Posted by nithi.vivatrat on August 25, 2009
Bloomberg reports that the Federal Reserve, losing a federal lawsuit yesterday, must identify the financial firms that received special emergency loans. You may remember that the Fed refused to disclose any details of these loan programs, arguing that the knowledge that a specific firm received emergency loan would undermine its competitiveness or even spark a run on that bank — so of course, it would be safer to keep that knowledge solely in the Fed’s wise hands. The details withheld by the Fed included the names of the firms, the loan amounts, and the assets put up for collateral.
Fortunately, Manhattan Chief U.S. District Judge Loretta Preska rejected this speculation: “Conjecture, without evidence of imminent harm, simply fails to meet the Board’s burden” of proof.
I agree. As taxpayers, we became — like it or not — lenders to and investors in these firms. We should have the right to see what’s in our portfolio. I for one look forward to seeing these details come out — Judge Preska gave the Fed five days to comply.
Posted by nithi.vivatrat on August 24, 2009
In an opinion piece in yesterday’s Financial Times, NYU economics professor Nouriel Roubini took issue with the mainstream speculation of an imminent economic recovery, arguing that the recovery will be “U-shaped, anaemic and below trend for at least a couple of years, after a couple of quarters of rapid growth driven by the restocking of inventories and a recovery of production from near Depression levels.” He goes on to list seven systemic economic conditions dragging out a recovery.
Further, Roubini contends that, in fact, we could be facing a W-shaped, double-dip recession, caused by the Catch-22 of ending government bailout/stimulus programs (undermine recovery if they end, drive inflation risk and then interest rates if they don’t) as well as speculation on commodities.
Well-articulated, sobering analysis — must read for anyone seriously interested in planning for what’s ahead.
Posted by nithi.vivatrat on April 8, 2009
When it comes to designing compensation programs, my good friend and experienced HR executive repeats this mantra: “compensation drives behavior.” As I talk to people about the incentives created by the traditional commission fee structure in real estate, this refrain often comes to mind. I thought of it again as I read the April 1 Washington Post article “Four Banks Are First to Return U.S. Aid,” discussing that, while returning taxpayer money would typically be viewed as a good thing, in this case it threatens to undermine the goal of increasing lending (so much irony here).
The primary reason these banks are rushing to repay this money?
“Banks seeking permission to repay the Treasury, however, argue that compensation restrictions are the real threat to lending. Neil M. Barofsky, the special inspector general who oversees the investment program, testified before Congress yesterday that a survey of nearly 400 aid recipients found widespread concern that limits on pay will hamper retention of top employees, putting aid recipients at a competitive disadvantage.”
It should not be surprising that executives at banks receiving TARP money, especially those that were not in bad shape, would prefer not to have constraints on their pay. Indeed, that same day, the House of Representatives approved the Pay for Performance Act of 2009 that prohibits “unreasonable or excessive” compensation or bonus payments that are “not directly based on performance-based measures” (it’s important for the Members to show the appropriate outrage to their constituents).
To recap: we got into this mess partly because certain people were getting highly compensated for making loans they shouldn’t have been making; now that we need lending to increase to stimulate the economy, we’re going to implement curbs on compensation to the executives at the banks that take federal funds intended to spur that lending. Anyone else confused/frustrated/angry?
In conclusion: never underestimate the unintended behaviors and outcomes that compensation methods can create.
Posted by nithi.vivatrat on March 3, 2009
I have transparency on the brain.
There were two articles in the New York Times today that got it stuck in my head. The first was an editorial about the back room machinations that surround the repeated AIG bailouts (we’re at a total of $160 billion in committed funds to this company, which could fail regardless). The second was an article discussing the potential conflicts caused by the pervasive and deep association of medical school educators with drug companies.
In either case, transparency is the first step to figuring out what to do next. In the absense of that, we’re just wandering around blindfolded.
On that note, I thought that StimulusWatch.org, a new site to track where the stimulus money is going, looks pretty cool.
Posted by nithi.vivatrat on January 26, 2009
The New York Times has this very interesting analysis of the evolving (and increasing) manner in which the federal government is involved in our financial sector. A must-read (in my humble opinion) for anyone interested in the benefits and risks for all of us as taxpayers and stakeholders.
