Sunday, September 27, 2009
Did Bankers' Pay Inflame Financial Crises? duh!
Today Mark Hulbert - STRATEGIES - NYTIMES - writes about how 2 Swiss finance professors have concluded that CEO pay has not been a major factor in our great recession. Their study, the Stutz-Fahlenbrach study, provides the specious contention that there is no empirical evidence that compensation incentatives which encouraged excessive risk taking (40-1 leveraged backed by outright lies of collaterialization) played a large role in the credit crises. Hulbert reports that, Stultz says there is little evidence that comp reform would have helped head off the crises. Further he quotes Stultz, "neither bank CEOs nor regulators thought banks were taking excessive risks." Maybe CEOs and regulators (like Greenspan) also thought the planet was flat and that creationism made sense - if they honestly thought 40-1 leverage was a small risk! Hulbert went on to say Stultz pointed out that in 2006 a collaterialized-debt obligation with a triple-A rating didn't look like a huge risk; and quoted Stultz who said, "On the contrary, it looked like an extremely low risk asset, yet banks incurred extremely large losses on such CDOs." Not to denigrate all Swiss, but the Swiss history of bankers who have protected tax cheaters, and dictators who took money from their destitute populations to secrete it away for themselves, Bankers who fought to have kept Nazi gold for decades after Germany became a responsible and concerned member of democratic nations - makes it hard for me to accept Swiss financial objectivity.
The apparently slanted "study" from the Swiss finance professors, considering their irrelevant reasoning leading to fallacious conclusions, is a ludicrous logical absurdity. As finance professors should they not have mentioned, or known that bankers and regulators had a fiduciary obligation as well as an ability to have analyzed the substance beneath the surface of what "looked like low risk" to conclude that the high risk was fraudulently backed (contrived) to appear to be low risk so that it would appeal to investors searching for safety. No bank would have accepted the collateral Bankers fabricated to sell the geometrically leveraged financial innovated products contrived to appeal to risk averse investors so it could be easily sold!
Bank CEOs and finance professors - along with regulators need to become more familiar with the existing regulations which prohibit selling securities which cannot be fully explained! This knowledge would also be helpful to economists, rating agencies and the financial media. Congress could also use a remedial course in SEC and Fed regs. (This is what Swindled vehemently exposes and fully explains.)
A paper by two Harvard law professors, Lucian Bebchulk and Holger Spammann reached an entirely different posture toward compensation and risk taking, a posture which makes sense based on the realities of what has really taken place. Their position is that bank executives generally have an incentive for "excessive risk-taking." And this is self-evident, but a huge understatement. Incentive is far less than accurate, it is similar to observing that cancer generally contributed to the cause of death; when there was a pandemic of virulent malignant metasticised melanomas which brought a nation to its knees. The truth of reality makes it obvious that the only objective of bank CEOs was to maximize profits no matter what the cost to anyone else. Clearly there was no concern for the stability of financial markets, and no concern for investors or the fabric of our society!
There has been so much irrational, circumspect reasoning circulated to obscure the fact that Financial Darwinism has been at the core of how we all got swindled. So self-serving studies should provide no more reasurance at this time than the empty promises of collaterialized securities did in the past. The argument - I did not, they did not know there was so much risk in so much leverage, and that no one knew the promise of the holy land of collateral was a grotesque misrepresentation is nuts- and in the final analysis must be regarded as flaming BULL SHIT. It's time for plain, honest talk not more of the same delusional reasoning to excuse the rape and pillage of our economy. The financial crises is really a human tradegy. (try - firstname.lastname@example.org)