Severing Risk And Reward

Mark Cuban had a good post on his blog regarding the financial sector meltdown and what to do about it:

If the government must step in and provide any sort of financing or guarantees for any part of a public company’s business, then all officers and directors lose all rights to severance pay and all outstanding vested or unvested options or warrants immediately become canceled. In the event the CEO of such corporation is not fired, but instead chooses to step down voluntarily, then the last 12 months of earnings is considered to be an interest free loan which the CEO must pay back over no more than a 10 year period.

Honestly, i dont think it would have changed the actions of CEOs who have been bailed out. They would have thought it “couldnt happen to them”. But once it happened a couple of times to a couple of big company CEOs, it would be in the decision making process of every CEO running a huge financial company.

Making it harder for executives to walk away with huge sums of money after deep-sixing their companies into the ground and fucking over the taxpayers who ultimately get stuck with the bill will mean they’ll be extra careful about taking absurd risks and ignoring market constraints (i.e. subprime loans). Properly incentivized CEOs will still take risks, but they’ll do it within the bounds of reality. It’s time for a return to the fundamentals — 20% down payment on big ticket items like houses.

Some would argue that turning CEO golden parachutes into lead zeppelins would restrict the market for available and talented CEOs. I agree with Mark Cuban that this is ridiculous. Potential CEOs don’t get into the business of running companies primarily for the money; they do it for the power.





Comments


  1. What about the government basically forcing executives to ignore market constraints? (see: Community Redevelopment Act)

    Like


  2. Bad idea.

    Putting these kinds of restrictions on executive compensation will make corporations excessively risk averse. This is a bad thing. Imagine you are a CEO and an opportunity comes along that pays off:

    $100m with 90% certainty
    -$10m with 10% certainty

    Obviously a good investment, right? But what CEO will take a 10% chance at personal bankruptcy for a few extra stock options and performance pay, when he can just coast along and collect his base salary?

    Let shareholders compensate top executives however they see fit. The excess risk taken by financial firms is a result of the IMPLIED willingness of the fed to bail them out, a problem which has been made 10x worse by the recent nationalization of the financial services industry.

    Like


  3. What about the government basically forcing executives to ignore market constraints? (see: Community Redevelopment Act)

    This played a quite minor role in what happened. The key “communities” in the whole mess were those giant new crops of flimsy 4000 sq ft McMansions you saw sprouting up around every city, all selling for $500,000+.

    For once, I agree 100% with Roissy’s post. Anyone else who does: call your Congressman (Rep and Senator) and say that you want a bailout package that protects taxpayers and makes the financial sector take a loss in exchange for getting bailed out on the risks they took. Over the next week, Congress and the Administration will be fighting over this — it looks to me like the Paulson plan is a pure bailout that won’t exact much of a price from Wall Street. Both Reps and Dems in Congress want a more balanced approach, but trust me the backroom lobbying will be fierce. It makes a BIG difference if they know people are watching.

    Like


  4. Just read Mark Cuban’s post. He is a smart dude, but he hasn’t thought this one through.

    The issue isn’t whether such a policy would affect the pool of CEO applicants, it’s how the policy would affect CEO behavior. It’s generally agreed that firms are already too risk-averse, because managers prioritize their own job security over making the best investments. Golden parachutes may leave a bad taste in our mouths, but without them CEO’s wouldn’t take the big gambles that they SHOULD be taking.

    Like


  5. The fundamental reality is that American industries have lost international competitiveness as new, enormous pools of cheap but trainable work force overseas have joined the global economy. This has resulted in a large foreign trade deficit. The Fed has allowed the creation of a lot of new dollars (by keeping interest rates low) – borrowed by American consumers, which has not, however, caused massive inflation because foreign exporters (of energy and goods) have gobbled up the new money because of their dependence on American consumer markets. As the situation is still highly unbalanced, more crises as are to be expected.

    Consumers in EU-15 nations have experienced something similar but not to the same degree. There has been a major housing boom but consumers and governments are not as deeply in debt as in the USA. The cost of labor is lower in Western Europe than in North America.

    Like


  6. Potential CEOs don’t get into the business of running companies primarily for the money; they do it for the power.

    You’re right about this. It’s only a small minority businessmen whose strategy is centered completely around the golden parachute.

    Most of them — once they’ve reached the level of experience to warrant being hired at the CEO level — are in it for the rewards beyond money.

    Like


  7. It’s generally agreed that firms are already too risk-averse, because managers prioritize their own job security over making the best investments.

    I salute someone who can type this sentence, after the week just past, without falling over dead of a brain aneurysm. Kudos to you, sir, kudos to you. Your irony-fu is strong.

    S

    Like


  8. Roissy/Mark Cuban —

    Generally speaking those sound like good ideas to me.

    They are quite different from attempting to severly limit salaries /stock options etc. when top management is turning in big successes.

    The major challenge comes with respect to policies set in motion some considerable time ago though. E.g. the worst of what Bear did was several years ago, it just sometimes or actually usually takes awhile for the chickens to come home to roost. Similarly or even more so Merrill Lynch. Maybe with the BofA deal it’s gonna be fine but assume no such deal could be found. The Diamond has been doing nothing but good stuff since he’s been on board, but it’s already been more than six months. What if Merril bellied up six months in the future. That wouldn’t be Diamon’ds doing but O’Neil’s who preceded him. (We must natch be gingerly in going after O’Neill given his protected group status, unlike e.g. what’s his name from Countrywide.)

    So there are challenges and devils in the details.

    But ideas broadly along these lines are worth it for policy wonks to work on.

    Like


  9. I agree 100% with Roissy and Mark Cuban. It feels nice to agree with people sometimes 🙂

    Like


  10. dougjnn(We must natch be gingerly in going after O’Neill given his protected group status, unlike e.g. what’s his name from Countrywide.

    If O’Neil screwed up then he screwed up. Just don’t go after him any harder than you do any of those white CEOs who are guilty of doing the same thing.
    Example of what not to do: The Jason Blair fiasco at The Times in comparison to white reporters who have plagiarized and made up stories.

    Blair became a scapcoat for anything any blk professional has ever done in the History of the United States.

    Marku said:The cost of labor is lower in Western Europe than in North America

    I would think the opposite was true. Will you explain with more detail please 🙂

    Like


  11. It’s generally agreed that firms are already too risk-averse, because managers prioritize their own job security over making the best investments

    😯

    sardonic sob said I salute someone who can type this sentence, after the week just past, without falling over dead of a brain aneurysm. Kudos to you, sir, kudos to you. Your irony-fu is strong

    Get out of my head. I was thinking the same thing.

    Like


  12. Putting these kinds of restrictions on executive compensation will make corporations excessively risk averse. This is a bad thing.

    I would agree with you… except that you are failing to take into account the massive externalities that these businesses are creating. By definition, if there is a need for a government bailout, the leadership of the company created massive externalities. The problem with the financial sector is that it is especially prone (see LTCM, etc.) to taking these sorts of risks.

    Additionally, I fail to see how such regulations, if placed solely on the financial sector, would impede US worldwide competitiveness.

    Like


  13. If my sample size consisted of the headlines I’ve read in the past week, then yes, I would say we should legislatively discourage corporate risk-taking. But this ignores the trade-off. Low risk = low reward. Take a big-picture approach, and recognize that a huge chunk of our current prosperity is a result of Western civilizations encouragement of risk-taking behavior.

    The worst part of crises like these is that they prompt the economically illiterate masses to demand ACTION by the government, the consequences of which are inevitably even worse than the original problem.

    Like


  14. Chicnoir–

    Example of what not to do: The Jason Blair fiasco at The Times in comparison to white reporters who have plagiarized and made up stories.

    I’m not buying your example at all. the Jason Blair saga seemed incredibly eggregious and further it seemed obvious that the political blinders of the Times staff and his mentor the editor in chielf has a big part in the extended period before emerging stuff really got looked into.

    Further, when the look for comparably bad preceding story fabrication and wholesale fakery were looked for, one of the worst examples was another minority, in that case a woman reporting in DC I think it was.

    That’s obviously not to say that over the years the vastly larger group of white or other non AA receiving minorities haven’t also done things in some ways similar. But I don’t believe I saw any recent example that was as lurid or extensive or allowed to go on so long at the level of wholesale fabrication as Blair’s.

    Perhaps that’s wrong and you certainly seem to have made something of a study of the issue, or perhaps a course you took did, so sally forth if you like. However, I certainly did keep my eyes out for the media reporting slews of other examples that didn’t involve any kind of politcal correctness shielding or reluctance to fault find — and didn’t see it. I simply DO NOT believe that the left liberal mainstream media wasn’t looking for it at the time.

    Of course there have been lots of cases of argumable or clear plagarism but Blair went way beyond that. We made up what he wanted.

    Like


  15. CEO golden parachutes are the result of a wink from government from the last round of market hate.

    Remember the movie Wall Street? Who was the villain? A takeover artist. Golden parachutes are there to prevent incompetent management from being thrown out by takeover artists. They came into existence when people complained that corporate raiders were making money throwing out bad management and breaking up companies. Well, we got rid of those guys now we’ve got CEOs who make billions and don’t do a noticeably better job of running companies.

    Like


  16. @dougjnn-I seem to remember that there was a story of a young white male reporter along with the blk female reporter, both were accused of doing the same thing. There were a few media big names who wondered aloud why was Jason getting such a harsh wiping when no white reporter who plagrizsed(tp) had.

    The man who wrote “A Million Little Pieces” received a similar wiping about a year ago but his race was not called into question.

    Like


  17. I agree that the severance packages should become void. But money and power on wall street are inseparable. Who you are is what your bonus is. If power motivated these types more than money, we would have better congressional and presidential candidates, not the turds we have now. If it wasn’t about money, they wouldn’t try to get such ridiculous severance packages in the first place.

    Like


  18. Everyone of us on the buy side who had an ounce of sense and moral fibre in them hated Freddie and Fannie They were monstrous creations of the US government that never had a legitimate reason for existing as private sector entities. Privatisation occurred originally as a clever whiz to reduce the official deficit numbers at a time when they were heavily scrutinised.

    What happened with other institutions is a little more complicated though. Note that many CEOs believed their own BS sufficiently to lose large fortunes as their company went down in flames. Maurice Greenberg of AIG lost about $5bn personally in a month.

    The answer is that it’s just human nature to be influenced by the natural ebb and flow of life. It was the hubris of Canute to think we could abolish the rhythm of the waves. Where good and bad policy comes in is in setting the institutional framework for the system.

    A good system would not have deposit insurance nor fractional reserve banking (there are alternative private sector solutions as discussed by John Mauldin). Heavy regulation and the ‘too big to fail’ doctrine is behind much of the impulse towards greater concentration in financial services that played out over the past few decades. With a lighter touch, markets could be much better and more resiliently organised.

    Like


  19. “The man who wrote “A Million Little Pieces” received a similar wiping about a year ago but his race was not called into question.”

    That’s because James Frye didn’t get his job because of his race. Jason Blair did.

    Look, it’s the flip side of affirmative action. People who are unqualified for jobs tend to do a worse job. A policy that picks out people who are easily identified (they all share a race) and gives them jobs for which they are unqualified will lead to questions whenever someone in the easily identifiable as unqualified race makes a mistake.

    Like


  20. I tend to agree. Either you are a public company or an arm of the government with the attendant guarantees and appropriate CREDIT RATING…hybridizing makes no sense whatsoever.

    Leverage has a funny way of turning small gains into enormous ones – or small losses into outright failures. It is not hard to see what has happened as an extension of the way the average American lives -fully leveraged, spending every penny they earn, the ultimate bailout being bankruptcy.

    OH WAIT. The average taxpayer can’t get rid of their debts via bankruptcy anymore. So, we will pay all our own debts, and the debts of these companies. And in the meantime, we’ll just keep those printing presses running until we are using the good old American dollar to wipe our asses and runny noses.

    Like


  21. Mark Cuban is a smart dude… founded Broadcast.com and sold it to Yahoo for $5.9 billion worth of stock…

    Like


  22. Doug,
    I’ve just addressed the Affirmative Action canard over on the Fannie Mae/Freddie Mac thread, but to quickly retort here: your Jayson Blair example, is Bullshit. Ever heard of Steve Glass? They even made a move about it, starring Anakin Skywalker. He did stuff that would make Blair blush.

    Does that mean that Blair should have not been held accountable? Absolutely not. But to paint this as the endgame of AA is again, Bullshit. White boys (and girls, let’s remember!) have been gettin’ over like a fat rat for DECADES now, and no one seems to have that big a problem with that – and let’s keep in mind please, that Mu ain’t a big fan of AA for a whole host of reasons, so you can stifle yourself if you think you’re gonna peg me into a square hole.

    Holla back

    Salaam
    Mu

    Like


  23. I’ve just addressed the Affirmative Action canard over on the Fannie Mae/Freddie Mac thread…

    no, you tried to show two wrongs somehow make a right. that women or rich people might also get breaks non- meritocratically is a related but distinct point. besides, the disparities in standardized scores between groups count more than you are willing to admit. severe disparities are more inimical to a functioning society than mild ones and will predictably engender more resentment.

    Does that mean that Blair should have not been held accountable? Absolutely not. But to paint this as the endgame of AA is again, Bullshit. White boys (and girls, let’s remember!) have been gettin’ over like a fat rat for DECADES now, and no one seems to have that big a problem with that – and let’s keep in mind please, that Mu ain’t a big fan of AA for a whole host of reasons, so you can stifle yourself if you think you’re gonna peg me into a square hole.

    you get angry pretty quick don’t you. cuss words. defensive reaction. accusatory verbiage from the get go.

    AA allows lesser qualified individuals to get ahead. it should come as no surprise that if they fail, they might be taken to task more so than an individual who failed but didn’t presumably get the position through non- meritocratic means.

    you actually have a good point by intimating that certain individuals in the good ole’ boy club should be held to the same standard as people like blair if they fail as well. most race realists would agree with you. this and your other argument about white women are largely strawmen arguments that no real race realist would really disagree with you with but do obfuscate the main point about whether non- meritocratic means of selection are beneficial.

    get rid of all the remnants of AA as far as i’m concerned.

    Like


  24. So, since I have addressed the AA issue elsewhere on the Internet, but have not fully fleshed it out in this venue, though it is bit off topic, I will do so now.

    I am against AA as it is currently known for several reasons: one, is because White and Black folks, largely, refuse to be completely honest about it; and two, because I’m actually crazy enough to believe in the principle of pure, unadulterated, raw Merit.

    Let’s examine these points in turn.

    White folks, those who rail against AA that is, like to point to the horrors of Jayson Blair and so on, as the chief reason as to why it shouldn’t exist. Of course, Self-Interest being the engine drives all Human Activity on the planet being what it is, what fuels their righteous indignation is the fact that they, or their family relations, etc, usually but not always White Males, are thouroughly pissed that they didn’t get those college spots, jobs and contracts that they virtually assumed was theirs by birthright. The problem w/their position however, is that their intellectual honesty is laid bare before the fact that, in pure numbers terms, White Women have been the single largest beneficiaries of AA over the past oh, three decades or so. And, we can add to this list of beneficiaries, the Blueblood Contingent, since many in their number get where they are by virtue of blood, not merit. And we all know this.

    So if the Race Realists and the like on the White side are really, truly serious about stamping out AA in all its forms, they’d be clamoring for the removal of ALL preferences, be they Legacy, Race, Gender, etc., and demand that only blind standardized testing, rigorously administered and brutally enforced, be the ONLY criterion. Of course, Human differences in intelligence and cognitive ability being what they are, this will mean that certain groups will all but disappear, while others will be overrepresented. We already know, for example, that Jews and Asians will become the market dominant group, while Black and Brown representation will likely shrivel up to the single digits. And of course, this means that the garden variety White, largely women, but a godly number of men, will be greatly diminished.

    Now, personally, I’m all for such a rigorous regime. It is fair. It is just. No amount of influence peddling or money or identity politics will be allowed. Simply put, if you aren’t the best of the best, you gets the boot.

    Now for their part, Black folks, the overwhelming majority of them that back AA, will refuse to be honest about the fact that not only are there some Jayson Blairs-alot more than were willing to admit-up in this house, but we Black folks also refuse to man up to the fact that for real, the only Blacks that benefit from AA in our time, perhaps ever, are those who live in places like Prince George’s county and Martha’s Vineyard. The average Black but bright kid in Newark, Compton, Motown, Brooklyn or West Philly, aren’t likely to ever see the bountiful blessings of Affirmative Action. Now, that need not necessarily be a bad thing, so long as, and this is the trick here, we’re honest about that fact. Class is vicious in Black America, and the vitriol doesn’t come from where one would assume. The Black Middle Class has historically taken a sordid glee in helping White folks whip up on their Black Prole brethren. It reminds me of KRS ONE’s classic “Black Cop”.

    So, let me be clear, just in case anyone here (Freak) gets ish twisted: on principle, I’m against AA. But I’m also against it on other grounds, mainly because neither side, Black or White, wants to be honest about their own reasons and motivations for wanting their own to get theirs. See, I believe AA could work IF we had an honest discussion at the Congressional level and appealed to our shared Destiny as Americans, which is rooted in doing what’s right and just. But since the Ideal of the Individual, to say nothing of Hatin’ on the Other, has taken hold, we done missed that golden window of opportunity. AA could have seen as something of a national sacrifice to set things right, but, again, self interest took hold on all sides, and the rest as they say, is history.

    Besides, Merit is a legitimate argument, especially at a time when the USA must necessarily compete against the brain trusts of other nations, like India and China, Brazil and South Korea, Japan and Germany and the rising Baltic Bloc.

    So, hopefully, I’ve cleared up the matter to those reading along’s satisfaction, whether they agree with me or no. But I maintain, so long as my Race Realist brethren on the other side of the Genome continues to pound the table about those Darkies gettin’ over unfairly via AA, they might as well toss a shoe in Heather and Amy’s direction, too.

    Capice?

    Holla back

    Salaam
    Mu

    Like


  25. So if the Race Realists and the like on the White side are really, truly serious about stamping out AA in all its forms, they’d be clamoring for the removal of ALL preferences, be they Legacy, Race, Gender, etc., and demand that only blind standardized testing, rigorously administered and brutally enforced, be the ONLY criterion.

    Mu’Min

    I don’t care what criteria an institution uses as long as it is a private institution. Harvard can practice AA and legacy admission all it wants, as long as I’m not being taxed to support it.

    The Black Middle Class has historically taken a sordid glee in helping White folks whip up on their Black Prole brethren. It reminds me of KRS ONE’s classic “Black Cop”.

    Whites are just as vicious to each other, believe me. In fact, AA is part of that. How many of the white guys who put it into practice have you seen offer their jobs to minorities? It’s always that guy down the line or that kid from the working-class suburb who gets the shaft.

    Personally, I’m against AA because it puts me and my kids at a disadvantage. That’s all. Is that honest enough?

    BTW “Baltic Bloc?” Are you kidding?

    Like


  26. on September 22, 2008 at 12:41 pm Usually Lurking

    Harvard can practice AA and legacy admission all it wants, as long as I’m not being taxed to support it.

    Welmer, that is an interesting example. I think that many people would agree with you except for the fact that many private universities, like Harvard, get massive amounts of money from Gov’t agencies for research.

    Also, the difference between the Jayson Blair and, say, “Million Little Pieces” guy was most people in the know believed that Blair was hired, and kept on after lots of suspicion, because he was Black. That is, that the NYT is very white and they were quite self-conscious about it.

    Whereas, the “Million Little Pieces” guy actually went to the publisher with a fictional story, which they rejected. He apparently got advice that if the story were true that it would be amazing, so, poof, he supplied them with a “true” story (which was not true). But, in all this, we saw incompetence, status seeking and lies, but nothing racial. So, we hated it for those reasons listed above, but not for Affirmative Action.

    Also, Blair then played the victim afterwords, because he was some sort of slave (not my words). And all of this AFTER this sort of thing was supposed to be behind us (say, the mid-90’s).

    Like


  27. on September 22, 2008 at 12:53 pm Usually Lurking

    …White Women have been the single largest beneficiaries of AA over the past oh, three decades or so…

    You do understand that there are a lot more White Women in America, and , therefore, there will be a lot more of them in almost everything.

    For instance, in Canada, there are a lot more White Alcoholics than First Nations (Native American) Alcoholics, but, there are a lot more White people in Canada. But, as a percentage, Alcoholism is a much greater problem for First Nations people than White people.

    Like


  28. on September 22, 2008 at 1:00 pm Usually Lurking

    Ever heard of Steve Glass? They even made a move about it, starring Anakin Skywalker. He did stuff that would make Blair blush.

    Which is why they made a movie about it. Same with that chick that did the “typewriter” hatchet job for political reasons. The people that we aware of the Glass incident were pretty upset about it, especially since he seemed to be playing into ridiculous political stereotypes. And that is why a movie was made about it.

    But people, White people, are also upset about the Jayson Balir scandal. Actually, most White people have no idea who Jayson Blair is or why he might be notorious, but, for those that did get upset, it was because it was an injustice…Affirmative Action.

    The idea is that Journalism is an important job (not as important as Surgery, but more important than that of a waiter) and therefore it should go to the best or most qualified.

    Granted, I actually think that that idea is going away. We are becoming more separate in how we live our lives that I think that more people are open to outright preferential hiring. I mean, how many people are upset that FUBU hires, mainly, black people?

    Or that Abercrombie and Fitch only wants to hire the young and beautiful?

    Like


  29. Hi Welmer,
    In reverse:

    Wrt the Baltics-please correct me if I’m wrong, but I was under the impression that the economic and political growth there in places like Estonia, Lithuania, the Czech Republic, etc, was quite robust.

    I think your reasoning for doing away w/AA was quite honest indeed, and for the record, I too think it sucks that some White sap in the lower middle class gets the shaft in the name of balancing the scales. He’s got about as much to do w/real Racism as a man on the Moon. Now, if guys like you could get the Race Men on your side to drop the Noble Mission Charade, then we might be able to get somewhere…

    Wrt Harvard, excellent point. As one who is fully for the Freedom of Association, I totaly uphold the right of private ventures and institutions to select or not select people on whatever criteria they choose. Of course, once they accept, in any form or fashion, any assistance from the US gov’t, all bets are off, and rightly so. Public policy should be determined largey by the Ballot Box.

    Holla back

    Salaam
    Mu

    Like


  30. on September 22, 2008 at 1:34 pm Usually Lurking

    Of course, once they accept, in any form or fashion, any assistance from the US gov’t, all bets are off, and rightly so

    Which means that all bets are off for almost every university in America. They all look to get gov’t money in some form or another. It might be some “Educational Opportunity Fund” at your local university or some large grant from the NIH at the University of Pittsburgh for doing “research”.

    As long as the gov’t is in the business of “promoting” something, the universities and other non-profits will be in the business of taking there/our money.

    Like


  31. I’d extend the Separation of State and University to student loans, which are in practice a tax-supported subsidy for the universities.

    Without Federal student loans, colleges and universities would have to compete for students, most of whom, without these loans, would never be able to pay today’s exhorbitant tuition rates.

    Like


  32. In fact, how good would it be if there were no student loans? All those aspiring American Studies and Sociology majors would get into trades instead, or maybe even other useful careers, like, I dunno, bartending.

    Like


  33. on September 22, 2008 at 2:40 pm Usually Lurking

    All those aspiring American Studies and Sociology majors would get into trades instead, or maybe even other useful careers, like, I dunno, bartending.

    I often wonder what would happen to America (or any Western nation) if “non-producing” majors like Literature, Womyn’s Studies, Sociology and the like were eliminated. That is, you actually had to major in something that would produce a marketable skill (i.e. Math, Engineering, Biology, Chemistry, Comp Sci, Accounting, etc.).

    One thing that no longer surprises me is when I run across some Leftist or Neo-Con site and find that none of the contributors have a meaningful degree.

    Like


  34. Hopefully, skilled trades would become more respectable, in the sense that most young people would gravitate to them if they weren’t otherwise going to study engineering or something like that.

    Today, Wimmyn’s Studies plus right kind of networking will get you a better pay than being an electrician or plumber, and that is an abomination.

    Like


  35. The people who really own / move the economy and how they don’t pay their taxes the way everyone else has to, are in these 2 excellent books. “Perfectly Legal” and “Free Lunch” by David Cay Johnston. Check them out.

    Like


  36. on September 22, 2008 at 3:28 pm Usually Lurking

    …these 2 excellent books. “Perfectly Legal” and “Free Lunch” by David Cay Johnston.

    Apparently, this is a site that keeps a “watch” on him, http://DavidCayJohnstonWatch.blogspot.com

    Like


  37. on September 22, 2008 at 3:53 pm Patrick Bateman

    Not as good as getting government out of the market all together but better than the status quo. Government helped create this mess in the first place but even with idiotic government mandates, it would have never happened if the banks had proper incentive schemes. The government should not step in and change those however; it is more likely to fuck everything up than fix anything.

    Right now there’s a huge probability of government bailout in the path of the NPV calculation that leads to investment failure. The huge negative contribution that should be coming from this path, is mitigated by the high probability of government (taxpayer) bailout. If this government bailout also came with a big bite out of the managers pocket, they would take proper precautions to avoid asking for a government bailout. Business should never have the option of forcing the taxpayer to clean up their shit.

    Like


  38. on September 22, 2008 at 3:57 pm Patrick Bateman

    Without Federal student loans, colleges and universities would have to compete for students, most of whom, without these loans, would never be able to pay today’s exhorbitant tuition rates.

    Those subsidies helped push tuition up in the first place. Government subsidies create more demand for college education and (surprise, surprise) prices go up! It’s hard to know if tuition would be relatively more or less affordable without government subsidies, but it would certainly go down.

    Like


  39. Chic noir:

    Markku said:The cost of labor is lower in Western Europe than in North America

    I would think the opposite was true. Will you explain with more detail pleas

    Demand and supply dictate that employers pay higher salaries to legal employees in the USA than in Western Europe. The vast majority of employees in American export industries are legal. For example, American engineers are paid considerably better than Western European engineers. This is possible because the USA is economically more developed and wealthier than Western Europe. Average incomes are about one third lower in WE than in the USA. Before credit madness of the recent decade or so Americans used to be wealthier, too. Now I’m not sure.

    So, it is only natural that higher paid American workers and increasingly even professionals have been harder hit by global competition and outsourcing than their Western European counterparts. American domestic demand has been artificially propped up by the Fed through very loose monetary policy. To put it in simplified real terms, fewer American engineers and other professionals working for export industries + more retail managers (managing the sales of imported Chinese goods) and lawyers.

    In contrast, because of no European currency being a global reserve currency, European central banks (not even the European Central Bank issuing the euro) have not been able boost domestic consumption by keeping interest rates insanely low for years on end low because there have been no takers for all that hypothetical excess European money into.

    Like


  40. Mu’Min

    Does that mean that Blair should have not been held accountable? Absolutely not. But to paint this as the endgame of AA is again, Bullshit.

    I did no such painting. That’s entirely a figment of your fervid imagination.

    Instead what I did was reject the engaging chicnoir’s use of Blair as an illustration of coming down on a black man way disproportionately for transgressions which whites commit all the time and just as spectacularly, without similar consequence when discovered.

    I pointed out that there was in fact a rather concerted (I’d say frantic) search by the left liberal mainstream media at the time for just such “great while equal or worse reporter transgressors” for the same ideological reasons, but the main recent prior example of similar degrees of complete fabrication was, embarrassingly, also at the hands of a person of color, in that case a black woman reporter in DC, chronicaling entirely fictional tails of welfare and life in the hood.

    My point wasn’t and isn’t that only blacks commit crimes, or reporter crimes, and what not. My point was that this fixed belief in far greater persecution of blacks for the same thing wasn’t true in her example from what I could see. I’d further say that it’s usually not true from what I can see. If anything the reverse is true. There is a phenomenon of searching for the “great white defendant” in many places, as Tom Wolfe would have it.

    White boys (and girls, let’s remember!) have been gettin’ over like a fat rat for DECADES now

    Generalized marxist inspired resentment is way less than impressive or persuasive.

    I’m not saying you’re marxist — it sounds like you’re not and in fact are rather more conservative and independent thinking politically than usual, I’m just saying you’re throwing out a useless meme.

    Most societies celebrate their triumphs. Only post christian Westerners have been taught by the Marxists among them to consider themsevles evil to the extent of them. Yes the Nazis are the endlessly trotted out example.

    But civilization was built upon competition and technical and organizational improvement to prevail in competition.

    Like


  41. Wrt the Baltics-please correct me if I’m wrong, but I was under the impression that the economic and political growth there in places like Estonia, Lithuania, the Czech Republic, etc, was quite robust.

    -Mu’Min

    Growth may have been good for the past few years, but that’s more a consequence of integration into the EU than anything else. The Baltics are pretty rinky-dink as far as European countries go, and truth be told they’ll always be Russia, Poland or Germany’s bitches (or Sweden’s in the case of Estonia). However, they are quite interesting from an ethno-linguistic perspective. Lithuanian and Latvian are both Baltic languages, like the extinct Prussian language, and Estonian is a Finnic language of Uralic origin. You know that Lithuania was still pagan until the end of the 14th century? Probably because they didn’t want to choose between being dominated by Western or Eastern Christianity, I’d assume.

    Like


  42. @QT- You can still get out of debt with bankrupsy but its much harder now. Some people were really taking advantage of the system by filling for bankrupsey multiple times. I understand that people run into hard times as this is life and nothing is guaranted but don’t use my tax dollars to live a life you can’t afford.

    @freakshow- Would you erase AA for poor people too?

    Like


  43. *Sorry*

    bankruptcy 🙂

    Like


  44. Marku said Average incomes are about one third lower in WE than in the USA

    Is this after taxes? From my understading some European countries have an almost 50% income tax and very high sales tax(14%).

    In contrast, because of no European currency being a global reserve currency, European central banks (not even the European Central Bank issuing the euro) have not been able boost domestic consumption by keeping interest rates insanely low for years on end low because there have been no takers for all that hypothetical excess European money into

    Before leaving office, former French President Chirac (TP) blamed the debt that Bush incurred from the Iraq war as the reason for a weakening of the US dollar. I think his anger may have been tied into a weak dollar makes US exports less expensive than Euro exports(?)

    Like


  45. Steven said:“The man who wrote “A Million Little Pieces” received a similar wiping about a year ago but his race was not called into question.”

    That’s because James Frye didn’t get his job because of his race. Jason Blair did

    ou see, I have a problem with people making the assumption that Jason Blair got his job because of his race. From what I read about Blair, he was a very good talker and was well liked by almost everyone he came across and was at times a real brown nosier. I think Blair’ being given such a big break at the NYT had much more to do with his kissing up to _____ versus his race. I am sure you are well of aware of the fact that whites have gotten high ranking positions without having a degree or the preferred degree for the job. AA was implemented to make things fair or level the playing field, never about giving unqualified blks a leg up against overly qualified whites. If I have a 2200 SAT score and a white student had a 2200 SAT score, same GPA, activities, etc.. what should be the final deciding factor? I would argue race, total family income, and first generation college student

    Like


  46. should be factors.

    Like


  47. So if the Race Realists and the like on the White side are really, truly serious about stamping out AA in all its forms, they’d be clamoring for the removal of ALL preferences, be they Legacy, Race, Gender, etc., and demand that only blind standardized testing, rigorously administered and brutally enforced, be the ONLY criterion

    Add athletic ability and extra curricular activities to the list.
    This^^^ is the only way I am willing to see AA dismantled.

    Like


  48. Doug, Welmer,
    Just wanted to say, excellent points made. Touche’.

    Salaam
    Mu

    Like


  49. This blog has a funny tendency to invite offtopic discussion…

    Growth may have been good for the past few years, but that’s more a consequence of integration into the EU than anything else.

    The Baltic states joined the EU a couple of years ago but they’ve been clocking massive growth for much longer than that. If anything, trying to fulfill the euro requirements have made things *worse* in recent years (the inflation has become shocking, actually a big hit for a Finn who’s used to shopping there).

    The Baltics are pretty rinky-dink as far as European countries go, and truth be told they’ll always be Russia, Poland or Germany’s bitches (or Sweden’s in the case of Estonia).

    Sweden’s? Sweden stopped even trying to be a power centuries ago. No one cares about crossing them. Germany used to be the other big player… pre-WWII.

    Estonia has only two local alternatives, Finland and Russia, so unsurprisingly they’re opting to be America’s bitches instead. Hell, that’s what I would do.

    Like


  50. Marku said Average incomes are about one third lower in WE than in the USA

    Is this after taxes?

    No.

    And because the cost of living is generally lower in the USA, the average American enjoys standard of living even higher than what the nominal income difference implies.

    From my understading some European countries have an almost 50% income tax and very high sales tax(14%).

    No country in the world has a flat income tax rate anywhere near 50%. Average total (= local + state) income tax in WE is somewhere around 20% to 30%. Value added tax (paid only by consumers) in Finland is 22% with some exceptions. I guess the VAT is about the same in most of the EU nations.

    Total tax rate in most WE countries is between 40% and 50%. The corresponding American figure is around 35%. That’s roughly the size of the public sector relative to the entire national economy.

    In an immediate sense, the differences in tax between the US and WE rate have nothing to do with the income difference. Indirectly, however, the higher the tax, the slower economic development tends to be.

    “In contrast, because of no European currency being a global reserve currency, European central banks (not even the European Central Bank issuing the euro) have not been able boost domestic consumption by keeping interest rates insanely low for years on end low because there have been no takers for all that hypothetical excess European money into”

    Before leaving office, former French President Chirac (TP) blamed the debt that Bush incurred from the Iraq war as the reason for a weakening of the US dollar. I think his anger may have been tied into a weak dollar makes US exports less expensive than Euro exports(?)

    Of course the debt incurred from the Iraq war exacerbated the fiscal situation of the federal government, which in turn weakened the dollar. But the main reason is the foreign trade deficit.

    Like


  51. Off-topic is fun.

    — You know that Lithuania was still pagan until the end of the 14th century?

    You’re right that the Baltics are very interesting countries. The Sun of their old pagan religion, is a major icon in Lithuanian culture, even today. In fact, the yellow band on their flag represents the pagan sun.

    Also, the Lithuanian language is really cool to listen too. Although not a Slavic language, it has that Russian-sounding melodiousness, but with those crisp “Rrrrrrrr’s” throughout.

    — Estonia has only two local alternatives, Finland and Russia, so unsurprisingly they’re opting to be America’s bitches instead. Hell, that’s what I would do.

    This is pretty much east-central Europe’s foreign policy over the past decade. A love-hate, pull-push with the EU, which is economically strong but whose “modernist” politics are scary to many in ECE, and Russia, who terrifies the beejesus out of everyone.

    So America is the sometives over-idealized choice. Better the faraway devil, then the ones next door, the attidue seems to be.

    Like


  52. jakelli said:Sweden’s? Sweden stopped even trying to be a power centuries ago.

    Norway has a number of young Sweedes who have come to the country looking for work. Norway’s economy is currently on the upswing in comparrison to Sweeden’s.

    Like


  53. Anyone who spends a few minutes reading about the Baltic economies can see that they (along with the rest of Eastern Europe, more or less with the exception of Poland) experienced a credit bubble of incredible intensity. Current account deficits of 30%+ of GDP!

    All these places have horrendous real estate bubbles that will take years to unwind. At the peak an apartment in Riga was significantly more expensive than Vienna, a city with much better governance and history of political stability.

    Readjustment is going to be grim – they have become v uncompetitive internationally and are going to have to bring down wages to a level that allows export growth to substitute for consumption-driven growth. It’s tougher to do that in a soft global economy than it would have been a few years ago during the global boom.

    Like


  54. chicnoir: Norway has a number of young Sweedes who have come to the country looking for work. Norway’s economy is currently on the upswing in comparrison to Sweeden’s.

    That’s oil money. And natural gas money. And just money. Did you know that they also get 100 % of their electricity from hydroelectric, with surplus power to sell? No need for coal, gas or nuclear. They have one of the world’s biggest stashes of fossil fuels AND the world’s best spot for renewables.

    That’s why they’re not in the EU. They’d have to share. Finland & Sweden & Denmark & Norway have a pre-EU agreement abolishing border and immigration control, so there’s now a huge flow of professionals to Norway.

    Like


  55. @jaakkeli- I was curious why they hadn’t joined the EU, and don’t use the euro. Thanks.

    Like