Wednesday, February 4, 2009

Wednesday Morning Mix reports, "Obama to Limit Executive Pay at Companies Getting (most) Aid".

Our response is that this is pure PR on the Obama Administration's part. Mr. Obama wanted the multi-million a year "earner" Tom Daschle to help him surgerize (as we say in medicine) the health care system, no matter that in addition when he finally got around to paying his back taxes, he forgot to pay the 2.9% Medicare surtax that he voted for when he was a Senator.
When Mr. Obama agrees that lawyers such as his high-earning wife, best-selling authors such as himself, actors and actresses, and athletes should all have pay caps of $500,000 per year, then we will be OK with government-mandated salaries for executives private companies.

In response to the above Obama pay proposal, Yves Smith at Naked Capitalism appears to find this not strict enough: "Obama's Executive Comp Proposals: Closing the Gate After the Horse is in the Next County". She points out ways that banks can get around this and raises a number of relevant points. She states that "banks appear to need to be reined in forcibly".

The viewpoint here is that depository institutions should be regulated similarly to utilities. Nassim Taleb has suggested in an interview that they could be government-owned. We would suggest that they could have private status, just like the many electric and water/sewer utilities, but be closely regulated. Implicit in this is the return of a version of Glass-Steagall, so that depository institutions are not part of a holding company that also "gambles". We would also want to limit FDIC insurance to only protect the small saver. The "rich" can buy Treasuries if they want a government guarantee. This would mean going back to a much lower level of insurance of bank deposits.

Mish has a hard-hitting attack on the bankers that comes from an angle that suits us here at Econblog Review. It is to let the institutions that are bankrupt fail. He clearly argues that Government should stay away from setting salaries. Please read this post. The only major point that Econblog Review does not have an opinion on is his for-now quixotic plea to abolish the Fed and fractional reserve lending.

Barry Ritholtz at The Big Picture appears to be having difficulty with the Obama Administration's trial balloons on the financial crisis, in today's post 'Bad Bank' versus 'Insurance Wrap'. His comments are also "right on" in our opinion. He was a vocal "Obamacan" = Republican for Obama. A non-Republican early supporter of Mr. Obama is George Soros, who has also been editorializing against the bad bank proposal. One wonders if there is discontent in the ranks.

It does appear that the flood of money-printing has been stabilizing the markets, as yield disparities between Treasuries and high-grade munis has, for example, begun to shrink. Some of that money has made its way into the stock market, which remains fundamentally risky, not fundamentally cheap as in the post-crash 1930's-1940's or the 1974-83 period. For example, Kraft reported down earnings today. It has a $39 B market cap and about a negative $16 B tangible book value.

And to end on a happier note, please read "Looking for the Sun" from CR at Calculated Risk, perhaps the dean of financial blogs. CR makes the point, with more detail, that this blog has made repeatedly, which is that we are in a cycle that will bottom on its own, so that we needn't panic; but we do need to reform the banking system and help those most hurt by the poor economy.

Copyright (C) Long Lake LLC 2009

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