NYT: End Bonuses for Bankers - By Nassim Nicholas Taleb
I HAVE a solution for the problem of bankers who take risks that threaten the general public: Eliminate bonuses.
More than three years since the global financial crisis started, financial institutions are still blowing themselves up. The latest, MF Global, filed for bankruptcy protection last week after its chief executive, Jon S. Corzine, made risky investments in European bonds. So far, lenders and shareholders have been paying the price, not taxpayers. But it is only a matter of time before private risk-taking leads to another giant bailout like the ones the United States was forced to provide in 2008.
The promise of “no more bailouts,” enshrined in last year’s Wall Street reform law, is just that — a promise. The financiers (and their lawyers) will always stay one step ahead of the regulators. No one really knows what will happen the next time a giant bank goes bust because of its misunderstanding of risk.
Instead, it’s time for a fundamental reform: Any person who works for a company that, regardless of its current financial health, would require a taxpayer-financed bailout if it failed, should not get a bonus, ever. In fact, all pay at systemically important financial institutions — big banks, but also some insurance companies and even huge hedge funds — should be strictly regulated.
- Hussman Weekly Market Comment: What If The Fed Throws A Qe3 And Nobody Comes?
In short, the effect of quantitative easing has diminished substantially since 2009, when risk-premiums were elevated and amenable to being pressed significantly lower. At present, risk-premiums are thin, and the S&P 500 has retreated very little...
- Warren Stephens: How Big Banks Threaten Our Economy
As of this past January, any bank operating in the United States with more than $50 billion in assets must have the business equivalent of a living will—plans for what to do in the event of catastrophe. Every well-managed business should have contingencies...
- Robert G. Wilmers' 2011 Letter To Shareholders
Thanks to Lincoln for pointing this out. Warren Buffett often recommends Wilmers’ letters (as well as Jamie Dimon’s). The letter is on pages 7-23 of the PDF linked to below, or there is an abridged version HERE. As relatively good a year 2011 was...
- Secret Fed Loans Gave Banks $13 Billion Undisclosed To Congress
Bernanke put out a response to this article, and then Bloomberg put out a reply to that response, standing by their reporting (HERE). As Whitney Tilson described it: "Here’s the first [article], by Bloomberg, which reveals that during the financial...
- Corzine Forgot Lessons Of Long-term Capital - By Roger Lowenstein
Thirteen years ago, when the hedge fund Long-Term Capital Management was desperately negotiating with Wall Street banks for a bailout, Jon Corzine, the chief executive officer of Goldman Sachs Group Inc. (GS), called John Meriwether, LTCM’s founder,...