As IF Times

link Prince, Rubin Say They Didn’t Recognize Citi’s CDO Risk in Time – Bloomberg.com.

One of the cornerstones of capitalism is that you are rewarded for your efforts.  There is no absolute measure of this of course, but generally speaking, if one takes on great risks and makes good decisions, any commensurate benefit to a corporation should be reflected by compensation to the guys in charge.

Conversely, if the enterprise fails, well then logically, the leaders take the hit along with everyone else, if not more so.  Over the past decade, the compensation levels of bank executives have reached heights not imaginable by their counterparts only a decade before.  When John Gutfreund, the then CEO of Salomon Brothers was accorded 3 million dollars a year in compensation in the ’80’s, it was a pretty eye popping amount.  As Michael Lewis says in his recent book, The Big Short, how quaint is that number today.   You now hear of compensation levels for routine bank ‘traders’ to be tens of millions of dollars and in the case of Robert Rubin, in one of his better years, he brought in over $100 million dollars in blended salary, bonus and stocks.

Guys who get paid that kind of dough think that lottery wins are rounding errors. All of the people who get to such postions of wealth are no doubt highly educated and certainly well connected.  How can it be then that no one thought to consider that their paychecks may be a function of some unusual aberration rather than by virtue of their own skill and talent?

The people being questioned by Congress now regarding their roles during the banking collapse of a few years ago can only plead one of two things: ignorance or complicity.  At the moment, the plea is the ” I had no idea” defence.  According to Chuck Prince of Citigroup,

“…Nobody could have predicted that the bank’s highest-rated collateralized debt obligations — created by repackaging mortgage bonds into new securities — would lose so much money, Prince said. The chief risk officer didn’t understand the risks, nor did Citigroup’s senior traders and bankers, he said…”

Obviously, that’s not entirely true as a  handful of smart hedge fund guys took the opposite side of the mortgage derivative trades and profited enormously when the house  of cards crumbled.  If these guys knew, why wouldn’t the banks considering  the access to resources that they have?  If they are that clueless, maybe the salaries paid were inappropriate.  As a matter of fact, why do these  employees even have jobs  today?  Can you imagine  a hospital where all the patients inconveniently died but the same staff is still  taking on new patients?  As I have pointed out in the past, banking is on the surface, a very dull business.  At it’s simplest, it is lending money at x and paying depositors x minus an amount, the difference is profit.

How quaint is that notion, because banking is so much more complex today since they are in the business of creating investment derivatives with the related harvesting of fees, making markets in products they create, etc etc.  However, these products carry asymetric risk profiles for the CEO’s.  They can only benefit.  No one walks the plank if things blow up. The business and capital of banks is so complex, auditors have a hard time figuring out where all the pieces are.   If you’re being paid, 10, 20, 40 or 100 million dollars a year to look after these enterprises, it would only make sense to have a good grasp of just how you’re getting paid and at least  know how the sausages were being made.

It looks like the guys at the top of they pyramid were just lucky enough to be there as the gate receipts kept flooding in, because according to their own testimony, they had no idea what was going on.  Nice gig.

link Black conservative tea party backers take heat.

An interesting and unexplored angle in U.S. politics.  Lost among the on going love affair with U.S. president Obama are an unexpected group of Americans who do not subscribe to the policies put forth by his administration.  Some conservative Black groups oppose the initiatives pushed by the Democratic agenda and some dare to be members of the upstart Tea Party political movement.  This of course is viewed with disdain and contempt by the mainstream black community, an overwhelming 95% of whom apparently supported Obama and the Democrats in the last election.

While it’s natural to support those that may represent your best interests if only through accident of  appearance.  it’s actually the epitome of dumb.  Think of all the brylcreem white guys who voted for John Edwards.  Think of guys like Blagojevich, the ex Illinois governor; what if the Polish community came out to support him despite his alleged indiscretions? In the 70’s the Democratic party pushed Carter into office with the constituency of the South supporting him.  As history now shows, he is widely regarded by objective pundits as heading the most disastrous administration in U.S. history, at least up to now.  When a person is elected to the highest position arguably on the planet, their constituency is everyone, not just the demographic slice to whom they belong.  The notion has been fed to everyone through school that achievement is about abilities not appearance.  If this were not the case, why bother going to school?  Unfortunately, the realities of life and the pull of tribalism apparently exert a stronger influence on people than they would care to admit. 

Can it be that in comparing the policies of the Obama platform that the 95% of blacks that voted for him have all independently decided that his vision is the best for everyone compared to not only the Republican candidate, but also the Democratic contenders?  If so, then it leads to two possible conclusions. 

One, the black population favors the policies proposed by the president to a degree that non blacks don’t or don’t see.  If Obama’s  policies are considered to be beneficial to the entire population, wouldn’t that translate into similar showings of overwhelming support by other constituencies?   Does this mean that there are issues affecting blacks that have not been addressed by all previous administrations? If so, would enactment of such policies be negative for the population at large?

The second conclusion is that support was given to this president solely because of his skin color.  The black conservatives referenced in the article are publicly pushing back against this expectation. Their position is that the man’s policies are wrongheaded and will drive the country down an unsustainable financial road.  The fact that he happens to be black is irrelevant.  Such a position is apparently at odds with the majority of vocal blacks.  It’s as if the conservatives are self loathing and need to be condemned.  In fact the opposite is true.   Critical thinking drives these people more than a nominal allegiance to skin color.  People should scrutinize the careers of  Maxine Waters, of Charlie Rangel and certainly people like Rep Hank Johnson of Georgia who famously expressed concern that the island of Guam would capsize like a rubber raft if too many people went there.  Do these people really deserve the support of intelligent people?

Political discourse in the U.S. has become a spectacle of tribalism on a large scale much like fans at a sporting event.  Those who don’t fall in line with your team completely are the enemy and vilified.  Imagine if Sean Penn decided to run for office and his constituency en masse decided to support him.  If nothing else, we would see the actual size of the crazed, self deluding idiots of the country.  Would it make sense to support his vision solely because he was white?  Years ago, the ex wrestler Jesse Ventura ran and succeeded in attaining political office.  I had no idea there were so many ex wrestlers with brain damage who would support him.  Thankfully, he was voted out after one term.  Can anyone take this guy seriously today?

As the old saying goes, people eventually get the government they deserve not necessarily the one they want.  The other bit of wisdom is from an old communist turned capitalist, Deng Xiao Ping who famously observed, “it doesn’t matter what color the cat is, as long as it catches mice’.