncha baloney. Go and get yourself some cojones, before it's too late.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-17001952.post-73681233433836916842008-10-27T09:30:00.005-04:002008-12-05T13:16:34.922-05:00Paulson Wimps Out On Executive Pay<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2u6koMQxPvAb17-vv8sO6H2-5fMERLUJX7h-czndRZBpjybxNIqK2tdmRJlHwpZw0_DSmaB_Q4HNQo2kixK7tB_QNsOCwoG74U1DN4m6gZizIPXlt-OcztmclO55HcIayzOLT/s1600-h/golf+flag.jpg"><img id="BLOGGER_PHOTO_ID_5260837632062362306" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 98px; CURSOR: hand; HEIGHT: 149px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2u6koMQxPvAb17-vv8sO6H2-5fMERLUJX7h-czndRZBpjybxNIqK2tdmRJlHwpZw0_DSmaB_Q4HNQo2kixK7tB_QNsOCwoG74U1DN4m6gZizIPXlt-OcztmclO55HcIayzOLT/s320/golf+flag.jpg" border="0" /></a><br /><br />Last week I <a href="http://proxyland.blogspot.com/2008/10/paulson-is-unexpectedly-mean-to-golden.html">praised </a>Mr. Paulson for attacking one obvious flaw in the bailout bill's executive compensation limits: the <a href="http://proxyland.blogspot.com/2007/11/happy-hour.html">Stan O'Neal Memorial Loophole</a>, in which you fire a guy but pretend he left for some other reason so he can keep his golden parachute.<br /><br />Does this mean I’m loving the way Treasury is carrying out Congress's orders to crack down on excessive compensation at bailed-out banks?<br /><br />Heavens, no.<br /><br />First of all, Mr. Paulson is doing the bare minimum the law requires, although he has broad powers to set "<em>appropriate</em>" compensation standards. I can promise you that if I'm appointed Treasury Secretary, I’ll have a lot more fun with this authority.<br /><br />And in an act of extreme naivete, or extreme cynicism, the current Secretary is putting his trust in the firms’ own compensation committees, those souls of generosity who helped bring about this enjoyable economic moment.<br /><br />One of the most useful tools in the bill - potentially - is Congress's directive to get rid of compensation plans that could inspire executives at bailed-out firms to take "<em>unnecessary and excessive risks.</em>” But Mr. Paulson has merely delegated this job to each firm's compensation committee, with a few vague instructions. For example, he <a href="http://treas.gov/initiatives/eesa/docs/Exec%20Comp%20CPP%20Interim%20Final%20Rule.pdf">tells</a> the committees to meet with senior risk officers - once a year - to contemplate the “<em>relationship</em>” between compensation and risk management. Once a year? I'm choking on my gummi bears here, and it's really hard to choke on those things.<br /><br />And Mr. Paulson’s compensation rules cover only the CEO, CFO and the next 3 highest paid officers. This crazily leaves out many of the traders who got us into this mess, and the ones who'll probably get us into the next one.<br /><br />Also, as Carl Icahn <a href="http://www.icahnreport.com/report/2008/10/paulson-demands.html">pointed out </a>on his blog, the golden parachute ban doesn’t kick in unless a severance package adds up to triple an executive’s annual pay. So a bailed-out CEO who’s been averaging $10 million in salary and bonus for the last five years could still get fired for incompetence and head off to Golfland with $29 million in severance.<br /><br />I suspect boards won’t take advantage of that particular loophole in the immediate future, as they won't want to risk the slings and arrows of Andrew Cuomo and Henry Waxman. But, jeez, Hank, this is no time to be such a wuss. Get out there and have some fun.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-9398715548849195402008-10-23T14:13:00.041-04:002008-12-20T10:14:37.633-05:00AIG, Cuomo, and a Possibly Haunted Hunting Lodge<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvVuAZ58syQlWguqxW2V1gIJwo8x8PdO7zzDWSdKeeT6xh9CQhmd-14sV1kZRGovqqVfgIr8E1jS2IGaH_eTIwWBkziavbEqsMGuJJmlMpFOhLTeUqIzSCGyJN7qP58rXwzQlF/s1600-h/puppy.jpg"><img id="BLOGGER_PHOTO_ID_5260418925629919346" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 127px; CURSOR: hand; HEIGHT: 121px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvVuAZ58syQlWguqxW2V1gIJwo8x8PdO7zzDWSdKeeT6xh9CQhmd-14sV1kZRGovqqVfgIr8E1jS2IGaH_eTIwWBkziavbEqsMGuJJmlMpFOhLTeUqIzSCGyJN7qP58rXwzQlF/s320/puppy.jpg" border="0" /></a><br /><br /><br /><br />Perhaps you heard about the <a href="http://www.msnbc.msn.com/id/27201970/">$86,000 trip </a>AIG executives took, post-bailout, to an English hunting lodge named Plumber Manor. Surely AIG could have defended itself by pointing to some of <a href="http://www.tripadvisor.com/Hotel_Review-g551719-d209861-Reviews-Plumber_Manor-Sturminster_Newton_Dorset_England.html">the joint’s poor reviews</a> on TripAdvisor: One visitor termed the service “<em>appalling</em>,” while another complained of “<em>massive cobwebs hanging from the bathroom ceiling</em>.”<br /><br />But, after getting a nasty <a href="http://www.oag.state.ny.us/media_center/2008/oct/AIG%20Letter%2010.15.08.pdf">letter</a> from New York State Attorney General Andrew Cuomo, AIG head Ed Liddy decided to skip the cobweb defense. Pronouncing the company "<em>very grateful for the guidance of Attorney General Cuomo,"</em> Liddy <a href="http://www.oag.state.ny.us/media_center/2008/oct/oct16c_08.html">promised</a> not to spend any more on “junkets” and said he'd help get back some of the millions in severance paid to ousted executives like former CEO Martin Sullivan.<br /><br />In his letter, Cuomo threatened legal action if AIG didn’t cooperate. News reports implied Cuomo had discovered some secret weapon in New York law that allowed him to snatch excess compensation back from overpaid executives. “Where have you been all my life, secret clawback law?” I wondered.<br /><br />However, Cuomo’s “<em>new toy</em>,” as law professor Dale Oesterle <a href="http://lawprofessors.typepad.com/business_law/2008/10/cuomo-has-a-new.html">called it on his blog</a>, turned out to be something old: calling AIG's expenditures a “fraudulent conveyance” under New York’s debtor/creditor statute. This is a tool you’d find in the laws of every state. The idea is that a business that’s going bankrupt can't give out cash to its friends and then greet creditors at the door with an empty piggy bank and mournful puppy eyes.<br /><br />According to the skeptical Professor Oesterle, Cuomo’s trick would work only if he could prove AIG was insolvent when it signed the compensation deals, which was long before the bailout in some cases. (If so, the wording of Cuomo’s letter was kinda sloppy; he talked about money being spent “<em>as the company slipped towards insolvency</em>.”)<br /><br />But law professor Jonathan Lipson <a href="http://www.concurringopinions.com/archives/2008/10/the_biggest_fra_1.html#more">cheered Cuomo on</a>, scorning “<em>accounting and bankruptcy wonks" </em>who<em> </em>say "<em>proving insolvency is a fool’s errand</em>.” In fact, Cuomo is thinking “<em>WAY TOO SMALL,</em>” says Professor Lipson. (His caps, not mine.) He argues that, since all the profits made by some banks and investment banks over the last few years have vanished, maybe “<em>they actually weren’t so healthy financially after all. Which may mean that all those bonuses and crazy severance packages... should, in theory, be as vulnerable as Joe Cassano’s $1 million/month consulting fee at AIG</em>.”<br /><br />I’m not afraid of cobwebs, so I suggest we all repair to Plumber Manor for Halloween and discuss these legal niceties by the fire.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-59805342560536592172008-10-22T10:16:00.032-04:002008-11-11T11:35:55.374-05:00A Bull Market in Compensation Rules<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9X3T9ifHHBztYx-Fg8YQ8znJqm1OQXXm0sPL02zOHE85yAq6jF8ZcviWh9qc7akKWm9XGuoapkbfkxQdu3cnKvS5xhyphenhyphenV72vularVg2ytsOMtwl6EgPpAQxXYcnQlN1h_bxAJ_/s1600-h/mr.+freeze.jpg"><img id="BLOGGER_PHOTO_ID_5259982406828993762" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; CURSOR: hand" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9X3T9ifHHBztYx-Fg8YQ8znJqm1OQXXm0sPL02zOHE85yAq6jF8ZcviWh9qc7akKWm9XGuoapkbfkxQdu3cnKvS5xhyphenhyphenV72vularVg2ytsOMtwl6EgPpAQxXYcnQlN1h_bxAJ_/s320/mr.+freeze.jpg" border="0" /></a><br /><br /><br /><br />In a noble and unsung effort to bail out lawyers and compensation consultants, last week the Treasury Department <a href="http://www.treas.gov/press/releases/hp1208.htm">announced</a> 3 separate sets of executive compensation rules under the bailout bill.<br /><br />The <a href="http://treas.gov/initiatives/eesa/docs/Exec%20Comp%20CPP%20Interim%20Final%20Rule.pdf">first set of rules</a>, which I <a href="http://proxyland.blogspot.com/2008/10/paulson-is-unexpectedly-mean-to-golden.html">posted about</a> yesterday, kicks in when banks get a direct capital infusion (in what Treasury’s now calling the CPP, or Capital Purchase Program).<br /><br />A <a href="http://treas.gov/initiatives/eesa/docs/Exec%20Comp%20TAAP%20Notice.pdf">second set of rules</a> will hit if (when?) <a href="http://www.time.com/time/business/article/0,8599,1848055,00.html">Neel Kashkari</a> (that loyal Robin to Mr Paulson’s Batman) starts buying mortgage-related assets from banks using some kind of auction process. They're calling this program the TAAP, which I hope doesn't piss off the <a href="http://www.taap.org/">Texas Association of Addiction Professionals</a>.<br /><br />Then there's a <a href="http://treas.gov/initiatives/eesa/docs/Exec%20Comp%20PSSFI%20Notice.pdf">third set of rules </a>for direct purchases of really crappy assets. This is the Direct Purchase Program, or DPP, which also includes the PSSFI, or Program for Systematically Significant Failing Institutions. I've put these aside until I shed the carbohydrate brain fog from the jumbo bag of potato chips I swallowed to get through the first two.<br /><br />Some banks could end up being covered by more than one of these at a time. And the IRS is spewing out lots of new compensation rules for the bailout as well.<br /><br />Thoroughly confused? Try this handy <a href="http://www.cgsh.com/cgsh/EESAExecutiveCompensationChart.pdf">chart</a>, courtesy of Cleary Gottlieb, where all the lawyers really are above average. Still confused? Feel like you need an attorney or consultant to explain all these rules? Wonderful! Spending during a recession is so patriotic.<br /><br />Speaking of Batman and Robin, in the 1997 film of that name, the heroes fought a villain named “Mr. Freeze,” played by Arnold Schwarzenegger. Turns out the guy's first name was Credit.<br /><br /><em>Note: This post has been corrected. I made a mistake, but I'm not going to tell you what it was.</em>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-17001952.post-70884031628302856622008-10-21T11:19:00.056-04:002008-10-23T12:54:33.952-04:00Paulson Is Mean To Golden Parachutes<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguqsQKGc9OCQXfgIRmin5-CFzmyvyxzE2xXrQA58AwtO45q5PslhwDzXFXEcAh3o_gbVSLcZfgq83GDlsdSUb3yWtvUSnEzcPzL9M4tzW1bK3KmayPgnHOcDSA2oGqHmNVltQ7/s1600-h/rain.jpg"><img id="BLOGGER_PHOTO_ID_5259638831614866546" style="FLOAT: left; MARGIN: 0px 10px 10px 0px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguqsQKGc9OCQXfgIRmin5-CFzmyvyxzE2xXrQA58AwtO45q5PslhwDzXFXEcAh3o_gbVSLcZfgq83GDlsdSUb3yWtvUSnEzcPzL9M4tzW1bK3KmayPgnHOcDSA2oGqHmNVltQ7/s320/rain.jpg" border="0" /></a><br /><br /><br />There's a chance that Bailoutland could turn out to be a pretty gloomy place for CEOs accustomed to life on the sunny slopes of Proxyland.<br /><br />Under the bailout bill, banks at which the Treasury throws capital aren’t allowed to make “golden parachute payments” if they boot out top managers - not until we taxpayers and our money are outta there, at least. Mr. Paulson, in <a href="http://www.treas.gov/initiatives/eesa/docs/Exec%20Comp%20CPP%20Interim%20Final%20Rule.pdf">guidelines</a> put out last week, is valiantly trying to prevent the banks from fudging their way out of this one. (The IRS, <a href="http://benefitslink.com/IRS/notice2008-94.pdf">with its related rules</a>, is doing the same.)<br /><br />The golden parachute ban technically applies only when an executive's departure is “involuntary” - what you and I would call getting fired. But in the magical place that is (or was) Proxyland, lawyers' nimble pens have transformed many a firing into something more pleasant-sounding, and more lucrative. For example, you may remember how Merrill, after announcing stunning losses, <a href="http://proxyland.blogspot.com/2007/10/happy-talk.html">said</a> Stan O’Neal had suddenly decided to <a href="http://proxyland.blogspot.com/2007/11/happy-hour.html">take his $161 million </a>and “retire.” (If only we’d had Sarah P. around back then to help with the winking.)<br /><br />But Paulson's guidelines are wise to such alchemy. They explicitly pooh-pooh some of Proxyland's time-honored methods for hiding an involuntary termination, like letting an employment contract expire or having the executive resign for “good reason.” Nice try, say the guidelines, but if the facts show the guy was really fired, there’ll be no golden parachute.<br /><br />How well this works will depend on whether boards tell the truth and - if they don't - whether the feds have the will (and the resources) to second-guess the pretty stories told to protect the feelings, and severance packages, of fired executives. And the guidelines are full of loopholes that might be fun to blog about. Nevertheless, the air of sour cynicism wafting through these rules feels like a refreshing breeze.<br /><br /><br />*******************************************************************************************<br />If you like reading about this executive compensation stuff, you should check out Michael Melbinger's <a href="http://www.winston.com/index.cfm?contentID=19&itemID=159&itemType=25">blog</a>, which I've just stuck on my blogroll. We need all the help we can get.<br /><br /><em><span style="font-size:85%;">Image source: Daylife.com</span></em>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-17001952.post-64636133762600918712008-10-17T16:11:00.043-04:002008-10-18T21:34:30.098-04:00Do Paulson and Bernanke Watch "House"?<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtWiElBJuV389wiYQ3DLh55ShXv_9SIQhDYXUMGsyZbPh5beCkRstR8fMlM93-g9GGC5M3w8D1rVBOaz0mzXEDAl1uin6BAc1F2JxiK9OSg6-GPDhAdgrSJ7pm8aexSevCnwfY/s1600-h/house.jpg"><img id="BLOGGER_PHOTO_ID_5258222078801412866" style="FLOAT: left; MARGIN: 0px 10px 10px 0px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtWiElBJuV389wiYQ3DLh55ShXv_9SIQhDYXUMGsyZbPh5beCkRstR8fMlM93-g9GGC5M3w8D1rVBOaz0mzXEDAl1uin6BAc1F2JxiK9OSg6-GPDhAdgrSJ7pm8aexSevCnwfY/s320/house.jpg" border="0" /></a><br /><br /><br /><br /><br />I doubt Mr. Paulson and Mr. Bernanke have time to enjoy prime-time TV. Too bad, because their economic interventions are starting to resemble an extended episode of House, minus the snappy dialogue.<br /><br />For those of you who don’t watch the show, Dr. House is this brilliant but misanthropic guy who diagnoses mysterious life-threatening ailments using a reckless trial and error process. In the first third of the show he typically kills the patient, who then gets revived with those jumper cable thingies. Then he pumps the victim full of powerful meds, bringing on internal bleeding, liver failure and/or a brain aneurysm. This somehow helps House to figure out what's wrong and, after more jumper cables, to find a successful treatment that usually involves drilling a hole in the patient’s skull without anesthesia.<br /><br />You can pretty much count on the fact that, 2/3 of the way through each episode, the patient will be on life support and no one will have any idea which symptoms come from the underlying disease and which come from House’s ministrations.<br /><br />With the economy in critical condition, Bernanke and Paulson have administered, all at once, a barrage of drastic and experimental treatments. It’s too soon to tell if these moves have been wise, though you have to admit they’ve been gutsy. But as this <a href="http://online.wsj.com/article/SB122408148439236359.html">article</a> in yesterday’s <em>WSJ</em> points out, the cure and the disease are starting to merge.<br /><br />The authors, Liz Rappaport and Serena Ng, give a bunch of examples of how government intervention is skewing markets. For example, the spread on Fannie bonds has risen because money managers are drawn to bank debt, with its shiny new FDIC guarantee. The commercial paper market is discombobulated because there are different backstops for different products. And looking forward, the cost of the bailout (and Barry Ritholtz points out that it's <a href="http://bigpicture.typepad.com/comments/2008/10/bailout-price-t.html">way beyond $700 billion</a>) will force the government to issue more debt, raising yields on Treasuries. This will probably drive up mortgage rates, which could further slow the pulse rate of the housing market.<br /><br />Let's hope the Federal Reserve has stocked up on jumper cables.<br /><br /><em><span style="font-size:85%;">Image source: fox.com</span></em>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-31891622221065007402008-10-16T12:25:00.055-04:002009-01-09T18:39:46.080-05:00Iceland's Female Bailout<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBrejHFDJiPixiveMaLCWiE4lrpktnfVi6tke-1SANk9o-6WiUSBObs1-UuB3WfGDXyHqKS-52-lwHAVaQHUoX0rH63au9KuZ4KjQR1dreD9fXfO356A_YleepX2Eud1uZG5fu/s1600-h/ffjord.jpg"><img id="BLOGGER_PHOTO_ID_5257925147222783810" style="FLOAT: left; MARGIN: 0px 10px 10px 0px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBrejHFDJiPixiveMaLCWiE4lrpktnfVi6tke-1SANk9o-6WiUSBObs1-UuB3WfGDXyHqKS-52-lwHAVaQHUoX0rH63au9KuZ4KjQR1dreD9fXfO356A_YleepX2Eud1uZG5fu/s320/ffjord.jpg" border="0" /></a><br /><br /><br /><br /><br />Today we're giving out the “No, Really, I Double-Swear This Headline Isn’t From <em>The Onion</em>” award. And the winner is this <em>Financial Times </em>story:<a href="http://www.ft.com/cms/s/0/6107e59c-9988-11dd-9d48-000077b07658.html"> Iceland Calls in Women Bankers to Clean Up ‘Young Men’s Mess’</a>.<br /><br />Yes, reports the FT, “<em>Iceland has turned to two women to rebuild its financial system after the banking empire built by its young, male business-schooled elite collapsed</em>.” So Iceland’s two nationalized banks, New Landsbanki and New Glitnir, are now being run by Elin Sifgusdottir and Birna Einarsdottir. (Iceland has these nifty gender-based surnames, so you never have to worry about how to address a business letter to someone with a first name like Terry.)<br /><br />The story quotes an anonymous government official (gender unidentified) who remarked: “<em>It’s typical, the men make the mess and the women come in to clean it up</em>.”<br /><br />That's cool, Iceland, but Norway is way ahead of you. Two years ago I <a href="http://proxyland.blogspot.com/2006/09/girls-girls-girls.html">noted</a> that the Oslo Stock Exchange had decided company boardrooms should look less like Monday Night Football and more like The View. They began imposing a female quota - a whopping 40% - for boards of directors at companies listed on the exchange. And the vast majority of firms have now <a href="http://www.guardian.co.uk/lifeandstyle/2008/mar/06/women.discriminationatwork">managed to get there</a>, kicking out a bunch of men in the process.<br /><br />I have no empirical proof that all those women in Norway’s boardrooms have something to do with the fact that the country's banks are <a href="http://www.guardian.co.uk/business/feedarticle/7882704">still healthy</a>. But if you try to talk me out of this idea, I swear I’ll scratch your everloving fjord out.<br /><br /><br /><em><span style="font-size:85%;">Image source: Britannica.com</span></em>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17001952.post-69408914091757342142008-10-14T12:26:00.043-04:002009-01-15T12:01:29.734-05:00Carl Icahn Starts a Club<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh50dzagEY7jfC-1msI5Mvw94607S2nDvjBg6V8O4O4KAnf787VeZWF4okJDOqV56WO9iPl7GdCAw4zptW8I2z8MJeKuWBxJzPRQe6gYv38viEZ-UuyFmirp7gzQqLgTOa8waTR/s1600-h/torches2.jpg"><img id="BLOGGER_PHOTO_ID_5257148716458869106" style="FLOAT: left; MARGIN: 0px 10px 10px 0px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh50dzagEY7jfC-1msI5Mvw94607S2nDvjBg6V8O4O4KAnf787VeZWF4okJDOqV56WO9iPl7GdCAw4zptW8I2z8MJeKuWBxJzPRQe6gYv38viEZ-UuyFmirp7gzQqLgTOa8waTR/s320/torches2.jpg" border="0" /></a><br /><br /><br /><br />A couple of weeks ago I <a href="http://proxyland.blogspot.com/2008/09/vacant-seats.html">mentioned</a> Carl Icahn’s rant about big fat lazy do-nothing rubber-stamping corporate boards.<br /><br />Since then, some of us have become distracted by other events, but not Carl. He’s continued <a href="http://www.icahnreport.com/">blogging heartily </a>about the clueless and lackadaisical behavior of nicely paid outside directors. And, hey, it's hard to argue with that one. Check out his <a href="http://www.icahnreport.com/report/2008/10/where-was-the-l.html">latest post on Lehman</a>. (How mean of Nell Minow to note, during last week's <a href="http://oversight.house.gov/story.asp?ID=2208">Congressional hearing</a>, that the risk management committee of Lehman’s board met only twice a year during 2006 and 2007, and how mean of Carl to repeat it.)<br /><br />But while CEOs like Richard Fuld sweat before Congress, and Anderson Cooper <a href="http://ac360.blogs.cnn.com/2008/10/09/ten-most-wanted-culprits-of-the-collapse/">broadcasts mug shots </a>of his "10 Most Wanted: Culprits of the Collapse," boards have mostly gone missing from the rogues' gallery.<br /><br />So when the angry torch-carrying mob passes by, Carl will be there to wave it in the direction of directors. (“Get ‘em, guys! They’re up in the skybox!”) To that end, he's forming a new group, the United Shareholders of America. The idea is to get enough pissed-off shareholders together to counter folks like the Business Roundtable, who have gloriously defended entrenched boards against compensation caps, proxy access and other threats to the American way of life.<br /><br />If you're so inclined, you can <a href="http://www.icahnreport.com/report/2008/10/join-the-united.html">join the group</a> right on Carl's blog.<br /><br />I know why he's calling it United Shareholders of America. Those <a href="http://www.icahnreport.com/report/2008/09/corporate-waste.html">wasteful managers </a>who make Carl so mad should watch and learn, because he sure knows how to save money. Every time Joe Sixpack yells “USA” at a political rally, Carl’s group gets free publicity.<br /><br /><em>Image source: epikwhite</em>Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-17001952.post-32329631241094260332008-10-06T12:58:00.040-04:002008-10-18T19:10:19.418-04:00Those Mustard Seeds in the Bailout Bill<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWhBqC4cKEkZICWLQ8MSxLvFCs0iaJPY86Rq-palSOJv8OdehAoOqKuMMbWCVtdxPbsWzFGwZLMywM8s0KXZ7bog1GNAED1F42dgjgWMAg3SyIkc7uV9lmxDQjIuNOqqIgg1Rz/s1600-h/shriner.jpg"><img id="BLOGGER_PHOTO_ID_5254091756405169234" style="FLOAT: left; MARGIN: 0px 10px 10px 0px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWhBqC4cKEkZICWLQ8MSxLvFCs0iaJPY86Rq-palSOJv8OdehAoOqKuMMbWCVtdxPbsWzFGwZLMywM8s0KXZ7bog1GNAED1F42dgjgWMAg3SyIkc7uV9lmxDQjIuNOqqIgg1Rz/s320/shriner.jpg" border="0" /></a><br /><br /><br /><br /><br /><br />I love this section of the <a href="http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.1424.enr:">bailout legislation</a> because it sounds as if Congress is writing a cookbook:<br /><br /><em>Paragraph (2) of section 40A(d)...is amended by striking "and mustard seeds"... and inserting "mustard seeds, and camelina."</em><br /><br />There's a lot to hate about what happened in Washington last week, and not just the pork. For example, people are skeptical about the legislation’s recipes for making executive compensation less yummy. And sure, it would be more fun to stick CEOs in the stocks (you know, the kind the Puritans put in public squares) and make them watch endless footage of Lou Dobbs and/or Sarah Palin.<br /><br />But there’s a chance these compensation and governance provisions could end up biting some executives. Like the rest of the bill, these sections give the Treasury Secretary mucho mucho discretion. Mr. Paulson, given his Goldman roots, isn’t likely to get creative on compensation matters. But soon we'll have a new President, and almost certainly a new Secretary.<br /><br />The legislation says that if a financial institution sticks Treasury with assets so crappy that “<em>no bidding process or market prices are available</em>” and the feds take a “<em>meaningful</em>” share of the firm's debt or equity, Treasury “<em>shall require</em>” (nothing optional here) that the institution “<em>meet appropriate standards for executive compensation and corporate governance</em>.”<br /><br />With a little imagination, this mandate could force real change, at least at firms that are desperate to unload stinky securities. The bill lists some serious compensation and governance standards, and I don’t see anything that stops Treasury from adding others. How about by-laws mandating proxy access? Or perk policies giving executives the same cars the Shriners get?<br /><br />The legislation tells the Secretary to trash compensation plans that motivate folks "<em>to take unnecessary and excessive risks that threaten the value of the financial institution."</em> (Again, this applies only when Treasury buys securities from the institution in a no-bid process.) Hmm...how do you make corporate dice-rolling less attractive? Well, you could allow only 1950s-style fixed compensation. You know, like salary?<br /><br />This would be considered extreme and radical in Proxyland, but watch out, financial industry CEOs. The next Treasury Secretary could be Charlie Munger, Ben Stein or Ralph Nader. Like mustard seeds, these guys pack a nasty punch.<br /><br /><em><span style="font-size:85%;">Image source: yakimite21</span></em>Unknownnoreply@blogger.com0