It would have been so much simpler if the White House had asked the acerbic economist Nassim Taleb what to do about the Wall Street bonus babies. Taleb, the great rebuker, says the bonus problem is easy, EASY to solve. Just ask this question: “Is society subsidizing your risk-taking or not?” If so, no bonus!
It’s a simple message. The public could sip it with their morning java; re-tweet with glee; enjoy at the water cooler or in the unemployment line: No Bonus For You!
Instead we have formulas and the language of bureaucrats. That’s not what we need! We need an avenger, someone to give voice to the pain of the past two years; an angel of justice who can give voice to the millions who lost jobs, homes, and hope. We need a brilliant general, a strategist who can make us feel that no one bank or financial product can put the system at risk ever again. We need the bulwark of capitalism restored. We need to know that a bank can fail and the system will barely hiccup.
Kenneth “I-am-not-a-czar” Feinberg, alas, is an unsatisfactory avenger. He is more bureaucrat than bearer of justice. And he’s touchy, bristling at his informal title: ” ‘Czar sounds as if I’m issuing imperial edicts that have to be followed without question. I think overall it was a very healthy degree of cooperation. And I’m grateful to these seven companies for working closely with me on a voluntary basis,’ he said.”
Grateful to the wards of the state? Can anyone here say regulatory capture? Once more, an old Washington hand has negotiated in private with the people who nearly brought down the economy. It is small satisfaction that 175 people on Wall Street who may or not may not have been responsible for the Great Recession will make half as much money as they did when 7,000 people a month are watching their unemployment benefits run out or when taxpayer-owned banks like Citi are raising rates to long-time customers to 29.99%.
That is part of the unfinished business left behind by former Treasury Secretary Henry Paulson, Timothy Geithner and Ben Bernanke. It’s astonishing that they didn’t think to do what any shrewd Wall Street investor would have done: Put a hefty price tag on assistance. Wah, wah — the TARP babies whined that they paid about 15% on an annualized basis on the billions that taxpayers lent them to save their butts. That is a stink-o return-o. (And not all the money has been returned, so the bottomline is far from settled.). Geez, if you study credits that look to be on the brink of bankruptcy, returns for senior debt run about 40% or so.
In other words, taxpayers got hosed.
And now 175 top Wall Street execs will have to dial back on their wealth. (Make that 174. The new CEO At AIG is exempt form the rules.) A true avenging angel would have paraded the likes of former Wall Street Titans like Robert Rubin and Stan O’Neal, announcing clawbacks from the tens of millions they reaped because they looked the other way as their firms built up unconscionable risk. Now wouldn’t that be satisfying?
And General Bernanke? He gets to keep the job he lobbied for (and quite brazenly) last summer. As he vacationed at one of the priciest playgrounds on Martha’s Vineyard, President Obama re-anointed the Princeton professor who clearly understands how to get tenure.
And now, the Federal Reserve, currently in line to become the systemic uber-regulator, is reaching for more power: Compensation consultant. (The anonymous Epicurean Dealmaker suggested on Twitter that the proposal would probably kill the compensation consultant industry. I disagree. I think the smart ones would find life-long contracts at the Fed.)
Obviously the Fed’s previous regulatory failures are yesterday’s news. The new rule proposals are either a piece of realpolitik or an instinctual reaction: Bureaucracies just want to grow. It is their raison d’etre.
But more bureaucracy isn’t the answer per se. And the one person who seems to really understand this and have a real-life regulatory experience — Paul Volcker — doesn’t have the ear of the White House. Too bad. Now Volcker, as anyone who went through the 1980s knows, is one helluva general and would make a fine avenging angel. He understands you need to undo the changes of the past decade or so, de-fang the too-big-to-fail monsters; break ’em up; stop them from investing in every cockamamie product the rocket scientists invent, and let the entrepreneurs migrate elsewhere, and pay themselves how they please. And if they go out of business, it should be their tough luck — not ours.
Wouldn’t it be nice if Volcker and Taleb could stage a regulatory coup and get us some real payback?
For all you Taleb fans, here’s an interview August; he discusses bonuses at about 24 minutes. Harsh words for the Administration regulatory reform come at about 18 minutes (h/t The Big Picture).
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- Nassim Taleb on bonuses, bailouts and other boondoggles with David Cameron
Cartoon by Mike Luckovich via Atlanta Constitution (h/t The Big Picture)