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Okay. Meanwhile, 17 bailed-out banks overpaid executives with tax payer money. If my startup failed, man it sure would be nice to get a $MM exit. http://www.npr

by pxlpshr 16y ago

Okay. Meanwhile, 17 bailed-out banks overpaid executives with tax payer money. If my startup failed, man it sure would be nice to get a $MM exit. http://www.npr.org/templates/story/story.php?storyId=128719536 http://www.npr.org/templates/story/story.php?storyId=1287195... Wall Street needs to return to partner-driven approach like law firms instead of taking risks with other people's money.

chasingsparks 16y ago
Subjectively, I think the executives are overpaid in general. However, bailed out bank executives are objectively overpaid for the reason you stated: you can't have capitalism without losses. In fact, I don't think they shouldn't have been bailed out at all. The banking system probably had to be rescued, but bailouts mangle capitalism. Banks that needed bailout should have been nationalized with the very explicit constraint that they be re-privatized after the storm had passed. (Note: I mostly just parroted Nassim Taleb's argument from two years ago.)
- dasil003 16y ago
  Did they have to be rescued? We already have FDIC to ensure the little guy doesn't lose his shirt. Sure, top financial experts claim that if some those big insolvent banks failed then the economy would die. Well, maybe or maybe not, but most of the top experts testifying to congress had an a tremendous conflict of interest with regard to their personal careers and holdings. We don't have any example of what would have happened... somehow I doubt people would just stop producing though. Also, even if we accept that a bailout was necessary, then the taxpayers should have owned those banks. The government should have seized them, purged the toxic assets, and then re-privatized when the books were clear. This is, as far as I know, the textbook way that the World Bank recommends bank insolvency be handled, recommended over and over again to third-world countries, but somehow never got seriously considered when it's big American banks.
  - hga 16y ago
    Actually, plenty of them didn't have to be rescued; note this from the report: "Payments largely from firms that have reimbursed taxpayers: Eleven of the seventeen firms the Special Master has contacted regarding his proposal have fully reimbursed the taxpayers. Of the $1.7 billion in payments identified by the Special Master, more than 90% were made by firms that fully repaid, or were taken into consideration in the Special Master's determinations regarding "exceptional assistance recipients."" I don't know what the last of that means, but the rest suggests that most of these "overpaid executives" worked at firms that never needed a bailout, but were e.g. part of Paulson's "you are not exiting this room until you sign this agreement" 3rd World dictatorship riff, which was done so that the public at large wouldn't know which companies were actually in deep trouble (a strategy that was necessarily well publicized at the time).
    - sethg 16y ago
      Yes, in 2010, a lot of these companies have been able to pay back the government. But in 2008 the whole system of credit was seizing up because lenders and investors, not knowing when the next pile of shit would hit the fan, were panicking. We can’t send a time machine back to 2008 and announce, “we are from the future and we certify that you can lend to these guys at 5%”.
      - hga 16y ago
        Indeed; contra dasil003, it's very clear to me that the perception of counterparty risk had gotten so high that extreme measures like the Paulson stunt and TARP were required to prevent a repeat of the cascading bank failures that in the Great Depression was triggered by this failure: http://en.wikipedia.org/wiki/Creditanstalt http://en.wikipedia.org/wiki/Creditanstalt And so given all that, I'm not so exercised about either the "bailouts" or the "excessive executive compensation" (Does anyone want 3rd raters to run these institutions?) Sweden pulled off something like what dasil003 recommends, and while I like it in principle I'm utterly unconvinced our political ruling class had any chance of pulling it off.
      - anamax 16y ago
ojbyrne 16y ago
If you define a failed startup as one that's never made a profit, there's no shortage of them with "$MM exits." Bebo, anyone? Plus its easy to find startups where founders or execs took money off the table long before there was a whiff of profit. And since many VC funds include CALPERS as a large investor, it often ends up that "tax payer money" is the ultimate source of the funds.

by pxlpshr 16y ago

chasingsparks 16y ago

Subjectively, I think the executives are overpaid in general. However, bailed out bank executives are objectively overpaid for the reason you stated: you can't have capitalism without losses. In fact, I don't think they shouldn't have been bailed out at all. The banking system probably had to be rescued, but bailouts mangle capitalism. Banks that needed bailout should have been nationalized with the very explicit constraint that they be re-privatized after the storm had passed. (Note: I mostly just parroted Nassim Taleb's argument from two years ago.)

dasil003 16y ago
Did they have to be rescued? We already have FDIC to ensure the little guy doesn't lose his shirt. Sure, top financial experts claim that if some those big insolvent banks failed then the economy would die. Well, maybe or maybe not, but most of the top experts testifying to congress had an a tremendous conflict of interest with regard to their personal careers and holdings. We don't have any example of what would have happened... somehow I doubt people would just stop producing though. Also, even if we accept that a bailout was necessary, then the taxpayers should have owned those banks. The government should have seized them, purged the toxic assets, and then re-privatized when the books were clear. This is, as far as I know, the textbook way that the World Bank recommends bank insolvency be handled, recommended over and over again to third-world countries, but somehow never got seriously considered when it's big American banks.
- hga 16y ago
  Actually, plenty of them didn't have to be rescued; note this from the report: "Payments largely from firms that have reimbursed taxpayers: Eleven of the seventeen firms the Special Master has contacted regarding his proposal have fully reimbursed the taxpayers. Of the $1.7 billion in payments identified by the Special Master, more than 90% were made by firms that fully repaid, or were taken into consideration in the Special Master's determinations regarding "exceptional assistance recipients."" I don't know what the last of that means, but the rest suggests that most of these "overpaid executives" worked at firms that never needed a bailout, but were e.g. part of Paulson's "you are not exiting this room until you sign this agreement" 3rd World dictatorship riff, which was done so that the public at large wouldn't know which companies were actually in deep trouble (a strategy that was necessarily well publicized at the time).
  - sethg 16y ago
    Yes, in 2010, a lot of these companies have been able to pay back the government. But in 2008 the whole system of credit was seizing up because lenders and investors, not knowing when the next pile of shit would hit the fan, were panicking. We can’t send a time machine back to 2008 and announce, “we are from the future and we certify that you can lend to these guys at 5%”.
    - hga 16y ago
      Indeed; contra dasil003, it's very clear to me that the perception of counterparty risk had gotten so high that extreme measures like the Paulson stunt and TARP were required to prevent a repeat of the cascading bank failures that in the Great Depression was triggered by this failure: http://en.wikipedia.org/wiki/Creditanstalt http://en.wikipedia.org/wiki/Creditanstalt And so given all that, I'm not so exercised about either the "bailouts" or the "excessive executive compensation" (Does anyone want 3rd raters to run these institutions?) Sweden pulled off something like what dasil003 recommends, and while I like it in principle I'm utterly unconvinced our political ruling class had any chance of pulling it off.
    - anamax 16y ago

ojbyrne 16y ago

If you define a failed startup as one that's never made a profit, there's no shortage of them with "$MM exits." Bebo, anyone? Plus its easy to find startups where founders or execs took money off the table long before there was a whiff of profit. And since many VC funds include CALPERS as a large investor, it often ends up that "tax payer money" is the ultimate source of the funds.