Private, national & common wealth in the post-socialism/capitalism era
Bewildered by what's been happening, both nationally and globally, in the wake of the fall of the Berlin Wall?
I.e. where the unwittingly weakened nation-state - formerly a bulwark against plain-levelling & globalization -
no longer tempers the social, economic & other pitfalls foreseen by Marx, Gramsci, Minsky, McCulley,etc.
Where - as the Laffer & Rider Curves illustrate in the tax & the social fields - excessive poor/rich gradients
upset the social fabric, wash away fertility factors with uncontrolled erosive powers & contribute to famine.
Where indeed, as Patrick Martin pointed out, monopolistic capitalism and the associated reckless greed
are no longer kept in check by Adam Smith' invisible hand, i.e. by the balance of contradictory interests.
And where the capacity for self-correction is increasingly inhibited by loss of freedom, mooring & orientation
which led to market frenzies & false alpha birds feeding on hype & bubbles, reminiscent of the Roaring 20s.
IMF & FATF estimate black funds (drugs, tax evasion etc) to be 2-5% of world's GDP (2006: $960-2400bn).
An IMF Report indicates these funds to be increasingly chased under anti-terrorism & ever flimsier pretexts.
Courtesy by the IV Reich's Secret Service, the world has indeed been made hostage of ill-considered rules
which impede more legitimate business than crime. For big time money laundering, the US Treasury set the
standard in 2001 with its 31% confiscatory backup withholding tax on unidentified investors in US securities,
turning foreign bankers from trustees of clients into IRS agents (qualified intermediaries) subject to US laws.
Private equity & hedge funds thus found a government-sponsored access to black funds, while the latters'
entry into subprime markets was also eased by the Internet. Results: predatory lending & systemic risks.
Society's organization needs re-thinking with Plato, G.Duttweiler, M,Yunus, J.M.Arizmendiarrieta etc.
For man's evolution may only be stressed by technological leaps but not accelerated beyond natural limits.
Return on investment rates above productivity gains/organic growth are not sustainable, predatory & usuric.
If driven by managers, lawyers & funds on the back of other stakeholders, M&As are thus Ponzi schemes
where shareholder value adepts can maraud with stacked Monopoly cards, helped by micro-economic laws.
Like compulsory social insurance systems whose doom is delayed or obscured only by inflation, war, etc.
And where the cunniest operators are state-supported by myopic magistrates hood-winked into fiscal deals.
Gary J. Aguirre's US Senate testimony details fraud & market mechanics which were at work before 1929,
e.g. Ponzi structures, unregulated pools of money, siphoning from unsuspecting mutual fund investors, and
abuse-prone market dominance: hedge funds' $1.5 trillion drive half of the $28 trillion NYSE's daily trading.
Tongue-in-cheek, Warren Buffet famously opined: "derivatives are financial weapons of mass destruction";
yet, under increasing performance & compliance pressures, some bankers still see a future in fee hunting.
Society wised up against churning of accounts by undelicate trustees, but not yet against macro-parasitism
which feasts on ignorance, sucks & devours a firm's life-preserving substance, & weakens society's pillars.
Which turns economic rat races into societal tailspins with early burn-outs & senior citizens being wasted,
& instills values causing youth to be educated out of sync, resulting in drug, violence & €1000 generations.
With profit-driven quarterly thinking & cost-cuttings also eroding due infrastructure maintenance & renewal,
& democracy's promises ridiculed by Fatf, EU & UN bureaucratic lawmaking as if Berlin Wall fell eastwards.
So why not thinking things over & Revisiting Das Kapital while some dance on the Titanic”?   Iconoclast
Revisiting Das Kapital while some dance on the Titanic
courtesy by: Swiss Investors Protection Association - url:
 .../wealth.htm ¦ .../QI.htm ¦ .../1929.htm ¦ .../barbarians.htm ¦ .../buccaneers.htm ¦ .../bubbles.htm ¦ .../caisses.htm
../hedge.htm ¦ ..../goldies.htm ¦ .../swissbanks.htm ¦ .../costbenefit.htm ¦ .../oecdmandate.htm ¦ .../GAFI.htm ¦ .../crime.htm
tks 4 notification of errors, comments & suggestions: +4122-7400362 ¦

The U.S. Gross National Debt:__
globally floating IOUs tied to US housing: $7.5 trillion
hedge-fund asset growth 2001-06: $0.539 to 1.43 trillion
IRS-protected & FATF-targeted black funds: $1 to 2.4 trillion
M&A totalling in 2006: $3.8 trillion ¦ billion dollar bonus gurus
paycheck devide: food for next revolution
suggestion: see first the more regularly updated index-only
U.S. Federal Reserve Bank: Modern Money Mechanics ¦ Debt-based money, video (E, F, D), comments
U.S. FED: the biggest Ponzi scheme ever - On the imperative to return to constitutional money, video
Global Systemic Crisis - Crise Systémique Globale; the financial perpetuum mobile doesn't work either ¦ M3 fog
How bankers mutated from client confidants to fee-hunting IRS agents in storage, moving & deconstruction business
& let the Swiss Bankers Association nilly-willy torpedo not-invented-here regulations against systemic risks
pork bellies ¦ Subprime crisis ¦ Private equity: Locusts & asset strippers or saviours of clapped-out companies?
1929 crash mechanism spinning again? ¦ TV's Big Brother Ponzi scam ¦ Gold matters ¦ The €1000 Generation
Current players ¦ Past negative headline makers: after a bout with the law, where are they now? ¦ Richistan
Le capitalisme est en train de s'autodétruire ¦ Le nouvel âge du capitalisme: Bulles, krachs et rebonds
Muhammad Yunus' Microcredit: reanimating the sovereign citizen in the post-socialism/capitalism era
Theologen über Geld-Zins-Boden: Carl Amery | Karl Barth | Christoph Blumhardt | Eugen Drewermann |
Ulrich Duchrow | Wilhelm Haller | Hans Kessler | Christoph Körner | Pinchas Lapide | Jürgen Moltmann |
Friedrich Naumann | Leonhard Ragaz | Thomas Ruster | Kurt Scharf | Johannes Ude | barbarians all over
The interest of gold: confidence ¦ Der Zinsertrag von Gold: Vertrauen ¦ L'intérêt de l'or: confiance
Switzerland. tax eldorado for failed golden boys, greed gurus, hedge fund managers & other apprentice-sourcerers?
Is Swiss Government well-advised, blackmailed or otherwise led astray by disoriented vested interests?
Causes of the Financial Crisis | 1929 und 2008 - Ökonomen erklären Krisen | Wall Street ripoff

25.Mai 12    US-Angriff auf Finanzplatz Schweiz, Schweizerzeit , Ulrich Schlüer
22 Dec 10   How Merrill Lynch Traders Helped Blow Up Their Firm,, Jake Bernstein et al., comments
9 Nov 10    Bond buyers aren't fools: Fed can't simultaneously raise inflation & lower interest rates, WSJ, Alan Reynolds
9 Nov 10    .Palin's Dollar, Zoellick's Gold, WSJ, editorial
8 Nov 10   Gold digging at the World Bank, FT, editorial
8 Nov 10   Zoellick’s call on gold standard dismissed, FT, Robin Harding
7 Nov 10   Robert Zoellick: The G20 Must Look Beyond Bretton Woods II, FT
7 Nov 10   Zoellick seeks gold standard debate, FT, Alan Beattie
3 Nov 10   Leverage ratio 69 to 1: Fed balance sheet could look very ugly, very fast, WSJ, editorial, comments
1 Nov 10   Martin Wolf: Could the world go back to the gold standard?, FT
30 Oct 10   How the Banks Put the Economy Underwater, NYT, YVES SMITH
30.Okt 10   L'arroseur arrosé: die missbrauchte QI-Geldwaschmaschine des IRS
28 Oct 10   Gold vs. the Fed: The Record Is Clear, WSJ, CHARLES W. KADLEC
20 oct 10   Dollar currency & pension funds: history's biggest Ponzi schemes, BILAN, Myret Zaki
18 Oct 10   Banks Shared Clients’ Profits, but Not Losses, NYT, LOUISE STORY
18 Oct 10   Banks Shared Clients’ Profits, but Not Losses, NYT, LOUISE STORY
12.Okt 10   Willkommen in Utopia, Format, Martina Madner et al.
10 Oct 10    Did the IRS' money-laundering save the global economy?
26 Sep 10   Gold: Value locked in, FT, Javier Blas et al.
22 Sep 10    Iconoclast: Birthday laudatio to a comrade-in-arms
12 Sep 10    Follow the Dirty Money, NYT, ROBERT MAZUR
10 Sep 10   Towards a democratically controlled QI system, Cambridge Symposium, ASDI/SIPA, Anton Keller
10 Sep 10   Drug Money Props Up Banks During Recession, New American, Joe Wolverton
23.Aug 10   Zu gross, um nicht unterzugehen, Wegelin-Kommentar #272, Konrad Hummler
23 Aug 10   Too big not to fail, Wegelin comment #272, Konrad Hummler
23 aou 10   Trop gros pour ne pas faire faillite, Wegelin commentaire #272, Konrad Hummler
23 ago 10   Tropo grandi per non fallire, Wegelin bollettino #272, Konrad Hummler
13 Aug 10   Big, bad numbers, Daily Reckoning, Bill Bonner
11 Aug 10   U.S. Is Bankrupt and We Don't Even Know It,, Laurence Kotlikoff
8 Jul 10   Another round of Prohibition, anyone?, Washington Post, George F. Will
8 Jul 10    HSBC Mass Leak of Client Data Rattles Swiss Banking, WSJ, David Gauthier-Villars et al.
30 Jun 10   In U.S. Bailout of A.I.G., Forgiveness for Big Banks, NYT, LOUISE STORY et al., AIG bailout docs
16 juin 10    Accord UBS: salutaire pour la banque, funeste pour la suisse, BILAN, Myret Zaki
19 May 10   Clients Worried About Goldman’s Dueling Goals, NYT, Gretchen Morgenson et al., comments
19 May 10   Goldman’s Responses on Relations With Clients, NYT. Goldman insider documents
18 May 10   FATCA: New automatic info exchange tool may be more than the IRS gambled for, Tax Justice Network
24 Apr 10   Rating Agency Data Aided Wall Street in Deals, NYT, Gretchen Morgenson et al.
18 Apr 10   Antonio Maria Costa: International crime groups have acquired military dimensions, UNTV
7 Feb 10   Testy Conflict With Goldman Helped Push A.I.G. to Edge, NYT, Gretchen Morgenson et al.
6 Jan 10   Israeli Banks Bar U.S. Customers From Holding Securitiesy, Globes,  Hadas Magen
1 Jan 10   Global super-rich no longer look so benign, FT, Chrystia Freeland
26 Dec 09   Robert Morgenthau, whipping master of Credit Suisse, steps down, WSJ, James Freeman, comments
24 Dec 09   Banks Bundled Bad Debt, Bet Against It and Won, NYT, Gretchen Morgenson et al.
13 Dec 09   $352 bn drug money saved banks in global crisis, claims UN advisor, The Observer, Rajeev Syal
24 nov 09   Des rumeurs de bulle agitent le marché de l’aluminium, Le Temps, Pierre-Alexandre Sallier
23 nov 09   Sécurité alimentaire: Marchés agricoles, le grand brouillage, Le Temps, Pierre-Alexandre Sallier
22.Nov 09   Viele UBS-Konten haben einen Holocaust-Bezug, NZZ am Sonntag, Andreas Mink
18 Nov 09   SocGen tells clients how to prepare for potential 'global collapse', Telegraph, Ambrose Evans-Pritchard, Comments
14 Nov 09   J'accuse - Investigating Iceland’s financiers, Elf: the named and shamed, FT, Stanley Pignal et al.
11 Nov 09   Virtuous or Vicious Bankers?, NYT, MAUREEN DOWD
8 Nov 09   Inside the Global Gold Frenzy, NYT, NELSON D. SCHWARTZ
7 Nov 09   Mises: The Man Who Predicted the Depression, The Daily Capitalist, Jeff Harding
6 Nov 09   The Man Who Predicted the Depression, WSJ, MARK SPITZNAGEL
2 Nov 09   Could America go broke?, WP, Robert J. Samuelson
28 Oct 09   The common good imperative: Giving democracy a dose of clarity, WP, Michael Gerson
20-26 Oct 09  George Soros: The Way Forward, Central European University lectures, Budapest, FT
20.Okt 09   Liaquat Ahamed: Der Goldstandard verschärfte die Krise 1929, Die Welt online, D. Eckert et al.
19 Oct 09   Countdown to the next crisis is already under way, FT, Wolfgang Münchau
19 Oct 09   Mideast investment cuts hit private equity, FT, Robin Wigglesworth et al.
25 Sep 09   A Crisis of Politics, Not Economics, WSJ, JEFFREY FRIEDMAN, comments
22 Sep 09   Richard W. Rahn: The Growing Debt Bomb, Washington Times
15.Sep 09   Hans Geiger: Mit der Verstaatlichung drohen, Tages-Anzeiger
14 Sep 09   Same Old Hope: This Bubble Is Different, NYT, CATHERINE RAMPELL
11.Sep 09   Wenn die Bankengrösse zum Problem für das ganze Land wird, Ch.Blocher, N.Hayek, Ch.Levrat
26 Aug 09   Does the World Still Need the Swiss?, WSJ, HOLMAN W. JENKINS, JR, opinion
24.Aug 09   Abschied von Amerika, Wegelin-Kommentar #265, Konrad Hummler
24 Aug 09   Farewell America, Wegelin comment #265, Konrad Hummler
24 aou 09   L’adieu à l’Amérique, Wegelin commentaire #265, Konrad Hummler
24 ago 09   Goodbye America, Wegelin bollettino #265, Konrad Hummler
25 Aug 09   Charles Schwab Takes on Cuomo, WSJ, LIZ RAPPAPORT
22 Aug 09   If Switzerland Can ..., NYT, editorial
19 Aug 09   Warren E. Buffet: The Greenback Effect, NYT, Op-Ed Contributor
19 Aug 09   Brokers Aren't Responsible for Bad Bets, WSJ, CHARLES R. SCHWAB, opinion
11 Aug 09   Unfair at Any Speed - Why success itself is the true target, Traders Magazine, Dan Mathisson, Commentary
6 Aug 09   Despite Bailouts, Business as Usual at Goldman, NYT, JENNY ANDERSON
31 Jul 09   Big Banks Paid Billions in Bonuses Amid Wall St. Crisis, NYT, LOUISE STORY et al.
27 Jul 09   Of Banks and Bonuses, NYT, editorial
19 Jul 09   Free commercial speech: an S & P rating merely an editorial or weather forecast?, NYT, David Segal
5 Jul 09   Ponzi-US: Bernie Madoff Is No John Dillinger, NYT, FRANK RICH
1 Jul 09   Debt is capitalism’s dirty little secret, FT, Ben Funnell
1 Jul 09   In China, New Limits on Virtual Currency, NYT, DAVID BARBOZA
July 2009   Joseph E. Stiglitz: Wall Street’s Toxic Message, Vanity Fair
30.Jun 09   Die Schmiergeldkultur der Banken, Tagesanzeiger, Rudolf Strahm
21 Jun 09   "Treasury's Got Bill Gross on Speed Dial", NYT, Devin Leonard
19.Jun 09   Hans Geiger: Warum nicht den Privatsphärenschutz in der Verfassung auf das Eigentum ausdehnen?, Schweizer Bank
18 Jun 09   Geneva Probes Santander Madoff Links as Investor Alleges Scam, Bloomberg, Warren Giles
17 Jun 09   BRIC Dollar Bonds Beat Ruble Debt as Medvedev Frets, Bloomberg, Laura Cochrane et al.
17 Jun 09   Suitcase With $134 Billion Puts Dollar on Edge, Bloomberg, William Pesek, Commentary
12 Jun 09   The Great Unwinding, NYT, DAVID BROOKS
11 Jun 09   Get Ready for Inflation and Higher Interest Rates, WSJ, ARTHUR B. LAFFER
10 Jun 09   America’s Sea of Red Ink Was Years in the Making, NYT, DAVID LEONHARDT
8 juin 09    La Russie rejoint la Chine, remet en cause la suprématie du dollar, Le Temps, Ram Etwareea
8 Jun 09   The Coming Currency Collapse, Khaleej Times (UEA), Matein Khalid
7 Jun 09   The storm is not over, not by a long shot!, NYT, SANDY B. LEWIS et al.
6 Jun 09   Poking Holes in the Efficient Market Hypothesis, NYT, JOE NOCERA
29 May 09   The Big Inflation Scare, NYT, PAUL KRUGMAN, comments
29 May 09   Schumpeter's Moment - Capitalism provides economic growth and freedom, WSJE, Carl Schramm
27 May 09   Exploding debt threatens not only America, FT, John Taylor
25 mai 09   Werner Rutsch: Arrêtez de céder aux pressions internationales!, Le Temps, Emmanuel Garessus
25.Mai 09   Bankdatendieb & Staats-Hehler: Opfer staatlichen Uebereifers, Vaterland, Wolfgang Frey
23 mai 09   Marc Faber: «La Suisse s’incline beaucoup trop vis-à-vis de l’étranger», Le Temps, Daniel Eskenazi
18 May 09   The End Game Draws Nigh -The Future Evolution of the Debt-to-GDP Ratio, Safehaven, John Mauldin
14 May 09   The Almighty Renminbi?, NYT, NOURIEL ROUBINI
14 May 09   China’s Heart of Gold, NYT, VICTOR ZHIKAI GAO
13.Mai 09   Riskante Auslandreisen für Banquiers & andere Treuhänder, ASDI/SIPA
11 May 09   Monsters, Inc. - How banks got big, The New Yorker, James Surowiecki
9 mai 09    No prisoners! Keine Feuerpause gegen OECD's schleichende Steuerharmonisierung!, ASDI/SIPA
7 May 09   Swiss National Bank is biggest looser in Europe's ill-advised gold sales: $19bn, FT, Javier Blas
30 Apr 09   Lex Helvetica, Motion 09.3452
12.Apr 09   Schweiz prüft Sanktionen gegen OECD, NZZ am Sonntag, Markus Häfliger
12 Apr 09   Perpetual motion in finance is illusory: 20th century iconoclast Soddy showed, NYT, Eric Zencey
11.Apr 09   Die trostlose Modellschreinerei, alias Wirtschaftswissenschaft, NZZ, Gerhard Schwarz, Kommentar
5 Apr 09   G20 assault on tax avoidance diverts attention from real problems,, Nick Mathiason
5 Apr 09   Swiss slide into deflation signals next chapter of global crisis, telegraph, Ambrose Evans-Pritchard
4.Apr 09   Franz Blankart: Interview zum G20-Entscheid, SDA, Stefan Trachsel
4 avr 09   Quand la SdN s’attaquait au secret bancaire, Le Temps, Joëlle Kuntz
3.Apr 09   Keine vertrauensbildende Medizin der G-20, NZZ, Gerhard Schwarz
1 Apr 09    Lawmaker circular, SIPA/ASDI, Anton Keller
31 Mar 09   Bank secrecy: Will Swiss voters alone fight back with constitutional amendment? (d, f, i)
30 Mar 09   OECD misguided: Against tax competition, sovereignty & privacy, CF&P, Andrew Quinlan
30 Mar 09   Strategic Memorandum: Prospects for Tax Competition in 2009, CF&P, Daniel J. Mitchell
30 Mar 09   Madoff of economies:America turns out to have been a fraud all along, NYT, Paul Krugman
27 Mar 09   Failure of a self-serving overgrown banking model which did more harm than good, NYT, Paul Krugman
26 Mar 09   Geithner to Outline Major Overhaul of Finance Rules, NYT, Edmund L. Andrews et al.
23 Mar 09   Reform the International Monetary System, People's Bank of China, Zhou Xiaochuan
20 Mar 09   Wahrung der Schweizer Souveränität, Würde und Interessen, Postulat Freysinger 09.3296
20 Mar 09   In defence of Swiss sovereignty, dignity and interests, Postulat Freysinger 09.3296
20 Mar 09   Swiss seek abolition of anti-tax avoidance OECD mandate: ao by suspending payments to OECD
20.Mär 09  Streichung aller nicht-obligatorischen Beiträge an die OECD, Interpellation Briner 09.3350
20 Mar 09   Geneva Banks Face ‘Creative Destruction’ in Losing Secrecy, Bloomberg, Dylan Griffiths
20 Mar 09   U.S. regulator probing "Ponzimonium", IHT, Reuters, Jason Szep
20 Mar 09   After Madoff, CTFC discovers 'Rampant Ponzimonium', Dow Jones, John Kell
19 Mar 09   Hyperinflation, war &/or monetary reform: Fed creates $1 Trillion out of thin air, NYT, E.L. Andrews
19.Mär 09   Genossenschaft Mondragón: Demokratisch in die Krise, WOZ, Tonio Martin
18.Mär 09  Modellschreiner & Gier: Eine falsch angewendete Formel und ihre Folgen, NZZ
18 Mar 09   Clausula rebus sic stantibus: A.I.G.’s Bonus Blackmail, NYT, LAWRENCE A. CUNNINGHAM
18 Mar 09   Friends in need, friends indeed: In Defense of Real & Made-Believe Tax Havens, WSJ, Richard Rahn
17. Mär 09  OECD im Ständerat unter Beschuss (z.B. Votum Staehelin, Interpellation Briner 09.3350)
16 Mar 09   AIG bailout & bonuses: Bracing for a Bailout Backlash, NZT, ADAM NAGOURNEY
16 Mar 09   Nation urges more say in global finance, China Daily, Bernice Chan
15 Mar 09   Infuriating lawmakers: Huge AIG Bonuses After $170 Billion Bailout, NYT, Edmund L. Andrews et al.
9 Mar 09   On the Origin of Bankers’ Giant Bonuses, NYT, EDUARDO PORTER
8 Mar 09   If you liked the US subprimes, you'll love the EU's break-up, NYT, LIAQUAT AHAMED
8 Mar 09   2008, the year when ‘The Great Disruption’ began, NYT, THOMAS L. FRIEDMAN
8 Mar 09   When Austria's bankers danced on their Titanic, NYT, FREDERIC MORTON
5.Mär 09  Weiter denken, nicht weiterwursteln - Memo zuhanden der Taskforce Bankgeheimnis, WOZ, Gian Trepp
3 Mar 09   Friends in need are friends indeed: Switzerland Should Stiff-Arm the IRS, CFP, Dan Mitchell
2 Mar 09   Friends in need are friends indeed: Swiss-Bashing is neither fair nor helpful, FT, Faith Whittlesey
2 Mar 09   Global policy shortcomings will cost us dear, FT, Wolfgang Münchau
26 Feb 09   Are Executives Paid Too Much?, WSJ, JUDITH F. SAMUELSON et al.
25 Feb 09   Bailout money used for entertainment splashes & golf junkets, NYT, MAUREEN DOWD
20 Feb 09   Most Davos Men are in denial, refuse co-responsibility for crisis, Foreign Policy, Federico Fubini
12 Feb 09   Gold Standard: Capitalism Needs a Sound-Money Foundation, WSJ, JUDY SHELTON
6 Feb 09   On the Edge, NYT, Paul Krugman
4 Feb 09   Wall Street Bonuses Are an Outrage, WSJ, THOMAS FRANK
4 Feb 09   Mating Season Is Over for Alpha Males of Banking, Bloomberg, Matthew Lynn, commentary
4 Feb 09   SEC’s Madoff Miss Fits Pattern Set With Pequot, Bloomberg, Gary J. Aguirre, commentary
2 Feb 09   Prison for Dummies’ Is a Ponzi Guy’s Must-Read, Bloomberg, Susan Antilla, commentary
2.Feb 09   Majestix und Miraculix auf den Finanzmärkten, DER STANDARD, Johannes M. Lehner
1 Feb 09   Disgorge, Wall Street Fat Cats, NYT, MAUREEN DOWD
30 Jan 09   Obama Calls Wall Street Bonuses ‘Shameful’, NYT, SHERYL GAY STOLBERG et al.
30 Jan 09   'Think Long' to Solve the Crisis, WSJ, GEORGE P. SHULTZ
30 Jan 09   What future for the global financial system?, WEF, Mark Adams
29 Jan 09   What Red Ink? Wall Street Paid Hefty Bonuses, NYT, BEN WHITE
29 Jan 09   The humbling of Davos Man, FT, John Gapper
29 Jan 09   Survive the credit crisis the Alpine way, FT, Peter Marsh
28 Jan 09   Financial models are no excuse for resting your brain, FT, John Kay
28 Jan 09   Troubled Times Bring Mini-Madoffs to Light, NYT, LESLIE WAYNE
27 Jan 09   MERRILL LYNCH lost $27 billion last year, still managed to pay $4 billion bonuses, NYT, Dave Krasne
27 Jan 09   Bonus culture: Money for Nothing, NYT, DAVE KRASNE
26 Jan 09   To save the banks we must stand up to the bankers, FT, Peter Boone et al.
25 Jan 09   Time to herald the Age of Responsibility, FT, Robert Zoellick
23 Jan 09   Giga bubble-in-the-making: The World Won't Buy Unlimited U.S. Debt, WSJ, PETER SCHIFF
23 Jan 09   Investors Want Clarity Before They Take Risks, WSJ, MICHAEL BOSKIN
22 Jan 09   The right and wrong way to bail out the banking sector, FT, George Soros
7 Jan 09   Mad Men, WSJ, Holman W. Jenkins, Jr.
6 Jan 09   Goebbel's dictum: the bigger the repeated lie ... Fraud's Perfect Cloak, WP, Allan Sloan
5 Jan 09   With all these trillions, how can we keep hold of the meaning of money?, Guardian, Max Hastings
5 Jan 08   Fighting Off the Great Depression II, NYT, Paul Krugman
4 Jan 09   The End of the Financial World as We Know It, NYT, Michael Lewis et al.
4 Jan 09   How to Repair a Broken Financial World, NYT, Michael Lewis et al.
4 Jan 09   Plea for a New World Economic Order, Shalom P. Hamou
3 Jan 09   The U.S., a Disintegrating Ponzi Scheme? Critics Come Unglued, WP, Joel Garreau
1 Jan 09   annus horribilis 2008: world's stockmarkets lost $14 trillion, Guardian, Julia Kollewe
Jan 2009   Ist das ganze Weltfinanzsystem ein riesiger Madoff-Schwindel?, Neue Solidarität, Helga Zepp-LaRouche
jan 2009   La BNS soutient-elle le dollar?, PME, Mohammad Farrokh
31 Dec 08   Madoff Hits Feeder Funds, Auditors,, Jane Bryant Quinn
30.Dez 08   Madoff: Der Milliardendieb war auch Kassenwart, Die Weltwoche, Roger Köppel
30 Dec 08   UBP Scrambles to Explain Madoff Ties, WSJ, Cassell Bryan-Low et al.
29 Dec 08    Igor Panarin:The pyramid scheme America will disintegrate in 2010, WSJ, Andrew Osborn
27 Dec 08   Fellow-Americans, co-racketeers & co-profiteers: Stop Being Stupid, NYT, Bob Herbert
27 Dec 08   Ponzi Schemes: The Haul Gets Bigger, but the Fraud Never Changes, NYT, Eduardo Porter
24 Dec 08   Madoff dealings tarnish a private Swiss bank, IHT, Nelson D. Schwartz
20 Dec 08   Madoff Scheme Kept Rippling Outward, Across Borders, NYT, Diana B. Henriques
20 Dec 08   One Name, Charles Ponzi, Stands Alone in The Grand Scheme of It All, WP, David Montgomery
19 Dec 08   The Madoff, i.e. Ponzi Economy, NYT, Paul Krugman
18 Dec 08   On Wall Street, Bonuses, Not Profits, Were Real, NYT, Louise Story
16 Dec 08   Put Madoff In Charge of Social Security, WSJ, Holman W. Jenkins, Jr.
16 Dec 08   Strauss-Kahn fears social unrest without $1.2 trillion action on economy, Times, Gary Duncan
16 Dec 08   Pyramid Schemes Are as American as Apple Pie, WSJ, John Steele Gordon
13 Dec 08   Madoff Affaire: Now Accused of Fraud, Wall St. Wizard Had His Skeptics, NYT, Alex Berenson et al.
8 Dec 08   Stop those discredited academic financial wizzards & Pipers of Hamelin, FT, Nassim Nicholas Taleb et al.
4.Dez 08   Schweiz/Bankenaufsicht erhöht Eigenmittelziele für Großbanken, Dow Jones
1 Dec 08   Ben Bernanke and the financial crisis:  Anatomy of a Meltdown, The New Yorker, John Cassidy
Dec 2008   The End of Wall Street’s Boom,, Michael Lewis
27.Nov 08    Marc Zuyox: UBS soll "McKinsey & Company striktes Hausverbot für mindestens zehn Jahre" erteilen, NZZ
27.Nov 08   Was tun zur Bändigung der gemeinschädlichen Spekulation? Macht die UBS zur Migros!, WOZ, Gian Trepp
26 Nov 08   The Fed: Solution or problem?, Washington Times, Richard Rahn
25 Nov 08   Totally disgusting: Unmoored professionals on a greed stampede, NYT, Thomas L. Friedman
25 nov 08   Guy de Picciotto: «Nous courons le risque d’être relégués à une place de seconde zone», LT, Frédéric Lelièvre
22 Nov 08   Citigroup Pays for a Rush to Risk, NYT, Eric Dash et al.
21 nov 08   Et si la SBS refaisait surface - p.ex. en coopérative?, La Liberté, CHRISTIAN CAMPICHE
20.Nov 08   Juristische Seiltricks vs Sicherheit durch zeitigen Abzug von Kundengeldern, NZZ, Myriam A.Gehri
20.Nov 08   Juristen streiten um US-Amtshilfe im Fall UBS, NZZ, Zoé Baches et al.
20 Nov 08   Discarding some self-gratifying myths about what a big bonus really buys, NYT, DAN ARIELY
19 Nov 08   What's good for GM [& UBS?] is good for America [& CH]!: a managed bankruptcy, NYT, Mitt Romney
18.Nov 08   Bundesrat als eilfertiger Wegmacher von Pensionskassen-Abzockern, TA, Rudolf Strahm, Kommentare
17 Nov 08   No regulation can match a gold peg's disciplinary effects on central & other banks, WSJ, G.O'Driscoll
17 Nov 08   At the pillory: Deregulator & UBS lobbyist Phil Gramm Looks Back, Unswayed, NYT, Eric Lipton et al.
16.Nov 08   2008 UBS- und 1933 Volksbank-Rettung - verblüffende Parallelen, NZZ am Sonntag, Beat Kappeler
16.Nov 08   Empörte US-Kunden gehen gegen gewohnt eilfertige UBS & ESTV vor, NZZ am Sonntag, Zoé Baches et al.
15 Nov 08   Did steam-rolled Swiss lawmakers unleash the financial tsunami?, WSJ, Iconoclast
15 Nov 08   Growing Sense Of Outrage Over Executive Pay, WP, Heather Landy, pay ratio graphics
15 nov 08   X.Oberson: Les banques du monde entier sont devenues des agents du fisc américain, LT, Myret Zaki
14 Nov 08   Gold Standard: Stable, Real-Value Money Is the Key to Recovery, WSJ, Judy Shelton, comments
13 Nov 08   It's Time to Rethink Our Retirement Plans, WSJ, Roger W. Ferguson Jr., comment
13 Nov 08   UBS' QI ties with IRS are bad for Top Banker & Banking Secrecy, WSJ, Evan Perez et al.
12 Nov 08   Replacing the cancerous fiat (un-backed) currency system, The Big Picture, Lee Quaintance et al.
10 Nov 08   Where are the enlightened modern Pharaos of salvation?, The New Yorker, John Lanchester
5 Nov 08   Salve Obama!, Washington Post, Iconoclast
5 Nov 08   In Collusion with One-Eyed Financial Engineers, Model Carpenters & Apprentice-Sorcerers, NYT, Steve Lohr
5 Nov 08   CDS Data Show Scope of Wagers on Nations, WSJ, SERENA NG et al.
4 Nov 08   Five Myths About the Great Depression, WSJ, ANDREW B. WILSON
4 Nov 08   Seven principles to guide reform, here and abroad, WSJ, Stephen Schwarzman
4 Nov 08   Private Equity Draws the Cold Shoulder, WSJ, PETER LATTMAN et al.
4 Nov 08   Convertible Bonds Cause Hedge Funds Serious Pain, WSJ, GREGORY ZUCKERMAN
4 Nov 08   Long live activism, FT
4 Nov 08   Darwinian rules threaten hedge funds, FT, Kate Burgess
3 Nov 08   When Hedge Funds Grease Instead of Slow the Slide, The New Yorker, James Surowiecki
3 Nov 08   G-20 Washington meeting: Beware of monopolists for good ideas!, WP, Iconoclast, comment
2 Nov 08   Hedge fund problems reach far wider, FT, Lawrence Cohen
2.Nov 08   Sternstunde: "Der Schwarze Herbst", SF1, Hansjörg Siegenthaler im Gespräch mit Roger de Weck
2 Nov 08   Discord on Economies In a World Of Trouble, WP, Steven Mufson et al.,comment
31 Oct 08   DTCC opens up registry servicing global credit default swaps market valued at US$40 trillion
31 Oct 08   Behind AIG's Fall: One-Eyed Model Carpenters, WSJ, Carrick Mollenkamp et al.
31 Oct 08   Hank Paulson's $125 Billion Mistake, WP, Steven Pearlstein
31 Oct 08   Greenspan Slept as Off-Books Debt Escaped Scrutiny,, Alan Katz et al.
31 Oct 08   Banks Owe Billions to Executives, WSJ, ELLEN E. SCHULTZ
31 Oct 08   A $50 Billion Bailout in Russia Favors the Rich and Connected, NYT, ANDREW E. KRAMER
30 Oct 08   Credit `Tsunami' Swamps Trade as Banks Curtail Loans,, Michael Janofsky et al.
30 Oct 08   U.S. Treasury Program Shuns Banks That Need Cash Most, Bloomberg, David Mildenberg et al.
30 Oct 08   World According to TARP No Laughing Matter for U.S.,, Abigail Moses et al.
30 Oct 08   Mizuho $7 Billion Loss Turned on Toxic Aardvark Made in America,, Finbarr Flynn
30 Oct 08   UK Bank insider David Blanchflower urges deep rate cut,
30 Oct 08   Securities-Lending Sector Feels Credit-Crisis Squeeze, WSJ, By CRAIG KARMIN et al.
30 Oct 08   Layoffs Sweep From Wall St. Across New York Area, NYT, PATRICK McGEEHAN
30 Oct 08   NY AG Cuomo: Disproportional pay may violate NY law - banks investigated, NYT, Ben White et al.
30 Oct 08   A Question for A.I.G.: Where Did the Cash Go?, NYT, MARY WILLIAMS WALSH
29 Oct 08   Loans? Did We Say We’d Do Loans?, NYT, editorial
29 Oct 08   Reserve Fund’s Investors Still Await Their Cash, NYT, DIANA B. HENRIQUES
28 Oct 08   Chicken coming back to roost in Mr. Ponzi's Wall Street henhouse,, Mark Pittman
27.Okt 08   Wir brauchen ein Bretton Woods III,, Henrik Müller, Kommentar
27 Oct 08   G-20 meeting: Wall Street's Trojan Horse, Global Research, Michel Chossudovsky
27.Okt 08   Protest gegen Finanzmärkte: Attac-Aktivisten stürmen Frankfurter Börse, Spiegel online, cvk/dpa/Reuters/ddp
27 Oct 08   Morgan Stanley Propped Up Money-Market Funds With $23 Billion,, Miles Weiss
25 Oct 08   The not-so-invisible hand: How the Plunge Protection Team killed the free market,, Ellen Brown
24 Oct 08   Ruble's Fall Puts Russia on Defense Amid Crisis,, ALAN CULLISON et al.
24.Okt 08   Völlig orientierungslos,, Jörg Eigendorf, Kommentar
24.Okt 08   Was muss sich am globalen Finanzsystem ändern?, Spiegel online forum, onemanshow
23.Okt 08   FundamentalistInnen am Werk, WOZ, Andreas Missbach, Standpunkt
23.Okt 08   Drohende Pleiten: Schwellenländer schlittern tief in die Krise,, Frank Stocker
23.Okt 08   Fortsetzung der Plünderung: Der Transkapitalismus, WOZ, Oliver Fahrni
23 Oct 08   NYU's Roubini: 'Worst is Ahead'Some Predict Hedge Fund Failures, Panic, Bloomberg, Tom Cahill et al.
23 Oct 08   The rogue trader is back: A rogue system with lax limits on risk-taking,, John Gapper
23 Oct 08   Is America self-destructing & bringing down the rest of the world?, Global Research, Tanya Cariina Hsu
23 Oct 08   Hedge Funds’ Steep Fall Sends Investors Fleeing, NYT, LOUISE STORY
23 Oct 08   Bubble & Crash: Engineered by Government, FED & Wall Street?, Global Research, Richard C. Cook
22 Oct 08   A Matter of Life and Debt, NYT, MARGARET ATWOOD
22.Okt 08   Jetzt droht ein weltweites Währungsbeben,, Daniel Eckert
22.Okt 08   Die soziale Marktwirtschaft ist lebendig!,, Wolfgang Schüssel
21 Oct 08   The Dangers of a Diminished America, WSJ, AARON FRIEDBERG et al.
21 Oct 08   Get Ready for the New New Deal, WSJ, PAUL H. RUBIN
21 Oct 08   The Iceland Syndrome, WP, Anne Applebaum
21.Okt 08   Ein nüchterner Blick auf die Geschehnisse der vergangenen Wochen, IFW
21 Oct 08   Die Zeit für fette Boni ist vorbei, Spiegel online, Michael Kröger
21 Oct 08   USA: 1607-2008: Aufstieg und Krise einer Weltmacht, Spiegel Spezialausgabe
21 Okt 08   Bild-Illustration: Wie es zur Finanzkrise 2008 kam, Spiegel online
21.Okt 08   Die Zocker von der Wall Street, Spiegel online, Christiane Oppermann
20 Oct 08   Is Capitalism Dead? The market that failed was not exactly free, WP, editorial
20 Oct 08   The price of mathematical, often outsourced & self-serving risk analysis, New Yorker, James Surowiecki
20 Oct 08   Bretton Woods, The Sequel?, WP, Sebastian Mallaby
19 Oct 08   The Bubble Keeps On Deflating, NYT, editorial
18 Oct 08   Anna Schwartz: Bernanke Is Fighting the Last War, WSJ, Brian M. Carney, Interview
17 Oct 08   The Wall Street Ponzi [pyramid] scheme has reached its mathematical limits, Global Research, Ellen Brown
17 Oct 08   THE GLOBAL CRASH: Saving What Can Still Be Saved, Spiegel
16 Oct 08   Cuomo Seeks Recovery of Bonuses at A.I.G., NYT, JONATHAN D. GLATER et al.
12 Oct 08   Liaquat Ahamed's Lessons of the Great Depression, The New Yorker, Steve Coll
15 Oct 08   Banks’ Bailout Unlikely to Crimp Executive Pay, NYT, REED ABELSON
15.Okt 08   Soziologe Ulrich Beck im Interview: "Die Finanzkrise hat aus Schurken Helden gemacht", Spiegel, Hannes Koch
13.Okt 08   Die Wiedergeburt des Eigentums, Wegelin Anlage-Kommentar 259, Konrad Hummler
13 Oct 08   Back to ownership, Wegelin Investment Commentary 259, Konrad Hummler
13 oct 08   Renaissance de la propriété, Wegelin Commentaire d’investissement 259, Konrad Hummler
13 ott 08   La rinascita della proprietà, Wegelin Bollettino finanziario 259, Konrad Hummler
11 Oct 08   Who is Behind the Financial Meltdown? Global Research, Michel Chossudovsky
10.Okt 08   Staat oder Markt? Hochkonjunktur für Ideologen, Das Magazin, Daniel Binswanger
10 oct 08   La stratégie suisse toche à ses limites, Le Temps, Roger de Weck
9 Oct 08   Behind the Panic: Financial Warfare and the Future of Global Bank Power, Global Research, F. William Engdahl
8 oct 08   Bonus et salaires: Des dysfonctionnements à tous les étages, Bilan, interview avec Katia Rost
7 Oct 08   The FED now owns the world's largest insurance company - It's time to buy the FED,, Ellen Brown
3.Okt 08   Die Schweiz nach dem Crash: neue Ideen sind gefragt, Das Magazin, Roger de Weck
3 Oct 08   Bretton Woods Successor Conference & Currency Self-Protection,Swiss Lawmaker Motion 08.3718
30 Sep 08   THE END OF ARROGANCE: America Loses Its Dominant Economic Role, Spiegel
30 Sep 08   Prelude to War? Bernanke Knows What We Have to Fear, WP, Richard Cohen
30 Sep 08   How Voter Fury Stopped Bailout &  Put Plan on the Ropes, WSJ, Stephen Power et al.
30 Sep 08   Too Much Money Is Beyond Legal Reach, WSJ, Robert M. Morgenthau
30 Sep 08   Loose Money And the Roots Of the Crisis, WSJ, Judy Shelton
29 Sep 08   French and German anger misses the fact, FT, Charles Wyplosz
29 Sep 08   Those whom the gods would destroy, they first make mad, FT, Willem H. Buiter
29 Sep 08   J.P.Morgan was more effective than Paulson & Bernanke combined, WSJ, L. Gordon Crovitz
29 Sep 08   What We Can Learn From Chile's Financial Crisis, WSJ, Mary Anastasia O'Grady
29 Sep 08   Shorting Financial Stocks Should Resume, WSJ, Arturo Bris
29 Sep 08   Credit Markets and the Real Economy, WSJ, Michael T. Darda
29 Sep 08   Bankrupt Economics: A Crisis Resists The Usual Remedies, WP, Robert J. Samuelson
29.Sep 08   WEF in China: «Wer rettet den Wall-Street-Retter Uncle Sam?», Neue Zürcher Zeitung
29 Sep 08   A Cure for Greed, NYT, EDUARDO PORTER
29 Sep 08   WaMu’s Lesson for Private Equity, NYT,, ROB COX
29 Sep 08   The Real Costs of the Bailouts, WSJ, SUDEEP REDDY
29 Sep 08   A Bailout Is Just a Start, WP, FT, Lawrence Summers
28 Sep 08    Evolution of US Capitalism: Long Tradition of State Roles, WP, Robert J. Shiller
28 Sep 08   Thanks but no thanks: what Lincoln would have said to Paulson's $700 billion ransom,, Ellen Brown
28 Sep 08    How J.Pierpont Morgan defused the 1907 Wall Street panic, WP, Jean Strouse
28 Sep 08   What’s Free About Free Enterprise?, NYT, PETER L. BERNSTEIN
28 Sep 08   Wall Street, R.I.P.: The End of an Era, Even at Goldman, NYT, Julie Creswell et al.
27 Sep 08   In praise of free markets, FT, editorial
27 Sep 08   An Alternative Way to Save the (Financial) World, NYT,  Joe Nocera, 37 comments
27.Sep 08   Die sieben Mythen zur Finanzkrise der USA, Die Welt, Sebastian Jost
27.Sep 08   Was Hayek erkannt und die experimentelle Forschung bestätigt hat, NZZ, Vernon L. Smith
26 Sep 08   Don't disregard all structured products, Telegraph, Chris Taylor
25 Sep 08   Back to Basics: Responsibility! Accountability! Discipline! Oversight! Rules! WSJ, Daniel Henninger
25 Sep 08   "Keynes wouldn't have wanted to nationalize that casino", WP,. David Ignatius
25 Sep 08   Economists Of The World, Unite!, NYT, Joe Nocera, 24 comments
25 Sep 08   U.S. Losing Finance Superpower Status, Germany Says, Bloomberg, Leon Mangasarian
25 Sep 08   A Bailout We Don't Need, WP, James K. Galbraith
25 Sep 08   The Paulson Plan Will Make Money [also] For Taxpayers, WSJ, ANDY KESSLER
24 Sep 08   Financial rescue models: solutions past and present, FT
24 Sep 08   After Wall Street firms paid out over $100 billion in bonuses: Crash, NYT,Timothy Egan
24 Sep 08   How Main Street Will [also] Profit, WP, William H. Gross
24 Sep 08   Top Executives at Bruised Firms Among Wall Street's Highest Paid, WP, Cecilia Kang
24 Sep 08   Bringing Down Wall Street as Ratings Let Loose Subprime Scourge, Bloomberg, Elliot Blair Smith
24 Sep 08   Bailout Proposal Meets Bipartisan Outrage, WP, Lori Montgomery et al.
24 Sep 08   "I'm sorry": The Words Left Unspoken in the Bailout Debate, WP, Steven Pearlstein
24 Sep 08   Faith-Based $ Mainly Dependent on Alien Constituency: Buck Stopped in 1971, NYT, James Grant
24 Sep 08   Congress wants Wall Street to feel it where it hurts: the wallet, NYT, Steve Lohr
24 Sep 08   Traders Sowing Seeds of Destruction Prompt Crackdown, Bloomberg, Shannon D. Harrington et al.
23 Sep 08   Britain's Finance Minister tells regulator to curb City's bonus culture, The Guardian, Jill Treanor
23 Sep 08   Experts See a Need for Punitive Action in Bailout, NYT, PETER S. GOODMAN
23 Sep 08   Countdown to a Meltdown, Washington Post, editorial
23 Sep 08   M3 figures hidden since March 2006: Currency's Dive Points to Further Pain, WP, Anthony Faiola et al.
23 Sep 08   A Bailout or a Bonanza?, WP, Eugene Robinson
23 Sep 08   Hard Landing for the Golden Parachute, WP, Dana Milbank
22 Sep 08    John McCain: $400000 executive pay cap for bailed-out firms, CNBC, Reuters
22 Sep 08   The Pain of Deleveraging Will Be Deep and Wide, Barrons, Lawrence C.Strauss, Interview
19 Sep 08   Bankers and Their Salaries, NYT, Editorial
19 Sep 08   A Bid to Curb Profit Gambit as Banks Fall, NYT. VIKAS BAJAJ et al.
19 Sep 08   Present at the Crash, NYT, SAM G. BARIS
19 Sep 08   Peering Over the Cliff, Saying 'I Told You So', WP, Steven Mufson
18 Sep 08   "Wall Street's investment banks plainly deserve to die", Washington Post, Harold Meyerson
18 Sep 08   Scrambling to Clean Up After A Category 4 Financial Storm, WP, Steven Pearlstein
18 Sep 08   The King Is Dead, NYT, Roger Cohen
15 Sep 08   After Bear Stearns, Lehman, Merrill Lynch, etc.: Jittery Road Ahead, NYT, Floyd Norris et al.
12 Sep 08   Lehman: Short Raiders 1: Regulators Nil, Heinz Geyer
19 Aug 08   Wall Street Crunch Due to Sharp US Money Supply Contraction?, Telegraph, A. Evans-Pritchard
18 Sep 08   It’s the derivatives, stupid! Why Fannie, Freddy & AIG all had to be bailed out,, Ellen Brown
14.Aug 08    Absurder Kampf dem Kapitalverkehr, Weltwoche, Hans Geiger & Oliver Wünsch
12 Aug 08   Sovereign Funds Become Big Speculators, WP, David Cho
7.Aug 08   Kapitalismusanalyse: Das Schlaraffenland ist gründlich abgebrannt, WOZ, Gian TreppJuly 08   The Money Supply, FEDNY
29.Jul 08   Die A-Schweiz hängt die B-Schweiz ab, Tages-Anzeigen, Klaus J.Stöhlker
4.Jun 08   Gerechter Lohn und Arbeitslosigkeit, Wertewirtschaft, Gregor Hochreiter
1 May 08   Numbers Racket: Why the economy is worse than we know, Harper's Magazine, Kevin Phillips
Apr 2008   Bad Money: Reckless Finance, Failed Politics & the Global Crisis of American Capitalism, Kevin Phillips
28 Apr 08   The Subprime Solution: How Today's Global Financial Crisis Happened & What to Do about It, R. Shiller
17 Apr 08   Hedge Fund Manager Reaps $3.7 Billion in Casino on the Titanic, WP, David Cho
17.Apr 08   Bedenkliches UBS-Geschäftsmodell: den Klumpen zahlt der Staat, WOZ, Gian Trepp
11 Apr 08    The Face of a Prophet (George Soros: “The New Paradigm for Financial Markets"), NYT, Louise Story
11 Apr 08   While G-7 ministers gesticulate, multiple crises spread, WP, Neil Irwin & Michael A. Fletcher
9 Apr 08   Wilful Misconduct (will US debt be raised by another $4 trillion?), WT, Richard Rahn
9 Apr 08   IMF sees metastasis, estimates crises costs near $1 trillion, WP, Neil Irwin
9 Apr 08   IMF approves sale of 400 tons of gold to close budget gap, AP, Today's Zaman
9 Apr 08   Global Finance Leaders seek to rein-in Banking Practices, Institute of International Finance
9 Apr 08   A Silicon Valley Slowdown, NYT, MATT RICHTEL and BRAD STONE
8 Apr 08   Looking for an End to Deleveraging, New York Sun, Liz Peek
3 avr 08   Quel future pour la finance canibale où le serpent se mord la queue?, Maitre JR, satire
31 mar 08   Le «risque systémique», c’est si pratique, Le Temps, Jean-Claude Péclet
27 Mar 08   Tax Tyrannies, Washington Times, Richard Rahn
3 Mar 08   The Trillion Dollar Meltdown - Easy Money, High Rollers, and the Great Credit Crash, Charles R.Morris
29 Jan 08   "Economic Amaggedon": artificial & deliberate!,, Lyndon LaRouche, video
29.Jan 08   Der Finanzcrash und der Betrug im Weltwährungssystem,
27 Jan 08   Responsibility on Wall Street: $34 billion big time loosers' comeback, NYT, Landon Thomas Jr.
24.Jan 08   Finanzkapitalismus in der Krise: Wu und Hu schlagen Ben, WOZ, Gian Trepp
24.Jan 08   Der Schweizer Finanzplatz als Konkordanzplatz, WOZ, Gian Trepp
23 Jan 08   Worries That the Good Times Were a Mirage, NYT, David Leonhardt
23 Jan 08   The interest of gold: confidence, Iconoclast
23 Jan 08   From Storage, Moving & Mutual Back-scratching Back to Confidence Business, NYT, Iconoclast
23.Jan 08   Harvard's Kenneth Rogoff: "Viele Banken werden nicht überleben“, HANDELSBLATT, Ingo Narat
23.Jan 08   Asiaten und Araber werden nervös, HANDELSBLATT, Pierre Heuman
22 Jan 08   The worst market crisis in 60 years, FT, George Soros, Davos Video
22.Jan 08   „Gier frisst Hirn“, HANDELSBLATT, Jörg Hackhausen
18.Jan 08   Peer Steinbrück re Nokia: Karawanenkapitalismus, Vertrauensverlust 'ist eminent gefährlich', HB
18 Jan 08   Don’t Cry for Me, America, NYT, Paul Krugman, Op-Ed Columnist
18 Jan 08   Dire Wall Street Year With Record Bonuses of $39 Billion, WP, Bloomberg, Christine Harper
16 Jan 08   Why regulators should intervene in bankers' pay, FT, Martin Wolf
16 Jan 08   Could subprime crisis trigger credit default swaps CDS tsunami?, Chronique Agora, Dan Denning
11 Jan 08   Monetary Policy Flexibility, Risk Management, and Financial Disruptions, Frederic S. Mishkin
10 Jan 08   Exchequer Club speech by Fed-Chairman Ben S. Bernanke
9 Jan 08   Bankers' pay, often based on fake alpha, is deeply flawed, FT, Raghuram Rajan
4 Jan 08   The Next Credit Crisis Will Originate in China, Seeking Alpha, J. Christoph Amberger
2008    'Hold-up' in finance: the conditions of possibility for high bonuses in the financial industry", RFS, Olivier Godechot
2008    "What do heads of dealing rooms do? The social capital of internal entrepreneurs", in: Remembering Elites, Olivier Godechot
2008    "Qui sont les traders?", Contretemps, Olivier Godechot et al.
2008    "Les bonus accroissent-ils les risques?", in: La crise des subprimes, Rapport du CAE, Olivier Godechot
2007    "Der Finanzsektor als Feld des Kampfes um die Aneignug von Gewinnen", in: Märkte als soziale Strukturen, Olivier Godechot
31 Dec 07   Wall Street is about smart guys lurking for chances to make money from dumb ones, NYT, Dash
29 déc 07  Quand le rêve américain tourne au cauchemar planétaire, LeTemps, Marie-Laure Chappatte et al.
26 Dec 07   Mortgage Meltdown, NYT, Michael S.Barr, et al., Peter Schiff & Louis Hyman, Op-Eds
24 Dec 07   Analysis: Gov't Tries to Contain Crisis, WP - AP, Martin Crutsinger
24 Dec 07   Dollar's Fall Is Felt Around The Globe, WP, Anthony Faiola
24 Dec 07   Swiss bank regulator to probe UBS: report, WP - Reuters, Jonathan Lynn
23 Dec 07   This Is the Sound of a Bubble Bursting, NYT, Peter S. Goodman
22 Dec 07   A Major Subprime Victim: the American Dream, NYT, Bob Herbert, Op-Ed Columnist
21 Dec 07   Wall Street to get fatter bonuses while many stakeholders suffered huge losses, CNN, AP
21 Dec 07   Blindly Into the Bubble, NYT, Paul Krugman,Op-Ed Columnist
20 Dec 07   End of easy cash: banks must take losses, FT, Charles Wyplosz, comment
19 Dec 07   The looming banking crisis behind the credit crunch - a systemic fault line?, Economist, leader
18 Dec 07   Fed Shrugged as Subprime Crisis Spread, NYT, Edmund L. Andrews
16 Dec 07   Are We in a Recession?, NYT, Roach, Chauvet, Tyson, Furman, Grant, Feldstein, Op-Eds
12 Dec 07   Why the credit squeeze is a turning point for the world, FT, Martin Wolf
5 Dec 07   Lessons of the credit crisis are not just for regulators, FT, David Pitt-Watson
2.Dez 07   Hans-Jörg Rudloff: «Ein unglaubliches Desaster», SonntagsZeitung, Victor Weber
28 Nov 07   Why banking remains an accident waiting to happen, Financial Times, Martin Wolf
28 Nov 07   Bankers are in the confidence, not in the storage or even moving business, FT, Peter T. Larsen
24 Nov 07   At the gates of hell: Now the misery is spreading, Economist
23.Nov 07   UBS: Das angekündigte Debakel; Ospels Abgang im Frühling 08?, BILANZ, Lukas Hässig
23.Nov 07    Ken Moelis: Zur Branchenkrise, Geldgier und Aufspaltung der UBS, BILANZ,  Enk Nolmans
19 Oct 07   Review of 'Supercapitalism' by Robert Reich, IHT, Robert Frank
29 Sep 07   The Secrets of Intangible Wealth, Wall Street Journal, Ronald Bailey
26 Sep 07   U.S. Aims to Limit Funds' Risk, Washington Post, Carrie Johnson, comment
9/11 Sep 07  After the gravy train passed, ugly pile-up looms on Wall Street, NYT, IHT Andrew Ross Sorkin
30 Aug 07    Is BIS' "Basel II" regulation partly responsible for the market mess?, WSJ, David Wessel
27 août 07   Malheur des uns = bonneur des autres, p.ex. Rothschild et Dominicé, Le Temps, Myret Zaki
27 Aug 07   Larry Summers: US could be heading for recession, Telegraph, Ambrose Evans-Pritchard
27 Aug 07   Pension Managers Rethink Their Love of Hedge Funds, WSJ, Craig Karmin
26 Aug 07   Pension funds demand money back, Sunday Telegraph, Helen Power
26 Aug 07   Failure-protected capitalism is socialism for the rich, NYT, James Grant
25 Aug 07   Carlyle Founder on Cheap Debt, Credit Crunch & New Buyout Landscape, WSJ, Henny Sender
23 Aug 07   If you liked liquidity crunch, you'll love insolvency bust, Telegraph, Ambrose Evans-Pritchard
21 août 07  Crise du Subprime: Hyman Minsky avait raison, La Tribune, Pascal Boulard
21 Aug 07   A Fear of Foreign Investments, NYT, Steven R. Weisman
21 Aug 07   For Wall Street's Math Brains, Miscalculations, Washington Post, Frank Ahrens
20 Aug 07   Herding Scapegoats: Who's to blame for current lending mess? Barrons, T.G.Donlan, Editorial
20 Aug 07   Easy Credit, Bubbles and Betrayals, NYT/IHT, Roger Cohen, edpage comment
20 Aug 07   Market turmoil and threats to the broader economy, NYT, Editorial
19 Aug 07   Watershed: excesses in lending and derivatives threaten system, NYT, Editorial
19 Aug 07    Counterfeit Nation: America’s long dubious credit tradition, NYT, Stephen Mihm, Idea Lab
18 Aug 07   Hyman Minsky Long Argued Markets Were Crisis Prone, WSJ, Justin Lahart
18 Aug 07 Testing financial order is not pretty, but it is necessary, Economist, Leader
18 Aug 07   A crisis of confidence in global finance, Economist, Special Section
    From mortgage flu to financial contagion, Rumbled by risky credit-arbitrage funds, Bagehot today,
    Keeping Bankers' mistrust from drying up money markets, Hedge fund losses provide insights,
34/2007 Amerikanischer Alptraum, Milliardenschwere ausgelagerte Zeitbomben, Spiegel
16 Aug 07   Hold tight: a bumpy credit ride is only just beginning, FT, Avinash Persaud
15 Aug 07   In a world of overconfidence, fear makes a welcome return, FT, Martin Wolf
14 Aug 07   No longer dancing: How the music stopped for buy-out buccaneers, FT, James Politi et al.
14 Aug 07   Surviving a credit market meltdown, FT, Martin Arnold
13 Aug 07   Banking bail-out sows seeds of future crises, FT, Paul de Grauwe
13 Aug 07   21st Century Bank Run Version: Why the Blowup May Get Worse, Barrons, Randall W. Forsyth
13 Aug 07   Appropriately, the Bill Lands on Wall Street's Desk, Barrons, Andrew Bary
12 Aug 07   Central Bank as Market Maker of Last Resort,, William H.Buiter
12 Aug 07   Tight Credit Could Stall Buyout Boom, Washington Post, David Cho and Thomas Heath
11 Aug 07   Central Banks Intervene to Calm Volatile Markets, NYT, VIKAS BAJAJ
11 Aug 07   Subprime Turmoil Catches Funds Off Guard, WSJ, ELEANOR LAISE
11.Aug 07   Zusammenbruch des US-Immobilienmarktes, Deutschlandfunk, Presseschau
11 Aug 07   US$ 1 trillion/y black funds sinking "white economy"?, Iconoclast
11 Aug 07   Payback time: A case from the Californian Front, FT, J.E. Morgan, Letter to the Editor
10 Aug 07   Markets abhor the vacuum left by derivatives, FT, Frank Partnoy
10 Aug 07   New Order Ushers in A World of Instability, Washington Post, Steven Pearlstein
10 Aug 07   Very Scary Things, NYT, Paul Krugman
10 Aug 07   A New Kind of Bank Run Tests Old Safeguards, NYT, FLOYD NORRIS, News Analysis
9 Aug 07   Subprime bites, US investigators look for culprits, FT, Brook Masters et al., ANALYSIS
9.Aug 07   Die Mutter aller Krisen: Der tickende Zusammenbruch, WOZ, Till Hein
5 Aug 07   Infrastructure Neglect: A Bridge Collapses, NYT, Editorial
4 Aug 07   Report Says S.E.C. Erred on Pequot, NYT, Gretchen Morgenson et al.
1 Aug 07   Rupert Murdoch's WSJ acquisition: Public Good versus Ponzi schemes, Anton Keller
Aug 07   The Firing of an SEC Attorney and the Pequot Investigation, US Senate Report
30 Jul 07   Trustees or vulgar fee-hunters? Bankers must relearn their craft, Financial Times, John Gapper
30.Jul 07   Wufflis Abgang: UBS in den USA über den Titsch gezogen, SonntagsZeitung, Arthur Rutishauser
29 juil 07   Union mondiale se dresse contre des éléphants financiers en argile, Le Temps, interview
26 Jul 07   'Locusts' enrich our society: Private Equity and Public Good, WSJE, Wilfried Prewo
25.Juli 07   HEDGE-FONDS: Unbehagen ja, aber harte Kritik fehlt, Handelszeitung, Synes Ernst
25.Jul 07   Hedge Fonds-Debakel: Spitze der Verluste noch nicht in Sicht, Handelszeitung, Samuel Gerber
23 juil 07   La génération 1000 euros, arte
22 Jul 07    When bankers forget they are in the moving, not in the storage business,
20 Jul 07   UBS falls from grace, Economist
19 Jul 07   The fair way to tax private equity, FT, editorial
18. Juli 07  Privatsphäre in Gefahr, NZZ, Kommentar,Glaubenssätze, NZZ, Roland Hengartner
16 Jul 07   Alpha among the Alps for Swiss peak performers, FT, Pauline Skypala
17 Jul 07   UBS settles New York InsightOne suit over charging excessive fees, WSJ, Chad Bray et al.
16. Juli 07  Jens Ehrhardt: „Es ist die größte Blase, die es je gab“, FAZ, Catherine Hoffmann, Interview
15 Jul 07    It’s going to be a bumpy summer,
15.Juli 07   UBS riskiert mehr in den USA, Sonntags-Zeitung, ARTHUR RUTISHAUSER
15 juil 07   Notes de frais des fonds de private equity: $8 mia, Agefi, Alexandre Sonnay
15 Jul 07   The richest of the rich, proud of a new gilded age, NYT, LOUIS UCHITELLE
8 Jul 07    The year has treated equity investors well,
1 Jul 07   Wider spreads and a stronger yen signal worry,
11/07   Helmut Maucher: «Wir degenerieren allmählich», Weltwoche, Ralph Pöhner
25 Jun 07   Raising Taxes on Private Equity, NYT, editorial
19 Jun 07  New capitalism: reshaping global economy with unfettered finance, Financial Times, Martin Wolf
13 Jun 07   The Takeover Boom, About to Go Bust, Washington Post, Steven Pearlstein
9 Jun07   Unfair tax break for buy-out barons, Economist, leader
6 Jun 07   Buy-out bonanzas, Financial Times, editorial
5.Jun 07   Mehr - nicht weniger - Steuer-Verantwortung für Macro-Parasiten, Neue Zürcher Zeitung
5 juin 07   Moins taxés «qu'une femme de ménage»!, Le Temps, Myret Zaki
2 Jun 07   On Winners & Losers from Hedge Funds and Private Equity, Economist, Buttonwood
25 May 07   More Than Ever, It Pays to Be the Top Executive, NYT, EDUARDO PORTER
18 May 07   A headache awaits when the credit party fizzles out, Financial Times, comment
18 May 07   Beijing to take $3bn gamble on Blackstone, Financial Times, Martin Arnold et al.
18 May 07   U.S. Regulators Examine Risk In Banks' LBO Lending, WSJ, Greg Ip
16 May 07   Investment banker says private equity deals too risky for banks, Guardian, Patrick Collinson
18 May 07   Private Equity Goes Prime Time, NYT, editorial
17 May 07   Parties Split Over Public Inequities of Private Equity, Washington Post, Dale Russakoff
16 May 07   Investment banker says private equity deals too risky for banks, Guardian, Patrick Collinson
16 May 07   DaimlerChrysler adventure: From 38+ to $1.5 bn in 10 years, WP, Sholnn Freeman et al.
16 May 07   End of the DaimlerChrysler marriage: How to become so cheap so fast, NYT, editorial
15 May 07   DaimlerChrysler splitup: Cerberus's Sharp-Toothed Ways, Washington Post,Frank Ahrens
14 May 07   The secret world of hedge funds, Telegraph, Ambrose Evans-Pritchard
11 May 07   How families keep private equity 'locusts' at bay, Guardian, David Gow
11 May 07   Panel to Look at Conflicts in Consulting, NYT, GRETCHEN MORGENSON
Apr/May 07   $600-2000 mio boni for the 2/20 to 5/44 percent fee structure gurus, Trader Monthly
Apr 07   In Debt We Trust: America Before the Bubble Burst,, Danny Schechter
Apr 07   Large banks and private equity-sponsored leveraged buyouts in the EU, ECB
29 Apr 07   Don't cotton to China fears, Washington Times, Richard W. Rahn
20 Apr 07   Top Moneymakers: James Simons, Kenneth Griffin, and Edward Lampert,
18 Apr 07   Some reflections on the development of credit derivatives, ECB, Jean-Claude Trichet
18 Apr 07   Sayonara to World Bank & IMF, Washington Times, Richard W. Rahn
18.Apr 07   "Zwei Seelen wohnen ach in meiner Brust", UBS-GV-Wortmeldung, Anton Keller
15 Apr 07   AA: Exhibit A shows both reckless greed & salutory re-focusing, The Independent, Danny Fortson
14 Apr 07   Lohngefälle 554 (UBS), 600 (CS) unbedenklich?, Weltwoche, C. Baumann, M. Schneider
13 Apr 07   Stakeholders Borrow To Pay Themselves Pre-Sale Dividends, WSJ, KATE KELLY
13.Apr 07   Du bist der König, Bilanz, Markus Schneider, Kolumne
12 Apr 07   American hedge fund trader to earn £2.7m a day, Guardian, Andrew Clark
12 Apr 07   Dutch MPs: hedge funds & private equity plunder Holland, Telegraph, A. Evans-Pritchard
11 Apr 07   Private equity collapse on cards, says IMF, Telegraph, Edmund Conway ¦ IMF Report
8 Apr 07   Executive Pay: A Special Report "More Pieces. Still a Puzzle", NYT, Eric Dash
8 Apr 07   Transparency, Lost in the Fog, NYT, John Schwartz
5.Apr 07   Gebühren 2006: Hedge-Funds ($1500 Mia) 84 vs 80 für Anlagefonds (20000), NZZ, ra
4 Apr 07   N.J. Pension Fund Endangered by Diverted Billions, NYT, MARY WILLIAMS WALSH
4 Apr 07   The Money Binge, NYT, ANDREW ROSS SORKIN, reader comments
4 Apr 07   Masters of the New Universe, NYT, ANDREW ROSS SORKIN, reader comments
4 Apr 07   After the Buyouts, Bankruptcy Lawyers ahoi!, NYT, PETER EDMONSTON, reader comments
25 Mar 07   Slow Down, Brave Multitasker, and Don’t Read This in Traffic, NYT, STEVE LOHR
22.Mär 07    Grosser Zahltag für die UBS-Führungsriege, NZZ, ti
22 mar 07   Le président de l'UBS gagne 72852 francs par jour!, ats, Le Matin bleu
19.Mär 07  Warum die strukturellen Zwänge im Kapitalismus zunehmen,, Rahim Taghizadegan
March 07   The Plankton Theory Meets Minsky, PIMCO, Paul McCulley
Jan/Feb 07   Hands Off Hedge Funds, Foreign Affairs, Sebastian Mallaby
24 Feb 07   Very private plutocrats leading new gold rush, Guardian
24 Feb 07   Taming the new capitalism, Guardian, leader
23 Feb 07   Private equity is casting a plutocratic shadow, Guardian, Will Hutton, reader comments
27 jan 07   Minimiser sa facture fiscale: le premier devoir citoyen, Le Temps, Pierre Bessard, commentaire
6 Feb 07   Barbarians or benefactors? The rise & rise of private equity, Guardian, Jill Treanor et al.
26 Jan 07   EU Court: No State obligations in Insolvency Cases, Daily Telegraph
26 Jan 07   'Buy it, strip it, flip it' acquisitions denounced by global union, Guardian, Larry Elliott
26 Jan 07   The mutal funds of the rich and shameless, Daily Targum, Adam Tamzoke
26 Jan 07   Borrowed Shares by Hedge-Funds May Subvert Elections, WSJ, Kara Scannell
13 Jan 07  Banks Gone Wild, NYT, Joe Lee & Thomas Parris, op-ed contributors
11 Jan 07   Private-Equity growth reached "a momentum of its own", WSJ, Tennille Tracy
11 Jan 07   Ein Sohn der Bronx im Dollarregen, Von 38 Millionen zu 183000 Dollar, CASH, Peter Hossli
8 Jan 07   Power, corruption and lies - on China's new economic reality, The Guardian,Will Hutton
4 Jan 07   A Warning Shot by Investors to Boards and Chiefs, NYT, Gretchen Morgenson
4 Jan 07   Pay-for-failure packages get you what you paid for, NYT, Eric Dash
4 Jan 07   Golden handshakes seen by many as excessive, NYT, graphic
4 Jan 07   Seeing Red Over a Golden Parachute, Washington Post, Ylan Q. Mui
4 Jan 07   Don't Blame Nardelli, Washington Post, Allan Sloan, commentary
4 Jan 07   The Right Minimum Wage: $0, Washington Post, George F.Will, iconoclast, reader comments
1 Jan 07   Folly’s Antidote, NYT, Arthur M. Schlesinger Jr.
2007    Creating New Jobs and Value with Private Equity, A.T.Kearney Consultancy
4/06 Traders, Guns & Money: in the dazzling world of derivatives, Financial Times, Satyajit Das
31.Dez 06   Die Mär vom arbeitenden Geld, Leserbriefe
31.Dez 06   Super-Gewerkschaft gegen Heuschrecken,, mik
29 Dec 06   The Private Lives of Hedge Funds, NYT, Jenny Anderson
27 Dec 06   International bureaucracy wants regulation & harmonization, freedom&prosperity, Dan Mitchell
27 Dec 06   Of Public Debt and Private Wealth, Washington Post, Steven Pearlstein
27 Dec 06   Buyout frenzy compels firms to pile on debt, raising risks if times turn lean, WSJ, Serena Ng
27 Dec 06   Equity Firms Merge To Fight Regulation, Washington Post, Jeffrey H. Birnbaum
26.Dez 06   Das Jahr der Heuschrecke: Finanzinvestoren im Kaufrausch,
24 Dec 06   My Advice Earns Me Some Angry Readers,, Jonathan Clements
24.Dez 06   Himmlische Saläre, Spiritualität, und Wunsch nach Diskretion, Sonntagszeitung, Victor Weber
23 déc 06  Le Père Noël n'existe pas, Le Temps, Jean-Claude Péclet, commentaire
23 déc 06   BONUS & RÉMUNERATIONS INÉQUITABLES, Le Temps, Yves Genier
22 Dec 06   Just Capitalism, Washington Post, editorial
21.Dez. 06   Mischkonzerne: Fehlende Ausstiegsstrategien für Großbeteiligungen, Handelsblatt
21 Dec 06   Are Hedge Funds the World’s Financial Heroes?, NYT, reader comments
20 Dec06   Deal Book: Goldman Chairman Gets $53.4 Million Bonus, NYT, reader comments
20 Dec 06   Wall Street Executive Payments, Washington Post, Steven Pearlstein, online exchanges
20 Dec 06   Wall Street's Season of Excess, Washington Post, Steven Pearlstein, comments
20 Dec 06   Goldman stays top of deal table, The Independent, James Moore
20 Dec 06   Goldman Awards Record $53.4 Million Bonus, Bloomberg News, Christine Harper
20 Dec 06   Is the Bonus Bump All in Their Heads?, NYT, reader comments
19 Dec 06   $23.9 billion Wall Street Bonuses Set New Record, New York State Comptroller Alan G. Hevesi
19 Dec 06   New York City Securities Industry Bonuses 1985-2006, New York State Deputy Comptroller
18.Dez 06   Sündenfälle des Kapitalismus, DER SPIEGEL
18 Dec 06   Deal Book: The Goldman Sachs Premium, NYT, Andrew Ross Sorkin, reader comments
17 Dec 06   Goldman Sachs shocks with king-size ransom of $16.5 billion, NYT, Andrew Ross Sorkin
16 Dec 06   BONU$ BABY BUZZ, ASIA LEADS GOLDMAN, New York Post, Zachery Kouwe
15 Dec 06   Mack’s $40 Million Bonus Sets Record, For Now, NYT, reader comments
déc 06  UBS et Crédit Suisse octroient 20 milliards de bonus en 2006!, Tribune de Genève, Elisabeth Eckert
14 déc 06  Un grand patron français gagne en moyenne 300 smics, Le Monde, Cécile Ducourtieux
14.Dez 06   CS und UBS schütten über 20 Milliarden Franken an Boni aus, CASH
  Ohnmacht, Neid, Wut, Schadenfreude: Das Verhältnis zum Banker ist gestört, René Sollberger
    Rekordboni für Heuschrecken, aber nicht für Betreuer des Kredit- und Kleinkundengeschäfts, Zoé Baches
    Wall Street dances on the Titanic, Eric Hössli
11 Dec 06   Only fairness will assuage the anxious middle, Financial Times, Lawrence Summers
10.Dez 06   Linke Banken- und Finanzplatzpolitik, Arbeitstagung Wirtschaftsdemokratie, Gian Trepp (update)
8 Dec 06   Carlyle founder predicts $100bn buy-out deal, Financial Times, James Politi
16 Nov 06   Milton Friedman Unraveled, J. of Libertarian Studies, Murray N. Rothbard, memorial update
8 Nov 06   $128 Bn Revenues, $37 Bn Bonuses & $23 Bn Salaries at 5 US Investment Banks, Bloomberg
7 Nov 06   A prescription for business sanity, San Diego Union-Tribune, Richard Louv
31 Oct 06   How business can spread morality, San Diego Union-Tribune, Richard Louv
 29 Oct 06  The global middle cries out for reassurance, Financial Times, Lawrence Summers
27 Oct 06   Summers issues warning to leaders on stability, Financial Times, Andrew Hill
21 Sep 06   Similarities Between Amaranth's $6bn loss & the People's Bank of China, Delong, Brad Setser
21 Sep 06   The dark side of debt, The Economist
Sep 06   Schizophrenie der Banker - drei Fragen, Tristan Abromeit
19 Aug 06   KING OF THE ZOMBIES, mailonsunday
8 Aug 06   Public Pension Plans Face Billions in Shortages, NYT, Mary Williams Walsh
28 Jun 06   1929 crash mechanism spinning again?, US Senate Testimony, Gary J. Aguirre
26 mai 06   Helmut Maucher: «Les grands patrons ne devraient pas être aussi cupides», L'expension
27 April 06  Watchdog warns on risky pensions, BBC News
5 Apr 06   The €1000 Generation - Italy (sh!) has a problem, IHT, Elisabetta Povoledo
4 Apr 06   The Future of Pensions, Downing St 'split' over pensions, BBC News
31 Mar 06  Shocks Seen in New Math for Pensions, NYT, Mary Williams Walsh
12 Mar 06  Do the Math For Lost Pensions, Washington Post, Albert B. Crenshaw
1 mar 06   Réformons enfin le système!, LE TEMPS, Ernst Brugger
1 mar 06   Les fonds de pension étrangers peuvent inspirer la Suisse, LT, Jean-Fabrice della Volpe
25 Dec 05   How Americans lost their right to own gold & were thus crimilized, comment, Anton Keller
6 déc 05  Le Parti socialiste & l'argent: rompre avec le pacte bourgeois, Le Courrier, Gian Trepp
15 Jul 05   Where is the Wealth of Nations? Measuring Capital for the XXI Century, World Bank
7.Jul 05   Der absehbare Kollaps des Macro-Parasiten-Kapitalismus als Chance der SP, WOZ, Gian Trepp
Apr 05   Brief inquiry into the nature of the interest mechanism, Steve Consilvio
2005    Grenzen ökonomischen Denkens: Ethik in einem internationalen Grosskonzern, Helmut Maucher
21.Nov 04   Helmut Maucher über Mißmanagement und Ethik,,  Matthias Wulff
Jan/Feb 04    Interesting Times: Eric Hobsbawm, Reviewed by Stanley Hoffmann, Foreign Affairs
Dez 2003   Islamische Ökonomie und Christliche Wirtschaftsethik, Die neue Ordnung, Dieter Weiss
2003 "derivatives are financial weapons of mass destruction", Berkshire Hathaway Report, Warren Buffet
2002    Triumph of the Optimists: 101 Years of Global Investment Returns, Elroy Dimson et al., Princeton
4 Jan 01   Capitalism’s Beast of Burden, PIMCO, Paul McCulley
2001    Le socialisme de demain reste encore à inventer, Congrès Marx International III, Dominique Levy
4 Dec 00   Pyrrhic Victory: IRS turns foreign banks into tax agents, Barrons, Thomas G. Donlan, Editorial
19 mar 98   Apprenti sorcier vs une Suisse éclairée: à l'origine du problème/solution, GHI, Anton Keller
1998    Marxism Today, introduction by Martin Jacques
May 92   The Financial Instability Hypothesis, Jerome Levy Economics Institute, Hyman P. Minsky
1990    Krisengefahren in der Weltwirtschaft, Fredmund Malik et al., Schäffer, Stuttgart
1990.....Nations & Nationalism since 1780: Programme, Myth, Reality, Eric Hobsbawm, Cambridge U. Press
14.Feb 90   Aufbruch zur Selbstverwirklichung, Brief an Präsident Václav Havel, Anton Keller
80/1989   Bibel, Kirchen und Zinswirtschaft, Zeitschrift für Sozialökonomie, Roland Geitmann
1988    FUMÉ ROUGE: Et si les Russes proclameraient un rouble garanti par l'or?, Gérard Le Roux et al.
1981    How Americans Lost Their Right to Own Gold & Became Criminals in the Process, FAME, H.M.Holzer
1981    The Theory of Money and Credit, Principles of Sound Money, Gold Standard, Ludwig von Mises, ch.21
5/6 1973   The Pricing of Options and Corporate Liabilities, JPE, Fischer Black and Myron Scholes
1958    The natural economic order, Silvio Gesell
1942    Capitalism, Socialism and Democracy, Joseph A. Schumpeter
1920    L’ Ordre Économique Naturel, Silvio Gesell
1920    Die Natürliche Wirtschaftsordnung durch Freiland und Freigeld, Silvio Gesell
1912    The Theory of Money and Credit, Ludwig von Mises
1873    Lombard Street, A Description of the Money Market, Walter Bagehot
9 Mar 1776   An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith
1729    A Modest Enquiry into the Nature and Necessity of Paper Currency, Benjamin Franklin

Albin Michel    1988

And if the Russians were to repeg the ruble to gold?
Gérard Le Roux et Robert Bouchard
extrait (p.204-207; souligné par nos soins)

— Qu'est-ce que vous nous conseillez ?
— Très simple. Mettre la pédale douce dans votre propagande contre les Blancs d'Afrique du Sud. Tout le monde sait que la véritable raison de votre embargo, c'est d'empêcher l'or de trouver sa vraie place. Ça c'est votre arme numéro deux, l'arme numéro un étant, depuis quarante ans, d'empêcher les Russes d'accéder à une devise crédible. Mais maintenant, ces deux armes travaillent contre la détente et, bientôt, contre votre économie. Et de toute façon, mettez-vous bien ça dans la tête, quoi que vous fassiez, un jour ou l'autre, les Russes auront une monnaie convertible et crédible" *?
— C'est quoi une monnaie crédible, d'après vous? demanda Crasmianski, sceptique.
— Demandez ça à vingt banquiers ou à vingt politico-financiers et vous aurez quarante réponses différentes. Mais pour l'homme de la rue, c'est très simple. Pour lui, la monnaie crédible, ce n'est rien d'autre qu'un moyen par lequel il se rassure chaque jour sur ce qu'il peut acheter avec ce qu'il a dans la poche: cigarettes, café, machine à laver, restaurant. Et les politiciens et les fonctionnaires auront beau lui expliquer que tout va bien avec des chiffres, des courbes et des statistiques, si son restaurant a augmenté le plat du jour de quinze francs, il se dira que sa monnaie fout le camp. L'or a toujours été et restera la seule monnaie indiscutable et acceptable partout, car il permet d'acheter n'importe quoi. C'est donc l'"inavouable" pour les économistes qui sont payés pour nous faire croire qu'il y a d'autres valeurs plus importantes. L'or est peut-être un système barbare mais...
— Je vois où vous voulez en venir, interrompit "Hot Pants ". Vous pensez que la Russie va faire appel à la simplicité dans un monde, monétairement parlant, fou-fou-fou?
— C'est à peu près ça.
— Quand même, une garantie russe n'est pas une garantie, grommela l'agent américain.
— Faut évoluer, mon vieux. Vous l'avez bien fait en ce qui concerne les armements. Votre Congrès n'a pas admis en la matière les garanties soviétiques...? Ils seront aussi obligés de le faire en ce qui concerne l'économie. Car au fond, quelles sont, en la matière, les garanties de l'Occident depuis dix ans? C'est surtout l'irresponsabilité qui est garantie. Quelles sont les garanties commerciales, alors que n'importe quel avocat un peu futé a le pouvoir d'annuler un contrat signé, si bien qu'un mauvais payeur ou un escroc peut sortir indemne d'une affaire et profiter pendant des années de l'argent volé grâce à son non-respect des accords signés? Les Russes ne sont pas comme ça. Ils discutent dur avant, mais une fois le contrat signé, ils le respectent scrupuleusement. Notre Occident crève de deux choses fondamentales: la variation des monnaies et le manque de moralité en affaires. Tôt ou tard, on cherchera à corriger les deux. Le moment est peut-être arrivé.
— Racontez-nous votre scénario, demanda Crasmianski qui commençait à s'énerver.
— Les Russes vendent, bon an mal an, quatre cents tonnes d'or pour payer leurs achats à l'étranger. Cela représente le tiers du marché mondial. Maintenant, imaginez que les Russes proclament un rouble garanti par l'or. N'oubliez pas que la Russie est le deuxième producteur d'or et que c'est elle qui possède le plus grand stock d'or au monde. Donc, si les Russes disent qu'ils garantissent pour toujours tant d'or pour tant de roubles, on les croira volontiers. Du moins au début. Ça suffit pour faire travailler les méninges et exciter les investisseurs, spéculateurs et autres gros requins. Sachs ne me contredira pas.
— Oui, oui, d'accord, surtout en ce qui concerne la limite dans le temps, répondit Sachs.
— Alors, la Russie n'aura plus besoin de vendre son or qui restera dans ses coffres en garantie de son rouble-papier. Donc, elle retirera du marché les quatre cents tonnes d'or qu'elle vendait chaque année, ce qui représente 35 % de tout l'or vendu dans le monde. Cela fera un gros gros trou sur le marché, voire entraînera une pénurie. Devinez jusqu'où grimpera le prix de ce métal? Devinez la panique des pays dits riches qui n'en ont pas? Devinez l'inquiétude du citoyen qui n'en a pas?»
    «Hot Pants» regardait, avec un sourire un peu moqueur, Crasmianski se gratter le menton.
    «Et pensez à ce chiffre, monsieur Crasmianski, continua Giancarlo: si seulement 0,5 % de tous les titres cotés dans le monde étaient vendus à leur valeur actuelle et qu'avec le montant de cet argent on achète de l'or, on pourrait acheter en vingt-quatre heures le total de la production mondiale sur dix ans. Alors, même si le rouble n'atteignait pas une crédibilité définitive, ils auraient gagné tellement d'argent avec la hausse de l'or qu'ils pourraient se payer ce qu'ils voudraient pendant
des années.
— Nous patinons sur une glace très fine, soupira "Hot Pants". Certains le savent.»
    L'agent Crasmianski leva un œil désapprobateur vers Sachs. Cette perspective apocalyptique le faisait frissonner. Et ce que venait de dire l'Italien apportait de l'eau au moulin de ceux qui affirmaient qu'il y avait une taupe russe haut placée dans la direction des affaires économiques et financières à Washington.
    «Autre chose?
— Oui. La XIXe conférence du Parti qui a entériné la ' politique de  Gorbatchev va être suivie d'une autre réunion, autrement plus importante parce qu'elle sera "stratégique".
— Pourquoi "stratégique"?
— Parce que c'est là qu'ils décideront de ce qu'ils vont faire de leur victoire. Laisser les portes de la Russie ouvertes ou les refermer brusquement.
— Je transmettrai, se contenta de dire l'agent américain. Peut-être qu'ils n'ont pas étudié ça à fond. ...

Zeitschrift für Sozialökonomie    80/1989

Bibel, Kirchen und Zinswirtschaft
Roland Geitmann

Überarbeitete Fassung eines Vortrags auf einer Tagung der „Internationalen Vereinigung für Natürliche Wirtschaftsordnung“ am 10. September 1989 in Wuppertal-Neviges. – Zuerst veröffentlicht in der „Zeitschrift für Sozialökonomie“ 80. Folge (1989), S. 17–24 und danach mehrfach nachgedruckt.

Was Hunderttausende von überschuldeten Haushalten in der Bundesrepublik, Tausende von Firmenkonkursen und dadurch bedingte Familientragödien um uns herum nicht vermochten, bewirken schließlich Hunger und Elend der hoch verschuldeten Entwicklungsländer wenigstens ansatzweise, nämlich dass einzelne Theologen sich öffent­lich an biblische Regeln über Zinsen und Schuldenerlass erinnern (1), also daran, dass es verwerflich ist, sich an der Not anderer zu bereichern und mehr zurückzuverlangen, als man leihweise gegeben hat. Der weltweite Skandal, dass wir Reichen im Norden vom Süden nicht nur Schuldentilgung verlangen, sondern auch Zinsen eintreiben, und zwar mehr, als wir Entwicklungshilfe leisten, kann vielleicht auch den Blick dafür schärfen, dass solche Ausbeutung Grundprinzip unserer Wirtschaft geworden ist. Noch wird kaum erkannt, dass in allen Preisen ein erheblicher Zinsanteil steckt, dass vier Fünftel der Verbraucher viel mehr Zinsen zahlen als sie je einnehmen, dass die Verzinsung des Anlagekapitals zu exponentiellem Wachstum unserer Wirtschaft zwingt und damit der Treibriemen ist für Umweltzerstörung, Technisierung, Arbeitslosigkeit, Verarmung, Staatsverschuldung und militärische Rüstung. (2)

Die tödlichen Auswirkungen solcher auf Habsucht und Ausbeutung fußenden Wirtschaftsweise sind der Menschheit im Prinzip seit Jahrtausenden bekannt; Babylon, Ägypten und Rom, aber auch das alte Israel der Könige liefern dafür Anschauungsmaterial. Deshalb kann nicht überraschen, dass sich Regeln zur Geld- und Bodenordnung, und dabei insbesondere das Zinsverbot, wie ein roter Faden durch die Religionsgeschichte, insbesondere auch das Christentum, ziehen. In einer Zeit, welche diese Weisheiten nahezu völlig vergessen hat und in der sich die Folgen dessen dramatisch zuspitzen, mag es hilfreich sein, sich der Erkenntnisse früherer Jahrhunderte zu erinnern und daraus Impulse für die Suche nach einer gerechten Ordnung zu entnehmen.


Das jüdisch-christliche (und auch im Koran verankerte) Zinsverbot hat eine 3000 Jahre alte Geschichte. Theologen der letzten 150 Jahre neigen dazu, die Bedeutung dieses Verbotes rückwirkend zu relativieren und das Anliegen als überholt darzustellen. Deswegen sind viele Interpretationsfragen in dieser Ideengeschichte umstritten. (3)

1  Bibel
1.1   Altes Testament

Das älteste, nämlich das zweite Buch Mose (Exodus) verbietet in Kap. 22 Vers 24/5 das Zinsnehmen: "Wenn du Silber leihst einem aus meinem Volke, dem Armen neben dir, sei gegen ihn nicht wie ein Schuldherr; legt ihm nicht Zins auf.“

In der jüngeren Quelle des dritten Buches Mose (Leviticus) heißt es im Kap. 25 Vers 35-37: „Und wenn dein Bruder verarmt und seine Hand neben dir wackelt, so sollst du ihn festhalten wie einen Fremdling und Beisassen, auf dass er neben dir lebe. Nimm nicht von ihm Zins und Mehrung und fürchte dich vor deinem Gott, auf dass dein Bruder neben dir lebe. Dein Geld gib ihm nicht auf Zins und um Mehrung gib ihm nicht deine Nahrungsmittel.“

Das in seinem Alter umstrittene fünfte Buch Mose (Deuteronomium) fasst das Zinsverbot in folgende Worte: „Du sollst nicht Zins auferlegen deinem Bruder, Zins auf Geld, Zins für Nahrungsmittel, Zins für irgend eine Sache, die man auf Zins leiht. Dem Fremden magst du Zins auferlegen, aber deinem Bruder sollst du nicht Zins auferlegen, damit dich segne der Herr, dein Gott, bei jeglicher Unternehmung deiner Hand in dem Lande, dahin du kommst, um es in Besitz zu nehmen.“

Nach der rabbinischen Lehre umfasst das Zinsverbot alles, was über das Geliehene hinausgeht, jegliches Mehr. Jeder Zins, unabhängig von seiner Höhe, gilt hiernach als verbotener Wucher. Der Hinweis auf den armen Bruder als Zinszahler deutet zwar darauf hin, dass primär das Konsumdarlehen gemeint ist. Dies erlaubt aber noch nicht den in neuerer Zeit gezogenen Gegenschluss, dass das verzinste Produktivdarlehen folglich erlaubt sei. Als zulässig gelten allerdings Geldeinlagen gegen Gewinn- und Verlustbeteiligung, wie sie später auch der Islam aufgreift und in verschiedenen Formen weiter entwickelt.

Das Zinsverbot ist eingebettet in weitere Regeln: das „Erlassjahr“ (5. Mose 15, 1 - 11), wonach in jedem 7. Jahr alle Schulden zu erlassen sind, und das „Halljahr“ (3. Mose 25), das im 50. Jahr den Grundbesitz an die ursprünglichen Eigentümer zurückfallen lässt, so dass der Boden nicht auf Dauer veräußert werden kann und sich sein Preis am Wert der noch ausstehenden Ernten bemisst. Diese für seine Durchsetzbarkeit notwendige Einbettung in Erlassregeln und Bodenrecht hat das Zinsverbot im Laufe der Geschichte verloren - mit schwerwiegenden Folgen.

Sehr deutlich beschränkt das Deuteronomium das Zinsverbot auf Darlehen an Juden und erlaubt die Zinsnahme von Fremden. Dieses sog. Personalitätsprinzip ist jedoch nicht spezifisch jüdisch, sondern kennzeichnet alle antiken und mittelalterlichen Rechtsordnungen (4). Verständlicherweise werden Hilfs- und Liebespflichten nur gegenüber den eigenen Volkszugehörigen auferlegt. Andernfalls wären Fremde sogar begünstigt, wenn sie von Juden Zinsen nehmen dürften, aber an Juden keine zu zahlen hätten. Heute ist solche Unterscheidung in dieser Frage jedoch nicht mehr angemessen. Schon der Prophet Ezechiel (Hesekiel) macht sie nicht mehr: „Wer auf Zins leiht und Zuschlag nimmt, sollte der am Leben bleiben? - Er wird nicht am Leben bleiben! ... Er muss sterben! Sein Blut komme über ihn!" (18, 13) (5)

1.2   Christliche Botschaft

Noch weiter geht Jesus Christus in seinen Forderungen. In seiner Bergpredigt sagt er: „Vielmehr liebet eure Feinde und tut Gutes und leihet, ohne etwas zurückzuerwarten. Dann wird euer Lohn groß sein und ihr werdet Söhne des Höchsten sein." (Lukas 6, 35).

Damit wird das Verbot des Zinsnehmens als selbstverständlich vorausgesetzt und darüber hinaus gefordert, gegebenenfalls auch auf die Rückgabe des Geliehenen zu verzichten. Dies wird noch deutlicher bei der Wiedergabe der Bergpredigt bei Matthäus (5, 38 ff.), wo das Thema „Borgen“ im Zusammenhang mit der Aufforderung angesprochen wird, nach einem Schlag auf den rechten Backen auch den anderen darzubieten sowie dem, der den Rock will, auch den Mantel zu lassen. Anschließend heißt es: ”Gib dem, der dich bittet, und wende dich nicht von dem ab, der von dir borgen will!" (5, 42).

Dass materielles Gewinnstreben und Christusnachfolge unvereinbare Gegensätze sind, wird an vielen Stellen deutlich, etwa in dem Ausspruch, dass ein Kamel leichter durch ein „Nadelöhr“ gehe (womit ein Fußgängertor gemeint ist), als dass ein Reicher ins Reich Gottes komme (Matthäus 19, 24), und in dem markanten Satz: „Ihr könnt nicht Gott dienen und dem Mammon." (Matthäus 6, 24)

2   Kirche
2.1   Frühzeit

Als Quellen hierfür dienen neben den Synoden vor allem die als „Kirchenväter“ und Heilige verehrten altchristlichen Kirchenschriftsteller, die entgegen den geltenden römischen Gesetzen das Zinsnehmen einhellig untersagten (6). Von Lactantius (gest. 330 n.Chr.), einem der höchstgebildeten und gelehrtesten Männer seiner Zeit, stammt folgender Satz:

„Es ist äußerst ungerecht, mehr zu fordern als man gegeben hat. So handeln, das ist seinen Nächsten ausbeuten und auf perfide Weise mit seiner Not spekulieren."

Nachdrücklich verdammte der heilige Gregor von Nyssa (ca. 334 - 394 n.Chr.), griechischer Bischof und bedeutender Theologe und Mystiker, den Zins: „Was ist für ein Unterschied, durch Einbruch in Besitz fremden Gutes zu kommen auf heimliche Weise und durch Mord als Wegelagerer, indem man sich selbst zum Herrn des Besitzes jenes Menschen macht oder ob man durch Zwang, der in den Zinsen liegt, das in Besitz nimmt, was einem nicht gehört?“

Auch Ambrosius (340 - 397), Augustinus (354 - 430) und Hieronymus (331 - 420) verurteilten das Zinsnehmen scharf, obwohl sie sich dadurch heftigen Angriffen aussetzten.

Auf zahllosen frühkirchlichen Synoden wurde das Zinsverbot beschlossen und bekräftigt. Die Synode von Elvira (im Jahr 306) verbot das Zinsnehmen sowohl dem Klerus als auch den Laien. Nach dem christenfreundlichen Mailänder Toleranz-Edikt im Jahre 313 durch Konstantin erwies sich die Kirche prompt um ein Stück angepasster und beschränkte das Zinsverbot auf den Klerus, so die Synode von Arles im Jahr 314 und das Konzil von Nicäa im Jahr 325 wie auch spätere Synoden und Konzilien (7). Eine Unterscheidung zwischen Wucher und Zins gab es indes ebenso wenig wie danach, zu welchem Zweck das Darlehen gegeben wurde, ob zum Konsum oder zum Erwerb (8). Zur Begründung dienten zum einen das Alte und Neue Testament, zum anderen die natürlichen Prinzipien der Gerechtigkeit, wie sie schon in der griechischen Philosophie insbesondere durch Aristoteles formuliert wurden.

2.2   Mittelalter

Allgemeine Geltung erlangte das Zinsverbot erst unter den Karolingern. Nachdem England 787 vorausging, legte Karl der Große der Synode von Aachen im Jahr 789 ein entsprechendes Gesetz vor. Kaiser Lothar bestimmte im Jahr 825: „Wer Zins nimmt, wird mit dem Königsbann belegt, wer wiederholt Zins nimmt, wird aus der Kirche ausgestoßen und soll vom Grafen gefangen gesetzt werden.“

Nach Geltung und Wirkung ist zweifellos das Mittelalter der Höhepunkt des Zinsverbots. Die religiöse Haltung der Menschen, das mittelalterliche Bodenrecht und die zunächst noch vorherrschende Naturalwirtschaft machten dies möglich. Als die Geldwirtschaft zunahm, erleichterten es die immer wieder zum Umtausch aufgerufenen Brakteaten von ca. 1150 bis 1350 (9), das Zinsverbot aufrechtzuerhalten, zumal die von Landwirtschaft und Handwerk ferngehaltenen und auf Geld- und Warenhandel beschränkten Juden die Rolle des Sündenbocks wahrnahmen.

Deshalb konnte das zweite Laterankonzil 1139 beschließen: „Wer Zins nimmt, soll aus der Kirche ausgestoßen und nur nach strengster Buße und mit größter Vorsicht wieder aufgenommen werden. Einem Zinsnehmer, der ohne Bekehrung stirbt, soll das christliche Begräbnis verweigert werden.“

Papst Eugen III. verkündete 1150: „Wer mehr nimmt als die Leihsumme ausmacht, verstrickt sich in die Sünde des Wuchers. Alles, was zur Leihsumme hinzukommt, ist Wucher.“

Und selbstbewusst gegenüber weltlichen Herrschern statuierten die Päpste Alexander III. (1179) und Clemens V. (1311): „Jede Gesetzgebung, die den Zins erlaubt, ist null und nichtig."

Wie diffizil die Materie jedoch bei näherem Hinsehen ist, zeigen die ausführlichen Erörterungen beim heiligen Thomas von Aquin (1224 - 1274), dem bedeutendsten Theologen und Philosophen des Mittelalters. Zwar verurteilt auch er den Zins als in sich ungerecht (unter Berufung u.a. auf Aristoteles): „Das Geld kann nur durch Ausgeben gebraucht werden, also ist dem Gläubiger kein Zins zu vergüten. Auf Zins ausleihen ist Sünde."

Doch anerkennt Thomas nicht nur Miete und Pacht, und zwar bei Dingen, die durch den Gebrauch nicht verbraucht werden, sondern auch Gewinn- und Verlustbeteiligung durch einen Gesellschaftsvertrag und Schadensersatz kraft gesonderter Vereinbarung.

Gedrängt durch die Bedürfnisse der Wirtschaftspraxis entwickelt die Spätscholastik (14./15. Jh.) hieraus eine verzweigte Zinstiteltheorie, welche das Zinsverbot zunehmend durchlöchert. Danach kann der Darlehnsgeber im begründeten Einzelfall Ersatz für ihm entstandenen Schaden oder auch entgangenen Gewinn verlangen, wie auch einen Risikozuschlag und Konventionalstrafe bei verzögerter Rückzahlung, sofern solches gesondert vereinbart wurde. Auch entsprach es dem eigenen Interesse der Kirche, insbesondere dem vieler Klöster, den Rentenkauf anzuerkennen, wodurch sich der Grundstücksverkäufer von dem Käufer eine regelmäßige Leistung versprechen lassen konnte, sei es auf Dauer, sei es einseitig oder beidseitig kündbar. Sobald diese Leistung nicht mehr abhängig war von dem jeweiligen Ertrag eines konkreten Grundstücks, näherte sich ein solches Vertragsverhältnis dem verzinsten Darlehen.

Anerkannt wurde auch die Forderung nach Ersatz von Aufwendungen, die Leihanstalten kirchlicher Orden (Montes pietatis) hatten, die in der zweiten Hälfte des 15. Jahrhunderts in italienischen Städten hilfsbedürftigen Menschen gegen Pfand Geld oder andere Dinge liehen.

Sehr umstritten blieb dagegen der Versuch, das Zinsverbot durch einen sogenannten „contractus trinus“ zu umgehen, bei dem durch Koppelung eines Gesellschaftsvertrages mit zwei Versicherungsverträgen eine feste Gewinnbeteiligung und die Rückgabe des geliehenen Betrages vereinbart wurden.

2.3   Neuzeit

Seit dem Ende der Brakteatenzeit konnte sich die Kirche mit dem Zinsverbot nicht mehr durchsetzen. Sobald das Geld wieder als Wertaufbewahrungsmittel geeignet war, sorgten Gewinnsucht, Phantasie und die Vielfalt der wirtschaftlichen Verhältnisse für eine rasche Verbreitung des Zinses und damit für eine zunehmende Aufspaltung in Arme und wenige Reiche sowie für den wirtschaftlich-sozialen Niedergang im 14./15. Jahrhundert. Gefördert wurde diese Entwicklung durch studierte Juristen, die das römische Rechtsdenken übernahmen, insbesondere die mit dem römischen Eigentumsbegriff verbundene absolute Verfügungsgewalt, und damit dem römischen Geldgeist zum Durchbruch verhalfen.

Eine solche Entwicklung brachte z.B. einen Jakob Fugger (II., 1459 - 1525) hervor, der in Venedig seine Lehrzeit verbrachte und mit Spürsinn die enormen, aber brachliegenden Geldrücklagen des mittleren und oberen Klerus aufstöberte und heimlich als verzinste Einlagen heranzog, um sie gewinnbringend weiterzuverleihen, insbesondere an Kaiser Maximilian I. gegen Übertragung von Silber- und Kupfermonopolen und an Päpste, für die er führender Bankier wurde und auch den Ablassverkauf organisierte (10). Beiläufig versuchte er auch auf die theologische Meinungsbildung zur Zinsfrage Einfluss zu nehmen, indem er den Theologieprofessor der bayerischen Landesuniversität Ingolstadt Johannes Eck protegierte und im Jahr 1515 eine Scheindisputation in Bologna förderte, bei der Eck für eine generelle Erlaubnis des Zinsnehmens bis 5 % plädierte (11).

Durch Handelsmonopole und Zinsbelastung bewirkte Teuerungen und dementsprechende wirtschaftliche und soziale Not der ländlichen Bevölkerung waren Schubkräfte für die Reformation Martin Luthers (1483 - 1546). In mehreren Schriften wendet er sich leidenschaftlich gegen Wucher und Monopole: „Darum ist ein Wucherer und Geizhals wahrlich kein rechter Mensch; er sündigt auch nicht eigentlich menschlich! Er muss ein Werwolf sein, schlimmer noch als alle Tyrannen, Mörder und Räuber, schier so böse wie der Teufel selbst! Er sitzt nämlich nicht als ein Feind, sondern als ein Freund und Mitbürger im Schutz und Frieden der Gemeinde und raubt und mordet dennoch gräulicher als jeder Feind und Mordbrenner. Wenn man daher die Straßenräuber, Mörder und Befehder rädert und köpft, um wie viel mehr noch sollte man da erst alle Wucherer rädern und foltern, alle Geizhälse verjagen, verfluchen und köpfen. ...“ (12)

Luther geht davon aus, dass Wucher (unabhängig von seiner Höhe) stets vorliegt, wo man Geld leiht und dafür mehr oder Besseres fordert oder nimmt, und dass Wucher Teuerung zur Folge hat und in kurzer Zeit das ganze Land auffrisst. Allerdings nennt auch er Ausnahmen, indem er Schadensersatz bei verspäteter Rückzahlung und bei konkretem Gewinnentgang zubilligt, den „Zinskauf“ (Rentenkauf) über ein „benanntes“ Grundstück in Form eines bestimmten Prozentsatzes des konkreten Ertrags erlaubt und darüber hinaus das „kleine Notwücherlein“ zulässt, das z.B. dann vorliege, wenn eine Witwe außer einer Zinseinnahme für ihr Vermögen sonst nichts zum Leben habe. Trotz der entschiedenen Verurteilung des Zinsnehmens ermahnt Luther in der Praxis, den Zins pünktlich zu zahlen, sofern die Forderung nicht vom Fürsten für ungültig erklärt wurde, und rät diesem, den Zins nicht abrupt zu senken.

Der Reformator Ulrich Zwingli (1484 - 1531) geht in Richtung Säkularisierung einen Schritt weiter, indem er einerseits den Zins für ungöttlich und unchristlich erklärt, andererseits dem Staat das Recht zuerkennt, den Zinsfuß festzusetzen.

Die Nähe zu Handel und Produktion ist noch stärker spürbar bei Johann Calvin (1509 -1564), der das Zinsnehmen erlaubt, wenn es mit Billigkeit und brüderlicher Liebe im Einklang stehe; im Gegensatz zum Wucher könne der Zins nicht unerlaubt sein, da sonst gewinnträchtiger Handel unmöglich sei. „Geld ist dazu da, sich durch wirtschaftliche Tätigkeit zu vermehren." Diese Einstellung hat den Kapitalismus insbesondere in England und Amerika gefördert.

Im 16. Jahrhundert wurde um die Zinsfrage außerordentlich heftig gerungen. Um 1600 schließlich wurde auf evangelischer Seite Luthers prinzipielle Absage an das Zinsnehmen „unauffällig korrigiert und der entstehenden Geldwirtschaft Rechnung getragen.“ (13) Die zunehmende Verquickung von Staat und Wirtschaft, das evangelische Staatskirchentum und die staatlichen Bindungen der theologischen Fakultäten haben das Thema Zins so nachhaltig in der Versenkung verschwinden lassen, dass viele protestantischen Pfarrer heute außer dem missverstandenen Gleichnis von den anvertrauten Talenten (Matthäus 25, 27) hierzu keinerlei Assoziationen mehr haben und im Zins insbesondere kein theologisches Problem mehr sehen (14).

Demgegenüber muss man der Katholischen Kirche bescheinigen, dass sie viel länger und nachhaltiger um die Zinsfrage rang. Obwohl weltliche Mächte zunehmend den Zins ausdrücklich zuließen (so italienische Städte seit dem 14. Jahrhundert, Kurhessen 1550, Bayern 1553, Mecklenburg 1562, Preußen und Polen 1569, zuletzt Frankreich 1789), und trotz heftiger Angriffe bekräftigten über 40 Synoden im 16. bis 18. Jahrhundert das Zinsverbot. Veranlasst durch zinsfreundliche Schriften u.a. des italienischen Gelehrten Scipio Maffei erließ Papst Benedikt XIV. im Jahre 1745 die bedeutsame Enzyklika „Vix pervenit“, in der er das Zinsverbot aufrechterhielt, wenn auch mit Hinweis auf die in der Spätscholastik entwickelten externen Ausnahmetitel.

Die Industrialisierung im 19. Jahrhundert und der Siegeszug des Kapitalismus veranlassten jedoch zahlreiche katholische Moraltheologen (insbesondere Pesch, Biederlack, Pruner, Zehentbauer, Ratzinger, Schindler, Cathrein, Linsenmann), das Zinsnehmen zu rechtfertigen (15). Die tatsächlichen Verhältnisse hätten sich verändert; Geld sei fruchtbar geworden, denn generell bestehe die Möglichkeit zu gewinnträchtiger Anlage. Es wird zwischen Zins und Wucher unterschieden bzw. zwischen Konsumtiv- und Produktivdarlehen. Man beruft sich auf das „moderne sittliche Bewusstsein“ und darauf, dass der Zins förderlich sei für Handel und Verkehr. Die tragischen Folgen erkennen nur Wenige.

Nur Einzelne hielten dagegen. Zu nennen sind insbesondere: Karl von Vogelsang (1818 - 1890), Jurist aus Mecklenburg, 1850 konvertiert, gründete in Wien die Monatsschrift für christliche Sozialreform und bekannte, „der Zins ist der Angelpunkt der Sozialen Frage" und Wilhelm Hohoff (1848 - 1923), Pfarrer und Verehrer von Karl Marx, Verfechter einer Vereinigung von Christentum und Sozialismus und entschiedener Vertreter der Arbeitswerttheorie, wonach nur menschliche Arbeit Werte schaffen kann. Aus späterer Zeit sind zu nennen vor allem Anton Orel (1881 - 1959), Jurist und Jugendführer mit seinem zweibändigen Werk „Oeconomia perennis“ (1930), des Weiteren Johannes Kleinhappl (16), der Grazer Theologieprofessor Johannes Ude (17) wie auch Abt Alois Wiesinger und Franz Koutny (18).

Doch die Macht des Faktischen siegte schließlich auch in der Katholischen Kirche. 1870 scheiterte eine zur Bekräftigung des Zinsverbots gestartete Initiative von 22 Bischöfen beim Ersten Vatikanischen Konzil, weil dieses wegen des Ausbruchs des deutsch-französischen Krieges vorzeitig beendet wurde. In seiner Sozialenzyklika „Rerum novarum" vom Jahre 1891 über die Arbeiterfrage spricht Papst Leo XIII. zwar von „gierigem Wucher“, „unersättlichem Kapitalismus“ und davon, dass man den „alles verschlingenden Wucher aus der Welt schaffen" solle, ohne jedoch konkrete Schlussfolgerungen für das Zinsverbot zu ziehen.

Im Kirchengesetzbuch von 1918 (Kanon 1543) versucht die Katholische Kirche in einem kühnen Spagat die traditionelle Lehre und die heutige Geldwirtschaft zu vereinen, indem sie einerseits feststellt, dass der Darlehensvertrag keinen Gewinn rechtfertige, dass andererseits aufgrund (weltlichen) Gesetzes die Vereinbarung eines Gewinnes erlaubt sei.

Die Enzyklika “Quadrogesimo Anno” von Pius XI.(1931) über die Herrschaft des Geldes ist geprägt durch den Verteidiger des Zinsnehmens Oswald von Nell-Breuning. Die Enzykliken „Mater et Magistra“ von Papst Johannes XXIII. (1961), „Populorum Progressio“ von Papst Paul VI. (1967) und „Sollicitudo rei socialis“ von Papst Johannes Paul II. sprechen zwar Symptome an, nicht aber das Zinsverbot.

Die eingehend begründete Initiative von deutschen und österreichischen Laien um Paul Bauschulte und Ernst van Loen (19) an das Zweite Vatikanische Konzil (1962 - 1965) mit dem Ziel, die traditionelle Zinswucherlehre zu erneuern, scheitert an dem Widerstand insbesondere des Kapitalismus-Apologeten Kardinal Johannes Messner. (20) Die ersatzlose Streichung des Zins-Kanons im neuen Kirchengesetzbuch von 1983 markiert das Ende des katholischen Zinsverbots.


Welche Schlussfolgerungen erlaubt diese Entwicklung? Die sich christlich nennende Zivilisation hat den modernen Kapitalismus hervorgebracht; wird sie ihn auch selbst wieder überwinden - oder wird dies vielleicht der Islam besorgen? Müssen wir mit dem römischen Juristen und Dichter Seneca (gest. 65 n.Chr.) resignierend sagen: „Es gibt kein Heilmittel dort, wo das, was man als Untugend angesehen hat, zur Gewohnheit wird"?

Martin Luther geht zwar davon aus, dass mit der Erbsünde auch der Wucher in der Welt bleibt, wird aber nicht müde, die Menschen vor ihm zu warnen: „Wucher muss also sein, aber wehe den Wucherern!" (21)

Zuversichtlicher äußert sich demgegenüber der christliche Sozialpolitiker Friedrich Naumann (1860 - 1919): „Wir zweifeln nicht daran, dass eine Zeit kommen wird, in der sich eine christliche Bewegung gegen den Zins erhebt." (22)

Das Zinsverbot ist Ausdruck eines religiös und sozialethisch wohlbegründeten Anliegens, das heute dringlicher ist denn je: Zu verhindern, dass Menschen andere Menschen ausbeuten, dass die Wirtschaft krebsartig die Erde überwuchert und zerstört, wachsende Geld- und Schuldenberge das Leben zu ersticken drohen und dass der Mensch aus Habgier und Machtsucht Gottes Schöpfung dem Götzen Mammon opfert.

Doch ein isoliertes Zinsverbot, das seine notwendige Ergänzung durch Schuldenerlassregeln und Bodenrecht verloren hat, kann dies nicht leisten. Es wäre sogar schädlich, weil die Geldbesitzer mangels Anreizes ihr Geld zurückhalten würden und den Wirtschaftskreislauf ins Stocken brächten. Es müsste deswegen zumindest durch eine Pflicht zur Weitergabe von Geld ergänzt werden. Aber auch das wäre noch nicht ausreichend, weil das Geld dann zur Bodenspekulation verwendet würde mit all den schlimmen Folgen, die wir in Ballungsräumen erleben. Wie in den mosaischen Gesetzen vorgesehen, gehört also ein die Spekulation ausschließendes Bodenrecht zwingend hinzu.

Doch für eine erwachsen werdende Menschheit haben religiöse Ge- und Verbote ihre Verbindlichkeit verloren, auch wenn es leidvoller Erfahrungen bedarf, sie durch eine aus Einsicht selbst zu entwickelnde Ordnung zu ersetzen. Hierfür enthalten die mosaischen Gesetze entscheidende Hinweise, zum einen den, dass es am Boden nur Nutzungsrechte geben darf, und zum anderen die in den Erlassjahren liegende Erkenntnis, dass auch Geld und Geldforderungen altern und einmal sterben müssen wie alles auf der Erde. Diese beiden Elemente finden sich sowohl bei Silvio Gesell (1862 - 1930) (23) als auch bei Rudolf Steiner (1861 - 1925) (24) und könnten bei sachgemäßer Ausgestaltung und Handhabung den Zins marktwirtschaftlich zum Verschwinden bringen (25).

Solche Vorstellungen stoßen auf Widerstand vor allem bei den Mächtigen dieser Welt, deren Geldthron allmählich schrumpfen würde, aber auch bei den Ausgebeuteten, weil ihre Denkgewohnheiten und Sehnsüchte kapitalistisch geprägt sind. Um diesen Widerstand in und um uns herum zu überwinden, bedarf es großer Anstrengungen. Die Kapitulation der Kirchen vor dem Kapitalismus war wohl notwendig, damit sich die Menschen zu ihrer Selbstverantwortung durchringen. Doch letztlich wird uns nur der religiöse Impuls Kraft und Richtung geben, damit die Katastrophen, die wir erleben, zu Geburtswehen einer neuen Zeit werden (26).

Wer mit offenen Augen die vielfältigen Initiativen und Bewegungen wahrnimmt, z.B. auf dem Markt der Möglichkeiten der Evangelischen Kirchentage (27), entdeckt Keime dieser neuen Zeit. Geld nicht festzuhalten und wuchern zu lassen, sondern kaufend, leihend und schenkend weiterzugeben und mit Boden nicht zu spekulieren, sondern ihn zum Nutzen aller zu pflegen, gehört ebenso zu diesen zukunftsweisenden Verhaltensweisen wie der geschwisterliche Umgang mit Menschen, Tieren und Pflanzen. Damit solche Keime gedeihen können, bedarf es sowohl sich wandelnden Bewusstseins als auch veränderter gesellschaftlicher und wirtschaftlicher Rahmenbedingungen. An beidem müssten die Kirchen mitwirken. Nur wenn sie über Appelle hinaus die konkreten Ansatzpunkte notwendiger Veränderungen benennen, insbesondere auch die Geld- und Bodenordnung, und ihre eigene Verstrickung in den Kapitalismus überdenken, werden die Kirchen ihrer Zielsetzung Gerechtigkeit, Frieden und Bewahrung der Schöpfung gerecht werden.

1  So Ulrich Duchrow, Kirchen, Christen, Wirtschaftssysteme. Fragen und Thesen aus westeuropäischer Sicht zur Weiterarbeit am Sao Paulo-Aufruf zur gehorsamen Nachfolge, in: Beilage zur Jungen Kirche, Heft 1/Januar 1988, S. 11 f. mit Hinweis auf S. Gesell; ders., Grenzenloses Geld für wenige oder Leben für alle in den Grenzen des Wachstums' - Kirche und Kapitalismus angesichts der Schuldenkrise. Beilage zur „Junge Kirche", Heft 9, September 1988; Claus F. Lücker, Zinsverbot und Schuldenerlaß (1999); Arno Schelle, Das Problem des Zinsnehmens in der Theologie und Wirtschaft (2001).
2  Dazu Helmut Creutz, Dieter Suhr, Werner Onken, Wachstum bis zur Krise? (1986); Helmut Creutz, Das Geld-Syndrom (5. Aufl. 2001/4).
3  S. dazu und zum Folgenden von zinsfreundlicher Seite Franz Xaver Funk, Geschichte des kirchlichen Zinsverbots (1876); aus zinskritischer Sicht Anton Orel, Oeconomia perennis - Die Wirtschaftslehre der Menschheitsüberlieferung im Wandel der Zeiten und in ihrer umwandelbaren Bedeutung (1930); Richard Drewes, Das Zinsproblem in der deutschsprachigen Moraltheologie von 1850 - 1920 (1976). Zum Alten Testament und zum Judentum vgl. Eberhard Klingenberg, Das israelische Zinsverbot in Torah, Misnah und Talmud (1977).
4  E. Klingenberg a.a.O. (Anm. 3) S. 34 ff., 74 ff.
5  S. auch 22, 12; auch Psalm 15. 5; Sprüche 1, 18 f. und 28. 8; Nehemia 5, 1 ff.
6  Genaue Fundstellen über die folgenden Angaben und Zitate enthalten die in Anm. 3 genannten Werke.
7  U.a. Carthago (419), Arles (443), Tours (461), Orleans(538), Constantinopel (692), Toledo (694) mit schrittweisen Abschwächungen: Sanktion erst nach erfolgloser Abmahnung und ab Diakon aufwärts.
8  Str., s. dazu Dewes (siehe Anm. 3) S. 24 ff.
9  Dazu Hans Weitkamp, Das Hochmittelalter - ein Geschenk des Geldwesens.
10  S. dazu Götz Freiherr von Pölnitz, Jakob Fugger, Bd. 1 (1949), insbes. S. 112, 217 ff.
11  Pölnitz (siehe Anm. 10) S. 314 ff.
12  Kleiner Sermon vom Wucher (1519). Großer Sermon vom Wucher (1520). Von Kaufhandlung und Wucher (1524). An die Pfarrherrn wider den Wucher zu predigen (1540). Der Auszug ist dem Schlussteil der letztgenannten Schrift entnommen; zitiert nach Günter Fabiunke. Martin Luther als Nationalökonom (1963) S.229.
13  Martin Honecker, Art. „Geld“ in: Theologische Realenzyklopädie Bd. XII (1984) S. 287.
14  Um so wichtiger sind die Ausnahmen, u.a, die Pfarrer Eduard Burri (s. sein Buch zusammen mit Fritz Schwarz: Der Zins vom Standpunkt der christlichen Ethik, der Moral und der Volkswirtschaft. o.J., ca. 1935), Friedhelm Spiecker, Walter Bischoff und Dr. Skriver (s. Veröffentlichungen in der Zeitschrift der AfC „Glaube und Tat“).
15  Dazu Drewes (siehe Anm. 3).
16   S. schon seine Schrift Arbeit - Pflicht und Recht. Fragen der Wirtschaftsethik (1902) sowie die von E. v. Loen herausgegebenen Bände Christliche Wirtschaftsethik (1991), Christentum und Kapitalismus (1992), Kirchliche Kapitalismuskritik (1993) und Soziales Christentum (1994).
17   U.a.: Christentum oder Zinswirtschaft? (1938): Christliche Moraltheologen als Helfershelfer des Kapitalismus (1957).
18  Franz Koutny, Genesis und Folgen des Kapitalismus (1972).
19  Appell an das Ökumenische Konzil. Dokumentation zur Eingabe katholischer Laien an die Kommission für das Laien-Apostulat betr. Fragen der religiösen und sozialen Aktion zur Vorbereitung des von S.H. Papst Johannes XXIII. einberufenen Ökumenischen Konzils zu Rom 1962.
20  S. z.B. seine Schriften: Die soziale Frage (1934). Das Naturrecht (1950).
21  In der in Anm. 12 zuletzt genannten Schrift: Fabiunke S. 202.
22  Soziales Programm der Evangelischen Kirche, 1890.
23  Die Natürliche Wirtschaftsordnung durch Freiland und Freigeld (1. Auflage 1916, 9. Auflage 1949).
24  Nationalökonomischer Kurs (1. Auflage 1922; 5. Auflage 1919) S. 164 f., 171 ff.: Die Kernpunkte der sozialen Frage (1. Auflage 1919; 6. Auflage 1976) S. 87 ff.
25  Dazu u.a. Dieter Suhr. Geld ohne Mehrwert. Entlastung der Marktwirtschaft von monetären Transaktionskosten (1983); D. Suhr/H. Godschalk. Optimale Liquidität. Eine liquiditätstheoretische Analyse und ein kreditwirtschaftliches Wettbewerbskonzept (1986); Jobst von Heynitz, Votum für eine nutzer- und eigentumsfreundliche Reform des Bodenrechts, in: Zeitschrift für Rechtspolitik 1977. S. 230 ff. Siehe auch die laufenden Veröffentlichungen in folgenden Zeitschriften: Zeitschrift für Sozialökonomie sowie Fragen der Freiheit, hrsg. vom Seminar für freiheitliche Ordnung, Bad Boll (
26  Um dieses Zusammenwirken von religiöser Motivation und sozialer Phantasie insbesondere auf dem Gebiet der Geld- und Bodenordnung bemühen sich die Christen für gerechte Wirtschaftsordnung (CGW) e.V.,; s. auch die in Anm. 14 und 17 - 19 Genannten.
27  Z.B. Oikocredit ( und Erlassjahr (

Hyman Minsky, Wikipedia
"The Plankton Theory Meets Minsky", Paul McCulley, March 2007
"Capitalism's Beast of Burden", Paul McCulley, January 2001
    Lombard Street, A Description of the Money Market, Walter Bagehot, 1873

The Financial Instability Hypothesis
by  Hyman P. Minsky, The Jerome Levy Economics Institute of Bard College
Working Paper No. 74    May 1992  (Prepared for Handbook of Radical Political Economy,
edited by Philip Arestis and Malcolm Sawyer, Edward Elgar: Aldershot, 1993)

    The financial instability hypothesis has both empirical and theoretical aspects. The readily observed empirical aspect is that, from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system's reactions to a movement of the economy amplify the movement--inflation feeds upon inflation and debt-deflation feeds upon debt-deflation.
    Government interventions aimed to contain the deterioration seem to have been inept in some of the historical crises. These historical episodes are evidence supporting the view that the economy does not always conform to the classic precepts of Smith and Walras: they implied that the economy can best be understood by assuming that it is constantly an equilibrium seeking and sustaining system.
    The classic description of a debt deflation was offered by Irving Fisher (1933) and that of a self-sustaining disequilibrating processes by Charles Kindleberger (1978). Martin Wolfson (1986) not only presents a compilation of data on the emergence of financial relations conducive to financial instability, but also examines various financial crisis theories of business cycles.
    As economic theory, the financial instability hypothesis is an interpretation of the substance of Keynes's "General Theory".
This interpretation places the General Theory in history. As the General Theory was written in the early 193Os, the great financial and real contraction of the United States and the other capitalist economies of that time was a part of the evidence the theory aimed to explain. The financial instability hypothesis also draws upon the credit view of money and finance by Joseph Schumpeter (1934, Ch.3) Key works for the financial instability hypothesis in the narrow sense are, of course, Hyman P. Minsky (1975, 1986).
    The theoretical argument of the financial instability hypothesis starts from the characterization of the economy as a capitalist economy with expensive capital assets and a complex, sophisticated financial system. The economic problem is identified following Keynes as the "capital development of the economy," rather than the Knightian "allocation of given resources among alternative employments." The focus is on an accumulating capitalist economy that moves through real calendar time.
    The capital development of a capitalist economy is accompanied by exchanges of present money for future money. The present money pays for resources that go into the production of investment output, whereas the future money is the "profits" which will accrue to the capital asset owning firms (as the capital assets are used in production). As a result of the process by which investment is financed, the control over items in the capital stock by producing units is financed by liabilities--these are commitments to pay money at dates specified or as conditions arise. For each economic unit, the liabilities on its balance sheet determine a time series of prior payment commitments, even as the assets generate a time series of conjectured cash receipts.
    This structure was well stated by Keynes (1972):

"There is a multitude of real assets in the world which constitutes our capital wealth - buildings, stocks of commodities, goods in the course of manufacture and of transport, and so forth. The nominal owners of these assets, however, have not infrequently borrowed money (Keynes' emphasis) in order to become possessed of them. To a corresponding extent the actual owners of wealth have claims, not on real assets, but on money. A considerable part of this financing takes place through the banking system, which interposes its guarantee between its depositors who lend it money, and its borrowing customers to whom it loans money wherewith to finance the purchase of real assets. The interposition of this veil of money between the real asset and the wealth owner is an especially marked characteristic of the modern world." (p.l51)
    This Keynes "veil of money" is different from the Quantity Theory of money "veil of money." The Quantity Theory "veil of money" has the trading exchanges in commodity markets be of goods for money and money for goods: therefore, the exchanges are really of goods for goods. The Keynes veil implies that money is connected with financing through time. A part of the financing of the economy can be structured as dated payment commitments in which banks are the central player. The money flows are first from depositors to banks and from banks to firms: then, at some later dates, from firms to banks and from banks to their depositors. Initially, the exchanges are for the financing of investment, and subsequently, the exchanges fulfill the prior commitments which are stated in the financing contract.
    In a Keynes "veil of money" world, the flow of money to firms is a response to expectations of future profits, and the flow of money from firms is financed by profits that are realized. In the Keynes set up, the key economic exchanges take place as a result of negotiations between generic bankers and generic businessmen. The documents "on the table" in such negotiations detail the costs and profit expectations of the businessmen: businessmen interpret the numbers and the expectations as enthusiasts, bankers as skeptics.
    Thus, in a capitalist economy the past, the present, and the future are linked not only by capital assets and labor force characteristics but also by financial relations. The key financial relationships link the creation and the ownership of capital assets to the structure of financial relations and changes in this structure. Institutional complexity may result in several layers of intermediation between the ultimate owners of the communities' wealth and the units that control and operate the communities' wealth.
    Expectations of business profits determine both the flow of financing contracts to business and the market price of existing financing contracts. Profit realizations determine whether the commitments in financial contracts are fulfilled--whether financial assets perform as the pro formas indicated by the negotiations.
    In the modern world, analyses of financial relations and their implications for system behavior cannot be restricted to the liability structure of businesses and the cash flows they entail. Households (by the way of their ability to borrow on credit cards for big ticket consumer goods such as automobiles, house purchases, and to carry financial assets), governments (with their large floating and funded debts), and international units (as a result of the internationalization of finance) have liability structures which the current performance of the economy either validates or invalidates.
    An increasing complexity of the financial structure, in connection with a greater involvement of governments as refinancing agents for financial institutions as well as ordinary business firms (both of which are marked characteristics of the modern world), may make the system behave differently than in earlier eras. In particular, the much greater participation of national governments in assuring that finance does not degenerate as in the 1929-1933 period means that the down side vulnerability of aggregate profit flows has been much diminished. However, the same interventions may well induce a greater degree of upside (i.e. inflationary) bias to the economy.
    In spite of the greater complexity of financial relations, the key determinant of system behavior remains the level of profits. The financial instability hypothesis incorporates the Kalecki (1965)-Levy (1983) view of profits, in which the structure of aggregate demand determines profits. In the skeletal model, with highly simplified consumption behavior by receivers of profit incomes and wages, in each period aggregate profits equal aggregate investment. In a more complex (though still highly abstract) structure, aggregate profits equal aggregate investment plus the government deficit. Expectations of profits depend upon investment in the future, and realized profits are determined by investment: thus, whether or not liabilities are validated depends upon investment. Investment takes place now because businessmen and their bankers expect investment to take place in the future.
    The financial instability hypothesis, therefore, is a theory of the impact of debt on system behavior and also incorporates the manner in which debt is validated. In contrast to the orthodox Quantity Theory of money, the financial instability hypothesis takes banking seriously as a profit-seeking activity. Banks seek profits by financing activity and bankers. Like all entrepreneurs in a capitalist economy, bankers are aware that innovation assures profits. Thus, bankers (using the term generically for all intermediaries in finance), whether they be brokers or dealers, are merchants of debt who strive to innovate in the assets they acquire and the liabilities they market. This innovative characteristic of banking and finance invalidates the fundamental presupposition of the orthodox Quantity Theory of money to the effect that there is an unchanging "money" item whose velocity of circulation is sufficiently close to being constant: hence, changes in this money's supply have a linear proportional relation to a well defined price level.
    Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified.
    Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on "income account" on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to "roll over" their liabilities: (e.g. issue new debt to meet commitments on maturing debt). Governments with floating debts, corporations with floating issues of commercial paper, and banks are typically hedge units.
    For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts.
    It can be shown that if hedge financing dominates, then the economy may well be an equilibrium seeking and containing system.
    In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.
    In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance.
Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values.
    The financial instability hypothesis is a model of a capitalist economy which does not rely upon exogenous shocks to generate business cycles of varying severity. The hypothesis holds that business cycles of history are compounded out of
(i)    the internal dynamics of capitalist economies, and
(ii)   the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds.

Fisher, Irving. 1933. "The Debt Deflation Theory of Great Depressions." Econometrica 1: 337-57
Kalecki, Michal 1965. Theory of Economic Dynamics. London: Allen and Unwin Keynes, John Maynard, 1936. The General Theory of Employment, Interest, and Money. New York: Harcourt Brace.
Keynes, John Maynard. 1972. Essays in Persuasion,The Collected Writings of John Maynard Keynes, Volume IX. MacMillan, St.Martins Press, for the Royal Economic Society, London and Basingstoke, p 151
Kindleberger, Charles 1978. Manias, Panics and Crashes. New York, Basic Books
Levy S. Jay and David A. 1983. Profits And The Future of American Society. New York, Harper and Row
Minsky, Hyman P. 1975. John Maynard Keynes. Columbia University Press.
Minsky, Hyman P. 1986. Stabilizing An Unstable Economy. Yale University Press.
Schumpeter, Joseph A. 1934. Theory of Economic Development. Cambridge, Mass. Harvard University Press
Wolfson, Martin H. 1986. Financial Crises. Armonk New York, M.E.Sharpe Inc.

"The Plankton Theory Meets Minsky" by Paul McCulley, March 2007
"The Financial Instability Hypothesis" by Hyman P. Minsky, May 1992
    Lombard Street, A Description of the Money Market, Walter Bagehot, 1873
Hyman Minsky, Wikipedia     4 January 2001

Capitalism's Beast of Burden

Paul McCulley

Over the holidays, I reread Keynes’ General Theory of Employment, Interest and Money (1936). Three times. That confession will, I’m sure, trigger more than a few e-mails from friends and colleagues, both old and new, urging me to get a life. And they’ll have a point; repeatedly rereading that which has been repeatedly reread could be evidence that the serial re-reader might be half a bubble off plumb.

But there was method in my putative madness: I also reread Schumpeter’s Capitalism, Socialism and Democracy (1942), Minsky’s Stabilizing an Unstable Economy (1986), and Kindleberger’s Manias, Panics and Crashes (1978). And there is no way to fully appreciate these latter authors without a recharged keg of Keynes, from whom all their ideas flow. To be sure, Schumpeter would, if he were still alive, no doubt protest any debt to Keynes, as he was a contemporary of Keynes, and it is difficult for contemporaries to give each other credit for anything.

What is more, nobody on Wall Street would be asking Schumpeter to give Keynes any credit. Schumpeter coined the phrase “creative destruction” to describe the nature of entrepreneur-driven capitalism, and the rediscovery of this clever phrase has lifted Schumpeter to the lofty status of Wall Street’s favorite dead economist. Wall Street needed an economic theory to justify paying unsustainable prices for NASDAQ stocks, and found one: Keynes is dead, long live Schumpeter!

What few on Wall Street seem to know is that Schumpeter also believed that capitalism would ultimately morph into socialism, as the prosperity wrought by creative destruction would breed a class of idle intellectuals (yes, Schumpeter’s words!) who would stop it. So, we have the odd happenstance of Wall Street celebrating the work of a scholar forecasting the demise of Wall Street. Just adds credence to my long-held belief that many (most?) on Wall Street quote dead scholars they’ve never actually read!

But enough of that; back to Keynes. And then to Minsky, who openly used Keynes’ work to develop his “Financial Instability Hypothesis,” which provides the best theoretical framework I know for grappling with the current economic and financial markets outlook. As a teaser to get you to continue reading, here’s my conclusion on the current economic outlook: Both Wall Street and Main Street are currently exploding bubbles, and the explosions will self-feed, not self-correct until (1) the Fed eases massively, and/or (2) the federal government proactively reduces the budget surplus. Hope I got your attention.

Three Seminal Ideas From Keynes
When Keynes published the General Theory in 1936, conventional (classical) wisdom held, as he explained, that:
“Investment represents the demand for investible resources and saving represents the supply, whilst the rate of interest is the ‘price’ of investible resources at which the two are equated. Just as the price of a commodity is necessarily fixed at that point where the demand for it is equal to the supply, so the rate of interest necessarily comes to rest under the play of market forces at the point where the amount of investment at that rate of interest is equal to the amount of saving at that rate.”

Keynes argued that this classical interpretation of the rate of interest was correct if, and only if, one assumed that income was constant. Which, of course, he maintained was nonsense, if one wanted to understand the dynamic nature of the capitalist economy. The fact that at any point savings must equal investment at some interest rate implied nothing about whether such “equilibrium” was either sustainable or desirable from a macroeconomic perspective. Again, in Keynes’ words:

    “The traditional analysis is faulty because it has failed to isolate correctly independent variables of the system. Saving and Investment are the determinates of the system, not the determinants. They are the twin results of the system’s determinants, namely, the propensity to consume, the schedule of the marginal efficiency of capital and the rate of interest. These determinants are, indeed themselves complex and each is capable of being affected by prospective changes in the others. But they remain independent in the sense that their values cannot be inferred from one another. The traditional analysis has been aware that saving depends on incomes but it has overlooked the fact that income depends on investment, in such fashion that, when investment changes, income must necessarily change in just that degree which is necessary to make the change in saving equal to the change in investment.”
This insight from Keynes was essentially the birth of macroeconomics, undermining the microeconomic-driven notion that savings drives investment. Quite to the contrary, Keynes argued: Investment drives income, and income drives savings. Thus, increased investment will beget increased income, which will, in the fullness of time, beget the necessary savings to pay for the increased investment! Powerful, powerful stuff, especially when Keynes was writing in the 1930s; investment and savings equaled each other, as they surely must as a static accounting matter, but they equaled each other at a level of national income consistent with twenty-five percent unemployment.

Keynes’ breaking of the analytical tyranny of the Saving = Investment tautology was the basis for his advocacy of increased government investment, if private investment was insufficient to increase employment. And, in fact, that’s what most of today’s investment community knows about Keynes – that man that legitimized illicit, intimate relations with budget deficits! What Keynes actually did was legitimize clear thinking about macroeconomics, as distinct from microeconomics, demonstrating that what holds for the individual need not hold for an economic system. While it can be rational for the individual to increase his/her propensity to save when facing hard times, the collective effect of all individuals trying to do so at the same time will be to ensure hard times!

Yes, Keynes did give savings a bad name, I suppose, but for a good reason. Capitalism, as Keynes’ contemporary Schumpeter intoned, is about entrepreneur-inspired investment. More specifically, capitalism flourishes where there is a will for investment. Which brings us to Keynes’ second seminal contribution to macroeconomic thought: both the will and the wallet of capitalism are subject to the whims of the human spirit. First, on the matter of will, Keynes noted:

“There is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits – of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come. Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but mathematical expectations, enterprise will fade and die; though fears of loss may have a basis no more reasonable than profits had before.”

Now we’re getting somewhere! Armed with the macroeconomic insight that the capitalist causal chain runs from investment to income to savings, not the other way ‘round, Keynes enriched his analysis by observing that entrepreneurs are human beings, not a bunch of Adam Smithian invisible hands. Not exactly profound, you say, and you’re right. But it is important to understand the straightjacket of the putative macroeconomics of the time, which was really nothing more than classical microeconomics in drag. After all, Secretary of the Treasury Andrew Mellon’s advice in 1931 to President Herbert Hoover had been to:

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.”
Keynes was simply observing the consequences of Mellon’s advice: entrepreneurs who are being liquidated do not have the animal-spirited will to invest! Keynes also observed that they did not have the wallet to invest. Which became the basis of what I consider to be Keynes’ third seminal contribution to macroeconomics: public capital markets, notably public equity markets, are both a boon and a bane to the capitalist process. Again, Keynes in his own words:
    “With the separation between ownership and management which prevails today and with the development of organized investment markets, a new factor of greater importance has entered in, which sometimes facilitates investment but sometimes adds greatly to the instability of the system. In the absence of security markets, there is no object in frequently attempting to revalue an investment to which we are committed. But the Stock Exchange revalues many investments every day and the revaluations give a frequent opportunity to the individual (though not to the community as a whole) to revise his commitments. It is as though a farmer, having tapped his barometer after breakfast, could decide to remove his capital from the farming business between 10 and 11 in the morning and reconsider whether he should return to it later in the week.
    But the daily revaluations of the Stock Exchange, though they are primarily made to facilitate transfers of old investments between one individual and another, inevitably exert a decisive influence on the rate of current investment. For there is no sense in building up a new enterprise at a cost greater than that at which a similar existing enterprise can be purchased; whilst there is an inducement to spend on a new project an extravagant sum, if it can be floated off on the Stock Exchange at an immediate profit.”
Now you know where Tobin found his Q! Investment is not only subject to vagaries in the state of the entrepreneurs’ human spirit, but also to vagaries in the state of Wall Street equity speculators’ courage. Yes, speculator, as Keynes declared in no uncertain terms:
    “If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over the whole life, it is by no means always the case that speculation predominates over enterprise. As the organization of investment markets improves, however, the risk of the predominance of speculation does, however, increase. It is rare, one is told, for an American to invest ‘for income;’ and he will not readily purchase an investment except in the hope of capital appreciation. This is just another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to its prospective yield, as to a favorable change in the conventional basis of valuation, i.e. that he is, in the above sense, a speculator. Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”
Smart man, that Keynes. He effectively invented the field of macroeconomics, which is founded on the proposition that what holds for the individual does not necessarily for a collection of individuals operating as an economic system. This principle is sometimes called the “fallacy of composition,” and sometimes called the “paradox of aggregation.” But we need not resort to fancy labels to define the common sense of macroeconomics. Anybody who’s ever been a spectator at a crowded ball game has witnessed the difference between microeconomics and macroeconomics: from a micro perspective, it is rational for each individual to stand up to get a better view; but from a macro perspective, each individual acting rationally will produce the irrational outcome of everybody standing up, but nobody having a better view.

Minsky Takes Keynes To The Next Level
Hyman Minsky is not a household name on Wall Street. I predict, however, that within the next year, his name will be rolling off tongues like Schumpeter does now. Well maybe not, because Minsky’s insight doesn’t roll off the tongue like “creative destruction.” Rather, his huge contribution to macroeconomics comes under the label of the “Financial Instability Hypothesis.” Minsky openly declared that his Hypothesis was “an interpretation of Keynes’ General Theory.” Minsky’s key addendum to Keynes’ work was really quite simple: providing a framework for distinguishing between stabilizing and destabilizing capitalist debt structures. Here’s a concise summary of Minsky’s work, written by his own hand in 1992:

    "Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on ‘income account’ on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to ‘roll over’ their liabilities – issue new debt to meet commitments on maturing debt. For Ponzi units, the cash flows from operations are not sufficient to fill either the repayment of principle or the interest on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stocks lowers the equity of a unit, even as it increase liabilities and the prior commitment of future incomes.
    It can be shown that if hedge financing dominates, then the economy my well be an equilibrium-seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation-amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that the over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.
    In particular, over a protracted period of good times, capitalist economies tend to move to a financial structure in which there is a large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy is in an inflationary state, and the authorities attempt to exorcise infla-tion by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make positions by selling out position. This is likely to lead to a collapse of asset values.”
Smart man, that Minsky. And also exceedingly prescient. He passed away in 1996, as financing patterns of the New Economy were following precisely his script, moving progressively toward Ponzi units. Beyond that, the Federal Reserve did indeed declare the economy to be in an inflationary state (even if it wasn’t!), and attempted to exorcise the (nonexistent!) inflation with monetary constraint. And, lo and behold, the Ponzi finance units have evaporated over the last year, and speculative finance units have morphed into Ponzi units. Risk asset prices have collapsed and, now, the economy faces the risk of a more generalized collapse of asset values.

Message to Washington: Print And/Or Give Back Twenties
Yesterday’s 50 basis-point Fed funds rate cut was a very positive signal that Fed policy makers grasp that we’re facing a debt-deflation Minsky Moment. But that was all it was. The state of both business and household balance sheets is rotten, and the mere promise of monetary reflation will not fix things; monetary reflation itself is needed. Put more bluntly, the Fed must turn cash into trash — real short rates must come down a lot, and stay down! And if the dollar goes south along the way, so be it. The objective of monetary policy must be to ease until capitalists regain their animal-spirited urge to act like capitalists, fleeing liquidity for the hope of capital gains. Sustainable higher stocks prices and sustainable tighter credit spreads will be the appropriate gauges for determining when enough Fed easing is enough.

And if the Fed delays, or refuses, to explicitly pursue monetary reflation, fiscal policy authorities will have very sound macroeconomic grounds for taking up the charge. Indeed, in the midst of a Minsky Moment, the restorative power of monetary reflation is by definition truncated, so some degree of fiscal stimulus is presently warranted, even if the Fed does vigorously pump the monetary keg. And make no mistake, if fiscal stimulus can be “justified,” it will be pursued. As my Washington savvy colleague Bill Powers wisely reminds me, it is actually quite easy to envision a bipartisan competition to see which side can give away more goodies, circa the summer of 1981 (for those of us old enough to remember!).

Debt deflation is a beast of burden that capitalism cannot bear alone. It ain’t rich enough, it ain’t tough enough. Capitalism’s prosperity is hostage to the hope that policy makers are not simply too blind to see.

No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission.

DIE NEUE ORDNUNG   Dezember 2003

Islamische Ökonomie und Christliche Wirtschaftsethik
Perspektiven eines interkulturellen Dialogs
Dieter Weiss

I. Die Wiederentdeckung der Wirtschaftsethik

Das Thema Wirtschaftsethik hat eine bedrängende Aktualität gewonnen. Millio-nen von Kleinaktionären sehen ihre Alterssicherung durch Firmenpleiten in Fra-ge gestellt. Das Jahr 2002 brachte die größten Firmenkonkurse in der Wirt-schaftsgeschichte der USA und des Westens überhaupt. Bilanzfälschungen und hemmungslose Selbstbereicherung der Firmenleitungen machten Schlagzeilen. Auf den Titelseiten renommierter Wirtschaftszeitungen sah man Vorstände in Handschellen. Ist der westliche Kapitalismus ethisch am Ende? So fragten selbst konservative Schweizer Blätter. Wo blieb das protestantische Leistungsethos, das Max Weber herausgestellt hatte, wo – mit Luther – die Leitvorstellung des Berufs als Berufung? Als religiös verankerte, freudig-diszipliniert erfüllte Pflicht gemäß preußischem Beamtenethos? Calvin wertet gar den hart erarbeiteten wirt-schaftlichen Erfolg als Gottesgnadenerweis: Reichtum als sichtbares Zeichen schon zu Lebzeiten, daß sein Erwerber nicht zur ewigen Verdammnis verurteilt sei. Ohne diese – heute weithin unbewußte – religiöse Triebfeder wäre der Sie-geszug des Kapitalismus gar nicht erklärbar. Inzwischen beherrscht er die globa-lisierte Weltwirtschaft. Die Globalisierungsgewinner sehen wir überwiegend nur im Westen, seine Verlierer weitgehend in der Dritten Welt, so auch im islami-schen Orient.1 Dieser ist seit 14 Jahrhunderten Partner, Rivale und zeitweilig auch Gegner des christlich geprägten Europas.

II. Verunsicherungen der islamischen Welt

Über 700 Jahre standen die Muslime in Spanien. Jahrhunderte lang kontrollierten sie das südliche und östliche Mittelmeer. Der Koran hatte ihnen, von Gott wört-lich offenbart, die führende Stellung in der Welt verheißen. Der triumphale Sie-geszug von Spanien bis nach Indien schien die göttliche Prophezeiung zu bestä-tigen. Der allmähliche Verfall mußte die Furcht hervorrufen, daß der Ablauf der Geschichte gestört sei. Unvorstellbar für die Gläubigen, daß der Koran irren könnte. Also mußte man die enttäuschende Wirklichkeit verdrängen. Die Ant-wort vieler Muslime auf die unbewältigte Moderne heißt: Rückkehr zur Reinheit des Glaubens, strikte Befolgung der religiösen Gebote, Wiedergewinnung des rechten Weges, Besinnung auf die islamischen Regeln für Wirtschaft und Gesell-schaft.2 Auch im Westen erleben wir die Wiedereinforderung ethischer Grund-sätze vorrangig auch in der Wirtschaft. Sollen Gewinnmaximierung und share-holder value einzige Richtschnur der Unternehmensführung sein? Christliche Ordensgeistliche beraten deutsche Vorstände als Ethik-Consultants. Gleichzeitig wachen islamische Rechtsgelehrte als Berater Islamischer Banken über die Ein-haltung religiöser Gebote.

Vieles im Orient ist dabei handfestes Interessenkalkül, Marketing-Instrument für fromme Kundengruppen wie ehemalige ägyptische oder pakistanische Gastarbei-ter in Saudi Arabien. Dort waren sie dem strengen saudischen Islam ausgesetzt. Als Rückkehrer wollen sie ihre Ersparnisse ertragreich, aber unter Beachtung des islamischen Zinsverbotes anlegen. Sie suchen deshalb Möglichkeiten einer isla-misch korrekten Form der Gewinn- und Verlustbeteiligung an ethisch orientier-ten Unternehmen. Islamische Investmentgesellschaften nutzten die Marktlücke. Der Zusatz „islamisch“ dient ihnen oft als Aushängeschild, als Firmen-Image, im modernen betriebswirtschaftlichen Jargon: als corporate identity.3 Tiefgreifender ist die Verunsicherung der islamischen Welt angesichts globaler Umbrüche und unabsehbarer Risiken wie der Bedrohung durch Wasserknappheit, Ausbreitung der Wüsten, militärische Konflikte, technologische Revolutionen, globalisierte Märkte, auf denen die eigenen Industrieprodukte nicht wettbewerbsfähig sind, auch nicht in der Konkurrenz mit den Entwicklungsländern Süd- und Ostasiens.

Deshalb die Suche nach Rückversicherung im Glauben, deshalb die strikt ortho-doxen Interpretationen der religiösen Schriften – etwa bezüglich der beschränk-ten Rolle der Frau, des archaischen Strafrechts etc. So hofft man, die den Musli-men von der Offenbarung des Koran zugewiesene Führungsrolle in der Welt wiederzugewinnen. Die islamische Geschichte kennt ja keine europäische Auf-klärung, keine Trennung von Staat und Kirche, keine textkritische Theologie, keine – mit Immanuel Kant – „Befreiung von der selbstverschuldeten Unmün-digkeit“. Das Heil wird in der buchstabengenauen Befolgung der überlieferten religiösen Gebote gesucht. Richtschnur ist auch die beispielhafte Lebens- und Regierungspraxis des Propheten Mohammed als religiöser und politischer Führer der Stadtgemeinde Medina seit 622 n.Chr. Doch wie soll die strikte Befolgung von Vorschriften des 7. Jahrhunderts Lösungen für die Probleme des 21. Jahr-hunderts liefern, fragt man im Westen. „Der Islam ist die Lösung“, schallt es aus dem Orient zurück. „Gute Musliminnen sein wird uns von allen Problemen be-freien“, versichern verschleierte Studentinnen an den Universitäten.

III. Elemente einer islamischen Wirtschaftsordnung

Eine Reihe von Regierungen haben die Islamisierung der Wirtschaft zum politi-schen Programm erhoben: Iran, Pakistan, Sudan, Saudi-Arabien, und dies viel-fach zur Legitimierung ihrer Herrschaft gegenüber den eigenen Bevölkerungen, die zu 30 bis 50 % immer noch Analphabeten sind. Dabei geht es auch um die Einbettung menschlichen Handelns in ethische Grenzen. Schrankenloser Kapita-lismus erscheint ebenso wenig annehmbar wie totalitäre Ordnungen, die die menschliche Freiheit leugnen. Kapitalismus wie Sozialismus vernachlässigen aus islamischer Sicht die spirituelle Dimension zugunsten materieller Befriedigung.

Solche Vorstellungen sind ja auch den christlichen Kirchen nicht fremd. Glei-ches gilt für eine Reihe weiterer islamischer Prinzipien:

Allah ist alleiniger Eigentümer aller Dinge. Der Mensch ist immer nur ihr Treu-händer auf Zeit. Diese Sicht legt eine gelassenere Einstellung zur Anhäufung materieller Güter nahe.

Gleiche Grundrechte für alle: Recht auf Leben, auf Freiheit, auf menschenwür-dige Behandlung, auf Besitz, wenn er auf ethisch einwandfreie Art erworben wurde, d. h. durch eigene Arbeit, Erbschaft oder Almosen. Andrerseits verleiht Allah den Menschen unterschiedliche Begabungen und soziale Positionen, und diese sind zu respektieren.

Bescheidenheit im Lebenswandel. Im Gegensatz zur christlichen Wertschätzung der Armut als „kürzestem Weg ins Himmelreich“ ist im Islam ein angemessener Lebensstandard erwünscht. Verboten ist Luxus. Er würde nur die menschliche Gier steigern und wäre dem spirituellen Heil abträglich. So gilt der extrem auf-wendige Lebensstil der Herrscher in den Erdölstaaten als schamlos und anstößig. Nicht von ungefähr stammen viele Al-Qaida-Kämpfer aus Saudi-Arabien, und das Königshaus hat Anlaß, sie zu fürchten, und ihre Aktivitäten großzügig in anderen Ländern zu finanzieren.

Solidarität und Brüderlichkeit. Jeder einzelne ist verantwortlich für das Wohler-gehen seiner Nachbarn. Wohlhabende müssen die Bedürftigen unterstützen und ihre Würde respektieren. Wesentliches Instrument dafür ist die Almosenabgabe Zakat mit rund 2,5 Prozent des Vermögens an die Armen. Die Massenarmut im heutigen Orient dürfte es nach dem islamischen Gesellschaftsbild also gar nicht geben. Sie trägt deshalb zur Identitätskrise der Muslime bei.

Soziale Gerechtigkeit ist Grundprinzip allen Handelns, auch in der Wirtschaft. Auch davon kann in der modernen islamischen Welt keine Rede sein, weder innerhalb einzelner Länder noch bei der Verteilung des Erdölreichtums an arme Nachbarländer.

Eine Fülle von Geboten und Verboten regelt das wirtschaftliche Handeln im einzelnen. Die wesentlichen Leitlinien sind auch aus christlicher Sicht nachvoll-ziehbar: Der Lebensunterhalt muß durch eigene, sorgfältige Arbeit erworben werden. Familienmitglieder, Nachbarn und Waisen sind angemessen und re-spektvoll zu versorgen. Die Almosenabgabe Zakat dient nicht nur der Unterstüt-zung der Armen, sondern auch der Verhinderung einer Anhäufung von Reichtum in den Händen weniger. Horten, Luxuskonsum, Spekulation, Zins und Wucher sind verboten. Sparen wird empfohlen. Verträge bedürfen der Schriftform und sind einzuhalten. Gesundheitsschädigende Produkte wie Schweinefleisch und Alkohol sind verboten. Wir sehen also das Leitbild einer Wirtschaft auf der Grundlage sozialer Gerechtigkeit, ökonomischer Selbständigkeit, Selbstverant-wortung und Leistungsfähigkeit. Mit Sorgfalt getane Arbeit sorgt für die Befrie-digung der materiellen und spirituellen Bedürfnisse. Betont werden emotionale und soziale Ausgewogenheit und das Verbot, durch unkontrollierte Gier Schaden in der sozialen Umwelt anzurichten. Die Ressourcen dürfen nicht unproduktiv und ethisch fragwürdig mißbraucht werden. Denn ihr alleiniger Eigentümer bleibt ja Allah, der sie dem Menschen nur treuhänderisch für eine begrenzte Lebensspanne überläßt. Solche Vorstellungen unterscheiden sich offensichtlich kaum von christlichen Normen. Sie stimmen weithin überein mit wirtschaftsethi-schen Aussagen der Kirchenväter wie Augustinus bis hin zu zeitgenössischen Forderungen der katholischen Soziallehre.

IV. Wiedergewinnung von Interpretationsspielräumen

Es ist immer wieder bewegend, welche Verständigungsmöglichkeiten sich im Dialog mit Muslimen eröffnen, wenn man ein grundlegendes Einverständnis über elementare ethische Grundlagen zu erkennen gibt, so wie auch über die Unausweichlichkeit einer Umorientierung – im Orient wie im Okzident – vor allem angesichts der sichtbar gewordenen ökologischen Grenzen unserer Indust-riegesellschaften und der Erfahrung zunehmender Klimakatastrophen.

Das Problem besteht darin, daß sich aus elementaren ethischen Aussagen ganz unterschiedliche Wirtschafts- und Sozialordnungen ableiten lassen. Wie gestaltet man konkrete Politiken für das 21. Jahrhundert? Die Regierungspraxis des Pro-pheten Mohammed im Stadtstaat Medina des 7. Jahrhunderts bietet da wenig an Anleitungen. Entsprechend vielfältig stellt sich die Islamisierung der Wirtschaft in der Praxis dar. Die Islamische Republik Iran hat ihr ganz eigenes System von Institutionen aufgebaut – von der herausgehobenen religiös-politischen Führer-rolle des Staatspräsidenten bis zu den Befugnissen des Parlaments und des Wächterrats der Verfassung, der jedes Gesetz auf seine Islamverträglichkeit überprüft. Ganz anders stellen sich Militärregime wie Pakistan und der Sudan dar. Die Monarchie Saudi-Arabien, Hüter der Heiligen Stätten des Islam, hat wiederum ihre eigenen Vorstellungen von einer islamischen Gesellschaft und der Machtsicherung des Herrscherhauses. Die religiöse Überlieferung betont die Bedeutung der Almosenabgabe, der sog. Zakat. In manchen Ländern erhebt man heute 2,5 Prozent auf das Vermögen für den Staatshaushalt. In alter Zeit ging es um direkte Unterstützung der Bedürftigen, mit unterschiedlichen Abgabesätzen auf Viehherden und andere Vermögenswerte. Zur Zeit des Propheten reichte dies offenbar aus, um die Armen und Bedürftigen zu versorgen.

In Pakistan unter Präsident Zia ul Haq aber war das Mißverständnis total. Er verkündete die Islamisierung der Wirtschaft, um politische Unterstützung der Massen zu gewinnen, strich einfach alle bisherigen Steuern als angeblich unis-lamisch und ersetzte sie durch die Almosensteuer Zakat mit 2,5 Prozent auf das Vermögen. Während die Wohlhabenden steuerlich massiv entlastet wurden, brach der Staatshaushalt mangels hinreichender Einnahmen zusammen. Statt vom Buchstaben der heiligen Texte hätte man ja auch von ihrem geistigen Kern ausgehen können. Die Grundgedanken islamischer Brüderlichkeit, Solidarität, Gleichheit vor Gott, sozialer Gerechtigkeit wären umzusetzen in Problemlösun-gen für die Gegenwart, statt sich an historisch überholten Regelungen des 7. Jahrhunderts festzuhalten. So wäre von der Forderung nach sozialer Gerechtig-keit ausgehend ein modernes Steuersystem zu entwerfen, welches islamischen Gesellschaftsbildern entspricht. Wie versteht sich die Gemeinschaft der Gläubi-gen, die sog. islamische Umma, als Teil der Weltgemeinschaft und ihrer unter-schiedlichen Kulturen und Religionen? Es kann doch nicht mehr ernstlich von einer islamischen Führungsrolle die Rede sein, wie sie der Koran den Muslimen zuweist. Bedarf es einer modernen Interpretation des Koran? Geht es bei der Modernisierung der Wirtschaft mit islamischem Vorzeichen nicht um weit mehr als um Zinsverbot und Almosen? Provokativ gefragt: Sind die in Mitteleuropa üblichen progressiven Einkommensteuern mit ihrer steigenden Belastung höhe-rer Einkommen in der Größenordnung von 30 bis 50 Prozent dem Geiste nach „islamischer“ als die Wiedereinführung einer Zakat-Abgabe von 2,5 Prozent auf Vermögensgegenstände? Stehen wir dem Prinzip sozialer Gerechtigkeit, Brüder-lichkeit und Solidarität näher als beispielsweise Pakistan, das seit Jahrzehnten von einer Militärclique regiert und traditionell von 20 mächtigen Familien be-herrscht wird?

Pakistan gehört zu den unterentwickeltsten Ländern der Erde, gemessen an Pro-Kopf-Einkommen, Analphabetenrate, Einschulungsquote von Mädchen, Lebens-erwartung, Säuglingssterblichkeit und Erschöpfung natürlicher Ressourcen. Die Anliegen der frühen islamischen Reformer schon seit Anfang des 19. Jahrhun-derts wurden also gründlich verfälscht, so auch im Sudan und in Afghanistan unter den Taliban. Die Diskussionen werden von orthodoxen Rechtsgelehrten beherrscht. Sie lehnen eine moderne Interpretation der religiösen Texte ab, weil es sich um das göttlich offenbarte Wort handele. Fachlich aber sind sie gar nicht in der Lage, den ethischen Kern der religiösen Botschaft – etwa denjenigen der islamischen Brüderlichkeit – in modernen Kategorien zu formulieren und in konkrete Politiken für die Gegenwart umzusetzen. Es fehlt ihnen dafür das mo-derne fachliche Handwerkszeug.

Diese Problematik hat eine lange Geschichte. Interpretationsspielräume für die Umsetzung der göttlichen Offenbarung erschienen den Rechtsgelehrten während der islamischen Expansion der frühen Jahrhunderte und angesichts der wachsen-den Machtausdehnung sinnvoll und geboten. Man nannte diese Deutungsfreiheit „Ijtihad“, das Tor der freien Urteilskraft. Von Spanien bis nach Indien funktio-nierte das. Es entstand ein blühender Wirtschafts- und Kulturraum. Doch dann setzte sich fatalerweise ab dem 9. Jahrhundert die Auffassung durch, daß alle wichtigen Streitfragen nunmehr hinreichend diskutiert und abschließend verbind-lich entschieden seien. Das Tor der intelligenten Urteilskraft Ijtihad wurde ge-schlossen. Der dynamische Anpassungsprozeß des islamischen Rechts an die jeweils neuen Anforderungen der Realität wich dogmatischer Erstarrung. Der Niedergang setzte ein, von dem sich die islamische Welt bis heute nicht erholt hat. Kritische islamische Denker forderten immer wieder, das Tor erneut zu öffnen. Vergeblich. Oft wurden ihre Bücher verbrannt. Manche traf das Todesur-teil wegen Abfalls vom Glauben.

V. Islamisches und christliches Zinsverbot und seine Umgehungen

Ein zweites Diskussionsthema neben der Almosensteuer Zakat stellt das islami-sche Zinsverbot dar. Wie organisiert man ein Bankwesen ohne Zins, also ohne einen Preis für Kapital? Auch im christlichen Abendland gab es massive Vorbe-halte gegen den Zins. Vielfach wurde er mit Wucher gleichgesetzt, der die ver-schuldeten Armen ausbeute. Dies führte schon vom 1. bis 4. Jahrhundert n. Chr. zu einem strikten kirchlichen Zinsverbot. So entschied das Konzil von Elvira in Spanien im Jahre 360: Wer Zins nimmt, wird exkommuniziert. Nach einer Phase der Abschwächung des Zinsverbots wurde dieses von der römisch-katholischen Kirche vom 8. bis 14. Jahrhundert erneut strikt verkündet. Ab dem 14. Jahrhun-dert kam es zu einer Lockerung, sofern es sich nicht um Konsumkredite handel-te. Für die immer wichtiger werdenden produktiven Investitionen, die zuneh-mend mit Fremdkapital finanziert werden mußten, galten Ausnahmen vom Zins-verbot, wenn eine der folgenden vier Bedingungen erfüllt war.4

Eine erste Ausnahme war gerechtfertigt im Falle eines „damnum emergens“, d. h. eines dem Gläubiger durch die Kredithergabe entstehenden finanziellen Scha-dens. Eine zweite Ausnahme galt für den Fall des „lucrum cessans“, d. h. eines durch die Kredithergabe vereitelten anderweitig möglichen Gewinns des Gläubi-gers. Die dritte Ausnahme wurde gewährt bei „periculum sortis“, d. h. wenn der gewährte Kredit einem hohen Ausfallrisiko unterlag, z. B. im Seehandel durch Schiffbruch oder Piraterie. Die vierte Ausnahme galt für „titulus morae“, d. h. für die verspätete Rückzahlung.

Viele Päpste machten das Zinsverbot zu ihrem Thema, von Pius V (1566-1572) bis zu Gregor XVI (1831-1846). Auch der aufkommende Protestantismus schloß sich dem Zinsverbot an. Luther war ein strikter Zinsgegner, Zwingli ein noch radikalerer. Calvin wollte den Zins ebenfalls zurückdrängen, sah aber widerstre-bend ein, daß die immer komplexer werdende Wirtschaft ohne Kapitalmärkte und den Steuerungsmechanismus des Zinses nicht funktionieren würde. So alt wie das Zinsverbot sind denn auch dessen Umgehungen, in der christlichen wie in der islamischen Welt. Verweilen wir noch in der christlichen.

Eine erste Umgehung: Statt des Zinses erhält der Gläubiger vom Kreditnehmer ein Geldgeschenk als Dank – den verdeckten Zins. Eine zweite, massivere Form: Der Kreditnehmer stellt einen Schuldschein über einen höheren Betrag als die tatsächliche Kreditsumme aus, oft in der Größenordnung von über 100 Prozent. So finanzierten sich nicht nur viele weltliche Herrscher bei ihren Bankiers, son-dern auch Kirchenfürsten und selbst Päpste, was gelegentlich beide Seiten finan-ziell ruinierte. So zerbrach das Augsburger Handelshaus der Fugger schließlich an seinen Geldgeschäften mit der nicht mehr zahlungsfähigen spanischen Krone. Eine dritte Form der Umgehung des Zinsverbots: Man vereinbart einen extrem kurzen Rückzahlungstermin, der nicht einhaltbar ist und auch gar nicht eingehal-ten werden soll. Sinn des Arrangements ist die ebenfalls vereinbarte Geldbuße für die von vornherein geplante Terminüberschreitung, also wiederum eine Spielart des verdeckten Zinses. Viertens: Der Kreditnehmer verkauft dem Gläu-biger zum Schein eine Ware und erhält den gewünschten Geldbetrag. Unmittel-bar danach verkauft der Gläubiger die gleiche Ware an den Kreditnehmer zu-rück, aber mit einem Preisaufschlag (dem verdeckten Zins) und zahlbar später.5

Auf genau die gleiche Idee verfielen die Muslime: zwei Scheinverträge, Kauf und Rückkauf, mit einem Preisaufschlag für die Kreditüberlassung, ersetzen den Kreditvertrag. Die Preisdifferenz entspricht der Zinsbelastung des Schuldners. Denn, so die islamischen Rechtsgelehrten: Der Prophet Mohammed hat zwar den Zins verboten, den Handel aber erlaubt. Auch wenn der Handel, wie oben ge-zeigt, nur vorgetäuscht ist. Die islamischen Rechtsgelehrten störte das so wenig wie die römischen Kirchenjuristen. Zu ergänzen ist fünftens eine Zinsumgehung, wiederum identisch in ihrer christlichen und der islamischen Form, durch eine Kapitalbeteiligung des Gläubigers an einem Unternehmen oder durch die Finan-zierung einer einzelnen, zeitlich begrenzten Geschäftstransaktion des Kredit-nehmers, beispielsweise die Ausrüstung einer Fernhandelskarawane.

In der islamischen Variante der langfristigen Unternehmensbeteiligung ist der Gläubiger an Gewinn und Verlust beteiligt. Der Anteil am Nettoertrag tritt an die Stelle des Zinses. Für den Kreditgeber, etwa eine zinsfrei arbeitende Bank im heutigen Pakistan, die sich an einem Unternehmen beteiligt, beinhaltet dies das Risiko, vom Kreditnehmer über die wirkliche interne Ertragslage des Unterneh-mens getäuscht zu werden. Deshalb fallen wesentlich höhere Kosten der Kredit-würdigkeitsprüfung an als beim üblichen Bankkredit mit dinglicher Sicherung wie der Beleihung eines Grundstückes.

Im zweiten Fall des Karawanenführers ist dieser als Kreditnehmer nur am Ge-winn, nicht am Verlust beteiligt. Er bringt statt dessen ja sein Know-how der gefährlichen Karawanenstraßen ein, setzt Leib und Leben bei Sandstürmen oder bei Raubüberfällen aufs Spiel. Deshalb erscheint es fair, das Verlustrisiko beim Kreditgeber zu belassen. Ähnliche Formen kannten auch die christlichen Kauf-leute und Seefahrer. Der Kreditgeber erhält statt eines Zinses seinen vereinbarten Anteil am Nettoertrag.

Die eben geschilderten beiden Beteiligungsformen entsprechen der eigentlichen islamischen Zielsetzung fairer partnerschaftlicher Beteiligungsverträge. Sehr zum Unwillen der islamischen Rechtsgelehrten weichen die Banken in allen Ländern mit islamisiertem zinsfreien Bankwesen aber vorzugsweise auf die eben beschriebene Form der zwei fingierten Kaufverträge aus, die in Pakistan bei-spielsweise 85 Prozent aller Bankgeschäfte ausmachen. So vermeiden die Ban-ken die erheblichen Risiken und Überwachungskosten einer finanziellen Beteili-gung.

VI. Wiedereinbettung der Ökonomie in übergreifende Wertefelder

Die Form der Gewinn- und Verlustbeteiligung ist auch im Westen geläufig, z. B. im Rahmen einer sogenannten Holdinggesellschaft, welche Kapitalbeteiligungen an anderen Unternehmen hält. Und dies nicht in Erwartung von Zinserträgen, sondern mit Blick auf die langfristigen Ertrags- und Risikopotentiale.

Islamische Gesprächspartner sind oft verblüfft von solchen Vergleichen, zumal dann, wenn man verdeutlicht, daß man das islamische Reformanliegen ernst nimmt wie auch die Unumgänglichkeit einer grundlegenden Reform des westli-chen Industriemodells angesichts der planetaren Grenzen, die uns die Umwelt setzt. Hier könnte ein aufgeschlossener, befruchtender interkultureller Dialog ansetzen. Er wäre auch für den Westen höchst anregend und herausfordernd. Der große Anthropologe Karl Polanyi hat in seinem berühmten Buch „The Great Transformation“6 die große Umwandlung verdeutlicht, die in den vergangenen Jahrhunderten in Europa stattgefunden hat. Die sozialen Netze gegenseitiger Solidarität und Reziprozität, also das faire Geflecht von Gabe und Gegengabe wurden zurückgedrängt. An die Stelle nachbarschaftlicher Hilfe und wechselsei-tiger sozialer Beziehungen und moralischer Verpflichtungen zwischen Verwand-ten, Freunden und Nachbarn trat immer stärker die Geldwirtschaft. Geld- und Marktbeziehungen verwandelten alles und jedes zu einer käuflichen Ware.7

Die Wirtschaftssphäre entzog sich ihrer früheren Einbettung in das soziale Gefü-ge und dessen gesellschaftliche Normen. Sie verselbständigte sich vom Rest der Gesellschaft, und nahm ihrerseits immer stärker Einfluß auf die Gesellschaft. Die Wirtschaft entzog sich ihrer dienenden, vormals sozial eingebetteten Funktion. So rühmten sich Vorstandsvorsitzende deutscher Weltunternehmen öffentlich, keine Steuern mehr am Standort ihrer Heimatkommunen zu zahlen. Die Gewinnerzielung privater Fernsehstationen hat wie selbstverständlich Vorrang vor den schädigenden psycho-sozialen Folgewirkungen der Sendungen auf die Kinder vor den Bildschirmen. Waffenexporte werden mit Arbeitsplatzeffekten gerecht-fertigt.

Die Wiedereinbettung der Wirtschaft in einen Kanon übergreifender kultureller Werte und ethischer Normen scheint geboten. Ein interkultureller Dialog eröffnet Chancen einer Wiederannäherung von Orient und Okzident und der Rückbesin-nung auf die gemeinsamen Wurzeln der drei großen Religionen des Judentums, des Christentums und des Islams und ihr Menschenbild, die alle ihre Wiege im Orient haben.

1)     Dieter Weiss, Entwicklung als Wettbewerb der Kulturen, in: Aus Politik und Zeitgeschichte, B 29, 1995, S. 6f. Ders., Entwicklungszusammenarbeit mit islamischen Ländern, in: Aus Politik und Zeitgeschichte, B 12, 1996, S. 12f.
2)     Dieter Weiss, Die arabische Welt vor einer neuen wissenschaftlich-technologischen Kommunikationskrise? In: Orient 27, 1986, 3, S. 377f. Ders., Kultur und Entwicklung, in: Entwicklung und Zusammenarbeit 39, 1998, 2, S. 40-41.
3)     Steffen Wippel, Islamische Wirtschafts- und Wohlfahrtseinrichtungen in Ägypten zwischen Markt und Moral, Münster 1997, S. 245f.
4)     Nikolaus Monzel, Die katholische Kirche in der Sozialgeschichte, München, Wien 1980, S. 98-102.
5)     Monzel, a. a. O., S. 102-103.
6)     Karl Polanyi, The Great Transformation, Wien 1978, S. 19f.
7)     Ders., Ökonomie und Gesellschaft, Frankfurt/Main 1979, S. 131f.

Prof. Dr. Dieter Weiss war bis 2001 Inhaber des Lehrstuhls für Volkswirtschaft des Vorderen Orients an der Freien Universität Berlin.

A Modest Enquiry into the Nature and Necessity
of Paper Currency
by Ben Franklin, 1729 (reproduced with introduction by Steve Consilvio, 2005)
    Money cannot solve the problem, money is the problem. Violence just makes the issues harder to solve.
    At the end of the essay, Franklin is saying that it is the desire of the King or some "unknowns" to impoverish the colonies. That is basic scapegoating. At the opening of the essay, however, he is talking about the money SYSTEM itself. He doesn't see the connection that it is not the people in charge that are the problem, but the system of currency which he was discussing earlier. The habit of money is an idea, and he was observing behaviors and the desire for Interest gains. I would describe his summary as doublethink, and since he was only 23 at the time, it would be even more likely. The opening observations of the essay are not connected to the conclusion. This essay was written 1729, well before The Great Awakening, the French & Indian War, and any of the events that led to rebellion. Franklin at the time of the American Revolution was an elder, the rebellion was carried out by people young enough to be his grandchildren.
    By advocating "plentiful currency" he is basically advocating Keynsian economics. The Wealth of Nations by Adam Smith is a long-winded version of the same ideas contained here, and that was published in 1775. The addition of violence accomplished nothing.
    With the formation of the Constitution, Franklin got to see the creation of a "Plentiful Currency" of paper. As we now know, it has changed only some things, as the system still "discourages and impoverishes" and the nation is 8 Trillion in debt. Interest is the common denominator within all Empires, and that is where the problem lies. A central bank creates a species of some sort, be it gold or paper. But there has never been a central bank that didn't also use Interest and inflation as leverage.
There is no Science, the Study of which is more useful and commendable than the Knowledge of the true Interest of one's Country; and perhaps there is no Kind of Learning more abstruse and intricate, more difficult to acquire in any Degree of Perfection than This, and there fore none more generally neglected. Hence it is, that we every Day find Men in Conversation contending warmly on some Point in Politicks, which, altho' it may nearly concern them both, neither of them understand any more than they do each other.

Thus much by way of Apology for this present Enquiry into the Nature and Necessity o/ a Paper Currency. And if any Thing I shall say, may be a Means of fixing a Subject that is now the chief Concern of my Countrymen, in a clearer Light, I shall have the Satisfaction of thinking my Time and Pains well employed.

To proceed, then,
There is a certain proportionate Quantity of Money requisite to carry on the Trade of a Country freely and currently; More than which would be of no Advantage in Trade, and Less, if much less, exceedingly detrimental to it.

This leads us to the following general Considerations.

First, A great Want of Money in any Trading Country, occasions Interest to be at a very high Rate. And here it may be observed, that it is impossible by any Laws to restrain Men from giving and receiving exhorbitant In terest, where Money is suitably scarce: For he that wants Money will find out Ways to give 10 per cent when he cannot have it for less, altho' the Law forbids to take more than 6 per cent. Now the Interest of Money being high is prejudicial to a Country several Ways: It makes Land bear a low Price, because few Men will lay out their Money in Land, when they can make a much greater Profit by lending it out upon Interest: And much less will Men be inclined to venture their Money at Sea, when they can, without Risque or Hazard, have a great and certain Profit by keeping it at home; thus Trade is discouraged. And if in two Neighbouring Countries the Traders of one, by Reason of a greater Plenty of Money, can borrow it to trade with at a lower Rate than the Traders of the other, they will infallibly have the Advantage, and get the great est Part of that Trade into their own Hands; For he that trades with Money he hath borrowed at 8 or io per cent cannot hold Market with him that borrows his Money at 6 or 4. On the contrary, A plentiful Currency will occasion Interest to be low: And this will be an Inducement to many to lay out their Money in Lands, rather than put it out to Use, by which means Land will begin to rise in Value and bear a better Price: And at the same Time it will tend to enliven Trade exceedingly, because People will find more Profit in employing their Money that Way than in Usury; and many that understand Business very well, but have not a Stock sufficient of their own, will be encouraged to borrow Money; to trade with, when they can have it at a moderate Interest.

Secondly, Want of Money in a Country reduces the Price of that Part of its Produce which is used in Trade: Because Trade being discouraged by it as above, there is a much less Demand for that Produce. And this is another Reason why Land in such a Case will be low, especially where the Staple Commodity of the Country is the immediate Produce of the Land, because that Produce being low, fewer People find an Advantage in Husbandry, or the Improvement of Land. On the contrary, A Plentiful Currency will occasion the Trading Produce to bear a good Price. . .

As we have already experienced how much the Increase of our Currency by what Paper Money has been made, has encouraged our Trade; particularly to instance only in one Article, Shi~Building; it may not be amiss to observe under this Head, what a great Advantage it musl he to us as a Trading Country, that has Workmen and all the Materials proper for that Business within itself, to have Ship~Building as much as possible advanced: For every Ship that is built here for the English Merchants, gains the Province her clear Value in Gold and Silver, which must otherwise have been sent Home for Returns in her Stead; and likewise, every Ship built in and belong ing to the Province, not only saves the Province her first Cost, but all the Freight, Wages and Provisions she ever makes or requires as long as she lasts. . . . Now as Trade in general will decline where there is not a plentiful Currency, so Ship~Bwlding must certainly of Consequence decline where Trade is declining.

Thirdly, Want of Money in a Country discourages Lab0uring and Handicrafts Men (which are the chief Strength and Support of a People) from coming to settle in it, and induces many that were settled to leave the Country, and seek Entertainment and Employment in other Places, where they can be better paid. For what can be m9re disheartning to an industrious labouring Man, than this, that after he hath earned his Bread with the Sweat of his Brows, he must spend as much Time, and have near as much Fatigue in getting it, as he had to earn it. And nothing makes more bad Paymasters than a general Scarcity of Money. And here again is a Third Reason for Land's bearing a low Price in such a Country, because Land always increases in Value in Proportion with the Increase of the People settling on it' there being so many more Buyers; and its Value will infallibly be diminished, if the Number of its Inhabitants diminish. On the contrary, A Plentiful Currency will encourage great Numbers of Labouring and Handicrafts Men to come and Settle in the Country, by the same Reason that a Want of it will discourage and drive them out. Now the more In habitants, the greater Demand for Land (as is said above) upon which it must necssarily rise in Value, and bear a better Price. . . . Now the Value of HouseRent rising, and Interest becoming low, many that in a Scarcity of Money practiced Usury, will probably be more inclined to Building; which will likewise sensibly enliven Business in any Place; it being an Advantage not only to Brickmakers, Bricklayers, Masons, Carpenters, Joiners, Glaziers, and several other Trades immediately employed by Building, but likewise to Farmers, Brewers, Bakers, Taylors, Shoemakers, Shopkeepers, and in short to every one that they lay their Money out with.

Fourthly, Want of Money in such a Country as ours, occasions a greater Consumption of English and European Goods, in Proportion to the Number of the People, than there would otherwise be. Because Merchants and Tradeers by whom abundance of Artificers and labouring Men are employed, finding their other Affairs require what Money they can get into their hands, oblige those who work for them to take one half, or perhaps two thirds Goods in Pay. By this Means a greater Quantity of Goods are disposed of, and to a greater Value. . . .

As A plentiful Currency will occasion a less Consumption of European Goods, in Proportion to the Number of the People, so it will be a means of making the Balance of our Trade more equal than it now is, if it does not give it in our Favour because our own Produce will be encouraged at the same Time. And it is to be observed, that tho' less Foreign Commodities are consumed in Proportion to the Number of People, yet this will be no Disadvantage to the Merchant, because the Number of People increasing, will occasion an increasing Demand of more Foreign Goods in the Whole.

Thus we have seen some of the many heavy Disadvantages a Country (especially such a Country as ours) must labour under, when it has not a sufficient Stock of running Cash to manage its Trade currently. And we have likewise seen some of the Advantages which accrue from having Money sufficient, or a Plentiful Currency.

The foregoing Paragraphs being well considered, we shall naturally be led to draw the following Condusions with Regard to what Persons will probably be for or against Emitting a large Additional Sum of Paper Bills in this Province.

Since Men will always be powerfully influenced in their Opinions and Actions by what appears to be their particular Interest:
   Therefore all those, who wanting Courage to venture in Trade, now practise Lending Money on Security for exhorbitant Interest, which in a Scarcity of Money will be done notwithstanding the Law, I say all such will probably be against a large Addition to our present Stock of PaperMoney; because a plentiful Currency will lower Interest, and make it common to lend on less Security.
    All those who are Possessors of large Sums of Money, and are disposed to purchase Land, which is attended with a great and sure Advantage in a growing Country as this is; I say, the Interest of all such Men will encline them to oppose a large Addition to our Money. Because their Wealth is now continually increasing by the large Interest they receive, which will enable them (if they can keep Land from rising) to purchase More some time hence than they can at present; and in the mean time all Trade being discouraged, not only those who borrow of them, but the Common People in general will be impoverished, and consequently obliged to sell More Land for less Money than they will do at present. And yet, after such Men are possessed of as much Land as they can purchase, it will then be their Interest to have Money made Plentiful, because that will immediately make Land rise in Value in their Hands. Now it ought not to be wondered at, if People from the Knowledge of a Man's Interest do sometimes make a true Guess at his Designs; for, Interest, they say, will not Lie.
    Lawyers, and others concerned in Court Business, will probably many of them be against a plentiful Currency; because People in that Case will have less Occasion to run in Debt, and consequently less Occasion to go to Law and Sue one another for their Debts. Tho' I know some even among these Gentlemen, that regard the Publick Good before their own apparent private Interest.
    All those who are any way Dependants on such Persons as are above mentioned, whether as holding Offices, as Tenants, or as Debtors, must at least appear to be against a large Addition; because if they do not, they must sensibly feel their present Interest hurt. And besides these, there are, doubtless, many wellmeaning Gentlemen and Others, who, without any immediate private Interest of their own in View, are against making such an Addition, thro' an Opinion they may have of the Honesty and sound Judgment of some of their Friends that oppose it (perhaps for the Ends aforesaid), without having given it any thorough Consideration themselves. And thus it is no Wonder if there is a powerful Party on that Side.
    On the other Hand, Those who are Lovers of Trade, and delight to see Manufactures encouraged, will be for having a large Addition to our Currency: For they very well know, that People will have little Heart to advance Money in Trade, when what they can get is scarce sufficient to purchase Necessaries, and supply their Families with Provision. Much less will they lay it out in advancing new Manufactures; nor is it possible new Manufactures Should turn to any Account, where there is not Money to pay the Workmen, who are discouraged by being paid in Goods, because it is a great Disadvantage to them. . . .

And since a Plentiful Currency will be so great a Cause of advancing this Province in Trade and Riches, and increasing the Number of its People; which, tho' it will not sensibly lessen the Inhabitants of Great Britain, will occasion a much greater Vent and Demand for their Commodities here; and allowing that the Crown is the more powerful for its Subjects increasing in Wealth and Number, I cannot think it the Interest of England to oppose' us in making as great a Su1n of Paper Money here, as we, who are the best Judges of our own Necessities, find convenient. And if I were not sensible that the Gentlemen of Trade in England, to whom we have already parted with our Silver and Gold, are misinformed of our Circumstances, and therefore endeavour to have our Currency stinted to what it now is, I should think the Government at Home had some Reasons for discouraging and impoverishing this Province, which we are not acquainted with. . . .

Publik-Forum     9/2005

Theologische Stellungnahmen zur Problematik
von Geld, Zins und Bodeneigentum

in chronologischer Reihenfolge:  Friedrich Naumann  |  Christoph Blumhardt  | Johannes Ude  |  Karl Barth  |  Leonhard Ragaz  |  Kurt Scharf  | Ulrich Duchrow  |  Wilhelm Haller  | Pinchas Lapide  |  Jürgen Moltmann  | Christoph Körner  |  Eugen Drewermann  |  Hans Kessler  |  Carl AmeryThomas Ruster
  ||| Friedrich Naumann

„Es ist bekannt, welche große Rolle im ganzen Mittelalter das auf Lukas 6.35 gegründete Zinsverbot gehabt hat. Die mittelalterliche Auslegung der betreffenden Bibelstelle war irrig, wie sie denn auch Luther in seinen ‚Sermonen vom Wucher’ aufgibt; auch die religiös-gesetzliche Art des Zinsverbots ist für alle Zeit überwunden. Aber wir zweifeln nicht daran, dass eine Zeit kommen wird, wo sich eine christliche Bewegung wieder gegen den Zins erheben wird im Sinne evangelischer Freiheit nach dem Wort Luthers: ‚Es gebührt Christenmenschen nichts anderes, denn Geben und Leihen umsonst.’ Es ist nicht anzunehmen, dass Christi Worte über das Leihen in der evangelischen Christenheit dauernd ein toter Wortbestand bleiben sollten. Erst wenn der Geist der christlichen Liebe sich an die Frage der Kapitalausnutzung heranwagt, wird das Christentum in der modernen Welt seine Hauptprobe bestehen.“

Das soziale Programm der Evangelischen Kirche, Erlangen und Leipzig 1891, S. 165-166.

||| Christoph Blumhardt

„Das Kapital ist der Tyrann der heutigen Menschen. Es spielt erst seit etwa 100 Jahren diese Rolle, dass der Mensch ohne Geld absolut gar nichts ist. Land und Wald waren früher nicht ein Kapital. In unserer Zeit wird alles zu Geld, alles wird danach geschätzt. Der Teufel des Kapitals, die Spekulation, kommt überall hin. Und zuletzt kommen wir in Verschuldung. Das ist die Herrschaft des Kapitals. Christus will nichts von dieser Kapitalwirtschaft wissen. In Christi Reich muss das Geld auch eine Rolle spielen, aber keine größere als das Leben. Das Geld dem Leben und nicht das Leben dem Geld! … In unserem zukünftigen Reich wird nicht mehr das Geld benützt werden können zur Unterdrückung der anderen.“

aus: Johannes Harder, Christoph Blumhardt – Ansprachen, Predigten, Reden, Briefe
Band 2 (1896-1906), Neukirchen 1978, S. 194-195.

||| Prof. Dr. Johannes Ude

„Wer also für die ausbeutungsfreie Wirtschaft einsteht, und dafür soll doch jeder Christ einstehen, der kommt nach unserer Überzeugung um das Freigeld nicht herum. … Die Freiwirtschaftslehre ist also gesellschaftlich, wirtschaftlich und kulturell von geradezu grundlegender Bedeutung.“

Das Geld – Sein Einfluss auf Gesellschaft, Wirtschaft und Kultur,
Gams/Schweiz 1935, S. 172 und 242.

||| Prof. Dr. Karl Barth

“Die Christengemeinde muss - frei von aller falschen Unparteilichkeit - auch im politischen Raum vor allem nach unten blicken. Es sind die nach ihrer gesellschaftlichen und wirtschaftlichen Stellung Schwachen, es sind die Armen, für die sie sich immer vorzugsweise einsetzen, für die sie die Bürgergemeinde besonders verantwortlich machen wird. Dass sie ihnen im Rahmen ihrer eigenen Aufgabe (in Form ihrer ‚Diakonie’) Liebe zuwendet, ist Eines, und zwar ihr Erstes, über dem sie aber - nun im Rahmen ihrer politischen Verantwortung - das Andere nicht versäumen kann: den Einsatz für eine solche Gestaltung des Rechts, die es ausschließt, dass seine Gleichheit für alle zum Deckmantel werde, unter dem es für Starke und Schwache, selbständig und unselbständig Erwerbende, Reiche und Arme, Arbeitgeber und Arbeitnehmer faktisch doch ungleiche Begrenzung und ungleiche Bewahrung bedeutet. Die Christengemeinde steht im politischen Raum notwendig im Einsatz und Kampf für die soziale Gerechtigkeit. Und sie wird in der Wahl zwischen den verschiedenen sozialistischen Möglichkeiten (Liberal-Sozialismus? Genossenschaftswesen? Syndikalismus? Freigeldwirtschaft? Gemäßigter – Radikaler Marxismus?) auf alle Fälle die Wahl treffen, von der sie jeweils das Höchstmaß von sozialer Gerechtigkeit erwarten zu sollen glaubt.“

Christengemeinde und Bürgergemeinde, Stuttgart 1946, S. 34-35.

„Wo nicht der Mensch, sondern das zinstragende Kapital der Gegenstand ist, dessen Erhaltung und Mehrung der Sinn und das Ziel der politischen Ordnung ist, da ist der Automatismus schon im Gang, der eines Tages die Menschen zum Töten und Getötetwerden auf die Jagd schicken wird.“

Die kirchliche Dogmatik Band III/4, Zürich 1951, S. 525.

||| Prof. Dr. Leonhard Ragaz

„Das Verbot des Zinses ist nicht bloß eine einzelne wirtschaftlich-soziale Maßregel, sondern ein gewaltiges Prinzip: die Verhinderung der Geldherrschaft. In diesem Sinne geht das Zinsverbot durch die christliche Kultur. … Es gilt in der ganzen altchristlichen Zeit und im Mittelalter. Zinsnehmen bleibt Wucher. Erst die kirchliche Reformation und die weltliche Renaissance heben das Zinsverbot auf und öffnen damit jener Entwicklung zum Kapitalismus die Bahn, welche die Geldherrschaft zuletzt auf den Gipfel bringt, Gott und den Menschen durch den Mammon verdrängend.
   Es ist ein Erwachen der Revolution des Mose, wenn die Freigeldbewegung wieder das Zinsproblem im Sinne der Beseitigung des Zinses auf den Leuchter gestellt hat. In diesem Sinne darf man das Buch von Silvio Gesell „Die Natürliche Wirtschaftsordnung“ neben „Das Kapital“, „Fortschritt und Armut“ und „Das Ur-Eigentum“ stellen.“

Die Bibel - eine Deutung Band 2, Zürich 1947, S. 133-134.

||| Dr. Kurt Scharf

„Die Thesen der Bodenreform und des Freilandes richteten sich gegen die Bodenspekulation, gegen die unverdienten Gewinne von Besitzern günstig gelegener Grundstücke und die Verarmung breiter, vom Grundbesitz ausgeschlossener, arbeitender Bevölkerungsgruppen. Die Thesen des Freigeldes von Silvio Gesell richteten sich gegen den Kreditkapitalismus. In der Wirtschaftskrise nach dem ersten Weltkrieg wurden die Thesen beider in den Parteien und an den Universitäten leidenschaftlich diskutiert. Wir jungen Studenten, gerade auch wir Theologiestudenten, drängten auf ihre Verwirklichung. … Gottes Angebote durchbrechen neu und immer wieder die Selbstsucht der Besitzenden und die Mutlosigkeit breiter Mehrheiten. Im letzten Jahrhundert rechne ich zu den Flutwellen, die von biblisch-prophetischer Lehre ausgelöst worden sind, die Bewegungen des religiösen und humanen Sozialismus und auch die Vorschläge zur Bodenreform Damaschkes und zu dem Freiland und Freigeld Gesells.“

in: Deutscher Evangelischer Kirchentag (Hg.), Dokumente des Kirchentags
in Düsseldorf 1985, S. 133-134 und 139.

||| Prof. Dr. Ulrich Duchrow

„Haben wir es beim gegenwärtigen Weltwirtschaftssystem mit einer besonderen Bekenntnisfrage wie im Fall des Nationalsozialismus und der Apartheid zu tun? Müssen wir uns in diesem Sinn zu einer eindeutig bekennenden Kirche entwickeln? … Dies ist eine Lebensfrage der Kirche, deren Langzeitwirkung ähnlich wie die ihres Versagens vor der Arbeiterfrage im 19. Jahrhundert sein wird. … Hier müssten sich Kirchen und Theologie ins Detail der multinationalen Wirtschaft hineinbegeben. Es handelt sich um die Frage des Glaubensgehorsams, wenn es um die Frage Mammon geht. … Heute hat die Geldwirtschaft eine fast totale Macht. … Die Völker der Erde müssen sich gemeinsam auf die Suche nach Alternativen für das Leben der Menschen und der Erde machen. Freilich, im Blick auf die Weltwirtschaft drängt die Zeit. Die Menschen sterben zu Millionen und das Kirchesein der Kirche verdunkelt sich immer mehr, solange sie den ‚Massenmord unserer Tage’ stillschweigend oder nur mit Lippenbekenntnissen hinnimmt.“

Weltwirtschaft heute - Ein Feld für Bekennende Kirche?
München 1986, S. 17, 86, 143, 223 und 226.

||| Wilhelm Haller

„Wie der Krankheitsherd der internationalen Schuldenkrise jedem Einsichtigen deutlich macht, muss auch die Frage nach der Berechtigung des Anspruchs auf Geldvermehrung durch Zins und Zinseszins gestellt werden. … Das Prinzip von Zins und Zinseszins, das die Grundlage unseres ganzen Geld-, Kapital- und Finanzsystems liefert, führt immer dann zu exponenziellem Wachstum von Geldvermögen einerseits und Schulden andererseits, wenn einerseits die Besitzer von Geldvermögen mehr Zinsen einnehmen als sie verbrauchen, so dass auch der Zins wieder zinsbringend angelegt werden kann und muss, und andererseits die Schuldner mehr Zinsen zahlen müssen als sie trotz Einschränkung des Lebensstandards aufzubringen imstande sind, so dass die nicht bezahlten Zinsen den Schulden zugeschlagen und damit selbst zinspflichtig werden. Angesichts dieser zwingenden Gesetzmäßigkeit muss man sich wundern, wie die Zinsfrage mit ihren tödlichen Konsequenzen solange in unserer Gesellschaft tabuisiert werden konnte.“

in: Die heilsame Alternative - Jesuanische Ethik in Wirtschaft und Politik,
Wuppertal 1989, S. 84 ff.

||| Weltkonvokation des ÖRK zum Konziliaren Prozess in Seoul/Korea 1990

„Affirmation VIII: Wir bekräftigen, dass die Erde Gott gehört. Das Land und die Gewässer bedeuten Leben für die Menschen. Doch Millionen sind ihres Landes beraubt und leiden unter der Verschmutzung des Wassers; ihre Kultur, ihre Spiritualität und ihr Leben werden zerstört. … Sie warten auf die Erfüllung der Verheißung, dass die Armen das Land bekommen werden.
   Wir bekräftigen deshalb, dass das Land Gott gehört. … Wir werden jeder Politik widerstehen, die Land als bloße Ware behandelt, die Spekulation auf Kosten der Armen erlaubt, die Giftmüll auf das Land und ins Wasser entlädt, die Ausbeutung, ungleiche Verteilung und Verseuchung des Landes und seiner Erzeugnisse fördert und die jenen, die unmittelbar von der Nutzung des Landes leben, die Verfügungsgewalt darüber vorenthält.
   Wir verpflichten uns zur Solidarität mit Urvölkern, die um ihre Kultur, ihre Spiritualität und ihre Rechte auf Grund und Boden sowie auf Gewässer kämpfen, und mit Landarbeitern und mit armen Bauern, die sich für eine Bodenreform einsetzen.“

Evangelischer Pressedienst Nr. 16/1990, S. 16-17.

||| Prof. Dr. Pinchas Lapide

„Wie war das Verhältnis Jesu von Nazareth zum Geld? Es herrscht die Auffassung vor, dass er dem Mammon total abhold war und alle Finanzgeschäfte ganz unzweideutig und rigoros verdammt habe. Weit gefehlt!! … Gegen einen gerechten Umgang mit Geld und Mitwirkung im Wirtschaftsleben hatten Jesus und die Pharisäer (der ja einer der ihren war) nichts einzuwenden - unter der Bedingung allerdings, dass die Fürsorge für die Randsiedler der Gesellschaft dabei nie zu kurz kommen dürfe. … Wogegen alle Rabbinen vehement zu Felde zogen, war finanzielle Korruption, Habgier, Geiz und Neid.
   Eine in weiten christlichen Kreisen missverstandene Aussage Jesu ist seine angebliche Empfehlung, sorglos zu sein wie die Vögel des Himmels und in den Tag hinein zu leben wie die Lilien des Feldes. (Mt 6) … Aus all seinen Gleichnissen spricht eine große Liebe für die Schöpfung und genaue Kenntnis der Natur. Er wusste so gut wie wir alle, dass die Vögel sehr eifrig und emsig für den morgigen Tag sorgen, indem sie beispielsweise ihre Nester mühselig Halm um Halm vorbereiten und bauen. Was meinte Jesus also mit diesem Bilde? ‚Nestbauen’ schon, aber keine Zweit- und Dritt-Nester! Von einem In-den-Tag-Hineinleben kann keine Rede sein; aber auch nicht vom gierigen ‚Hamstern’.
   Ähnlich verhält es sich mit Jesu ‚Blumengleichnis’. Wie fleißig ist doch unsere Lilie, wenn man es genauer betrachtet, wie sie ihr Wasser und den benötigten Stickstoff aus dem Erdreich heraufsaugt und mit Hilfe eines genialen Prozesses der Fotosynthese das Sonnenlicht verwertet. Also äußerst kreativ ist sie sogar und unermüdlich noch dazu. ‚Hamstern’ aber tut auch sie nicht - und harrt, offensichtlich voll Gottvertrauen, dem nächsten Tag entgegen.“

Jesus, das Geld und der Weltfrieden, Gütersloh 1991, S. 17-18.

||| Prof. Dr. Jürgen Moltmann

„Die Welt als Schöpfung Gottes zu verstehen, bedeutet gerade nicht, sie als Welt des Menschen anzusehen und in Besitz zu nehmen. Ist die Welt Gottes Schöpfung, dann bleibt sie sein Eigentum und kann von Menschen nicht in Besitz genommen werden, sondern nur als Leihgabe empfangen und treuhänderisch verwaltet werden. Sie ist nach den Maßstäben der göttlichen Gerechtigkeit zu behandeln, nicht nach den Wertvorstellungen menschlicher Machtentfaltung.“

Gott in der Schöpfung – Ökologische Schöpfungslehre, Gütersloh 4. Aufl. 1993, S. 45.

||| Dr. Christoph Körner

„Von Seiten der Theologie ist zu fragen, ob die Religion der Wirtschaft nicht eine Anti-Religion zur biblischen ist und ihre Lebensfeindlichkeit verdeutlicht werden muss. … Indem der (pseudo)sakramentale Charakter der modernen Wirtschaft erkannt und benannt wird, besteht auch die Möglichkeit, die Wirtschaft wieder zu entsakramentalisieren. Dies könnte geschehen, indem durch eine neue Wirtschaftsordnung ein ‚neutrales Geld’ geschaffen wird, das seine magische Kraft verliert, indem es von der Funktion des Schatzmittels befreit und allein auf seinen Gebrauch als Tauschmittel und Wertmesser beschränkt wird. Freilich müsste die Geldreform mit einer Boden- und Steuerreform gekoppelt werden, die uns zu einem anderen Umgang mit den Gütern der Natur bewegt. Die biblische Weisheit, dass die Erde Gott gehört und ebenso die Bodenschätze und Geschöpfe, die auf der Erde wohnen (Ps. 24.1), sollte wieder beherzigt werden.
   Begann die Sakramentalisierung der Wirtschaft gerade im 16. Jahrhundert mit der Säkularisierung des christlichen Geschichtsdenkens und der Entsakramentalisierung (Entheiligung) der Natur durch die jüdisch-christliche Welttranszendenz, so kann heute die biblische Sicht von der Heiligkeit der Schöpfung zur notwendigen Entsakramentalisierung der Wirtschaft führen. Indem die Wirtschaft entsakramentalisiert und das Geld seiner Fetischrolle beraubt wird, wird das Leben selbst wieder als die heilige Gabe erfahren und der Mensch kann sich in dem Leben als Ebenbild Gottes wieder finden.“

Zur metaphysischen Rolle des Geldes in der modernen Wirtschaft,
in: Zeitschrift für Sozialökonomie 102./103. Folge (1994), S. 10-11.

||| Prof. Dr. Eugen Drewermann

„Geld und Zins ‚arbeiten’ gemeinsam zugunsten der Besitzenden. … es kommt jetzt darauf an, das Geld zu sich selbst zu erlösen, ihm seine menschenversklavende, dämonische Kraft zu nehmen man … es entschieden auf das reduziert, als was es ausgegeben wird: ein gesetzlich festgelegtes öffentliches Zahlungsmittel zu sein, in dem sich die unterschiedlichen Werte von Waren gegeneinander verrechnen lassen. …
   Geld könnte ein neutrales Zahlungsmittel nur sein, wenn man auf die Ausnutzung seines ‚Joker-Vorteils’ verzichten würde, und zwar nicht nur auf der Ebene der individuellen Praxis, sondern in der objektiv vorgegebenen Form der Geldwirtschaft selbst. … Statt das Geld mit dem Mittel des Zinses aus der Reserve zu holen, müsste man ihm umgekehrt ‚Beine machen’: statt den Geldbesitzer förmlich dafür zu belohnen, dass er sein Geld wie seinen Privatbesitz zurückhält, um damit gegebenenfalls auf dem Geldmarkt zur Vermehrung seines privaten Besitzes  spekulative Geschäfte zu treiben, könnte eine Liquiditätsabgabe oder ‚Nutzungsgebühr’ den Zins als Umlaufsicherung ersetzen. Das Zurückhalten des Geldes würde mit Kosten verbunden, die nur dann entfallen, wenn das Geld ausgegeben oder auf einem Sparkonto angelegt wird.
   Die Tatsache liegt offen zutage: es sind die Staaten des kapitalistischen Wirtschaftssystems selber, die allein schon aufgrund ihrer horrenden Überschuldung das Zinssystem nicht mehr tragen können, von dem sie selbst zu profitieren glaubten. Mit anderen Worten: es gibt selbst unter rein ökonomischer Perspektive 2000 Jahre nach der Bergpredigt zu der Botschaft Jesu um Umgang mit Geld, es gibt zu den Worten aus Lukas 6.34-35 (‚Leihet, auf dass ihr nichts dafür erhoffet.’) keine Alternative mehr.“

in: Jesus von Nazareth – Befreier zum Frieden, Band 2: Glauben in Freiheit,
Zürich und Düsseldorf 1996, S. 474-475 und 498-500.

||| Prof. Dr. Hans Kessler

„Der heutige reale Weltmarkt wird vom Kapital beherrscht. Marktwirtschaft und kapitalistische Marktwirtschaft sind nicht dasselbe. Und wer letztere kritisiert, ist damit nicht antimarktwirtschaftlich. Das Marktprinzip lässt sich bei vernünftiger Regulierung mit Gerechtigkeit und Erhaltung der Umwelt versöhnen, der Kapitalismus kaum. … Ein entscheidender Knackpunkt in dem ganzen Problemknäuel von Wirtschaft – Umwelt – Umverteilung ist das System von zins und Zinseszins. Es setzt die Wirtschaft unter einen ständigen Druck zu endloser Expansion und Profitmaximierung. …
   Die Wurzel des geschilderten Übels liegt in der Fehlstruktur unseres Geldsystems und – im unkritischen Glauben an die Fehlerlosigkeit des Zinses. … Mit einem sicheren Gespür für Gerechtigkeit und das Wohl des Ganzen verbietet die Bibel das Zinsnehmen, die große christliche Tradition folgt ihr darin (ähnlich der Koran). Erst seit dem 16. Jahrhundert gibt es zunehmende Aufweichungen. … Dieses Abrücken der Kirchen vom Zinsverbot hat den Aufstieg des modernen Kapitalismus entscheidend begünstigt. Es wird höchste Zeit, dass Kirchen und Sozialethiker umkehren und der Öffentlichkeit wieder den Sinn des Zinsverbots ins Bewusstsein zu bringen, um Gegenkräfte gegen eine aus den Fugen geratene internationale Finanzwelt aufzubauen und Wege zu fördern, die zum Ziel einer umweltverträglicheren (zinsfreien) Marktwirtschaft führen.“

in: Umwelt, Markt, Ethik und Religion  Wege zu einem globalen Umweltethos,
in: Gerd Iben (Hg.), Demokratie und Ethik wohin? – Antworten auf die Globalisierung,
Münster 1998, S. 93-97 und 123.

||| Carl Amery

„Es gilt, das Geld von seinem Status als Absolutum, als Sakrament zu befreien, es wieder zu einem nüchternen Werkzeug zu machen. … Das globale Finanzwesen ist nach einem ebenso alten wie ruchlosen Prinzip organisiert: dem Prinzip des Zinseszinses. Jeder Hauptschüler mit Taschenrechner kann sofort feststellen, dass dieses Prinzip weltmörderisch ist. Seine Aggressivität ist sozusagen eingebaut. … Dieses Geldsystem wird als selbstverständlich betrachtet. Aber das ist es keineswegs. Es gibt bargeldlose Tauschsysteme; es gibt Rabattsysteme. Es gibt Notgeld wie die Creditos im krisengeschüttelten  Argentinien. Und es gibt darüber hinaus theoretische, ja sogar praktisch erprobte Ansätze, die auf einer gänzlich anderen Perspektive beruhen: Alterndes Geld würde sich abnützen und an Wert verlieren. Es war der Deutschargentinier Silvio Gesell, der diese Theorie systematisch durchdachte. Die krisengeschüttelte Zwischenkriegszeit zwischen 1920 und 1930 sah dann zwei praktische Erprobungen. Beide haben sich durchaus bewährt. … Wörgls Freigeld wurde von der Wiener Staatsbank zu Fall gebracht - Mammon lässt seiner nicht spotten.“

Global Exit – Die Kirchen und der Totale Markt, München 2002, S. 214 und 219-200.

||| Prof. Dr. Thomas Ruster

„Ist der Kapitalismus eine Religion, so wäre ihr Gott das Geld. … Geld ist allgegenwärtig und allmächtig, und es lässt die, die ausreichend über es verfügen, an diesen göttlichen Attributen teilhaben. Es gibt nichts, was von der Macht des Geldes unabhängig wäre. Alles ist für Geld zu haben. … Auf das Geld richten sich die Haltungen, die sonst Gott galten: Vertrauen, Treue, Sicherheit, Geborgenheit, Mut zur Zukunft, Liebe, Hoffnung, unersättliches Begehren. Wo es aber fehlt, herrschen Verzweiflung und Hoffnungslosigkeit. Geld ist, in den Begriffen der Theologie gesprochen, zum ‚Sakrament der bürgerlichen Gesellschaft’ geworden: das sichtbare Zeichen der unsichtbaren Gnade. Die Verteilung der Lebenschancen, Gerechtigkeit und Ungerechtigkeit, Reichtum und Armut, Glück und Unglück, gelingendes oder gescheitertes Leben werden vom Geld bestimmt wie früher von der göttlichen Vorsehung. Es vermittelt, wie einstmals die kirchlichen Sakramente, zwischen Immanenz und Transzendenz. Es ist in allem … und es ist über allem als das Absolute, das alles beherrscht und selbst nicht beherrscht werden kann. Geld ist die schlechthin alles bestimmende Wirklichkeit. …
   Geld kann nicht in der Weise Gott sein, wie auf dem Boden der abendländischen Religionsgeschichte gesprochen worden ist. Es ist nicht personal; man kann kein Gebet an es richten. Ihm wird keine ausdrückliche kultische Verehrung zuteil, wie immer man auch die sakral anmutende Architektur der Bank- und Versicherungsgebäude werten mag. … Es gilt also den Kapitalismus zu enträtseln, um die Macht des Geldes und damit auch seine religiöse Valenz zu verstehen.“

Der verwechselbare Gott - Theologie nach der Entflechtung von
Christentum und Religion. Freiburg 5. Aufl. 2002, S. 142-144.

„Dieser Religion des Kapitalismus gegenüber ist nur eine entschiedene christliche Gegnerschaft möglich. Die Wirtschaft ist heute das Instrument, dessen der Tod sich bedient, um seine Herrschaft auszuüben; um des lebendigen und Leben schaffenden Gottes willen ist ihr der Kampf anzusagen. Dieser Kampf kann geführt werden durch ein Leben nach den Geboten Gottes, jenen Geboten, von denen es heißt, dass durch sie leben wird, wer sie tut (Lev 18,5). Die Rückwendung zur biblischen Leitunterscheidung Gott/Götter bedeutet zugleich eine Wiederentdeckung der Tora als dem Gesetz des Lebens. Exemplarisch kann man auf die Bedeutung des Zinsverbots als Mittel gegen den mörderischen Wachstumszwang der Wirtschaft verweisen.“

Der verwechselbare Gott. Einführung zu: Felix Senn (Hg.), Welcher Gott? –
Eine Disputation mit Thomas Ruster. Luzern 2004, S. 23.

„Das kapitalistische Wirtschaftssystem hat versagt. … Der Gegensatz zum Kapitalismus ist nicht der Sozialismus, sondern eine Wirtschaft, die nicht zu beständigem Wachstum gezwungen ist. …
   Man muss den Blindflug in die Selbstvernichtung nicht einfach mitmachen. Man muss den quasireligiösen Fatalismus überwinden, der dieses Wirtschaftssystem für alternativlos hält, dann kann sich etwas ändern. Man muss zeigen, dass es anders geht. … Ich halte es für durchführbar, ein sekundäres kirchliches Währungssystem nach dem Modell der Alternativwährungen einzuführen, die es ja da und dort schon gibt. Bei einem Kirchentag werden Bons verkauft, die auch nachher noch als Zahlungsmittel dienen. Nach der Theorie des Alternativökonomen Silvio Gesell sind sie umlaufgesichert, d.h. sie verlieren im Laufe der Zeit einen gewissen Teil ihres Werts, so dass sie sich nicht als Geldanlage eignen. Dieses zinslose Geld würde rasch ausgegeben: für Klosterprodukte, Weine aus bischöflichen Gütern, kirchliche Dienstleistungen aller Art. Ein Teil der Gehälter der Kirchenangestellten könnte in dieser Währung ausbezahlt werden. Je nachdem, wie weit man hier die Kreise ökumenisch oder weltkirchlich zieht, ergäbe das schon eine stattliche Sekundärökonomie mit erheblichem Irritationseffekt.“

in: Publik-Forum Nr. 9/2005, S. 19-20.

International Herald Tribune    April 5, 2006

The €1000 Generation
Italy (sh!) has a problem
By Elisabetta Povoledo

MILAN Since he graduated with an architecture degree in 2000, Antonio Incorvaia has held a dizzying number of jobs: graphic designer, television writer, Web editor and journalist for trade and pop culture magazines. At 31, he describes himself as a "serial trainee."

Like many people of his generation, Incorvaia has had to struggle between the job-for-life mentality of postwar Italy and the realities of a labor market that no longer offers such guarantees. Many of his overqualified 30-something friends, he said, are in the same boat, flitting from one short-term contract to another without ever being offered full-time employment. Adding insult to injury, he added, "Prospective employers ask you why you've changed jobs so often."

Last December, Incorvaia and a friend, Alessandro Rimassa, made their frustrations public and wrote a novel, "The €1,000 Generation," which is available, partly free, on the Internet at The semi- autobiographical book about a group of young Italians living hand-to-mouth on a fluctuating income struck a chord: 24,000 downloads later, Incorvaia has a publishing contract and has sold the film rights. The idea, Incorvaia said in an interview, was "to highlight a situation that isn't talked about - it involves millions of people, but no one takes notice."

In Italy's heated electoral campaign, politicians have not taken much notice either. With Prime Minister Silvio Berlusconi and his main challenger, Romano Prodi, lobbing insults and defending their records, the uncertainty of the labor market for Italians entering the work force has not been a key issue.

Despite the impact of job uncertainty on the lives of young Italians, and notwithstanding protests in France over labor reforms affecting youth, politicians in Italy have focused more on the country's aging electorate. They are promising higher pensions and better health care, rather than taking positions on first-time employment or education.

"From the electoral point of view, older people are more interesting in a country with a low birthrate," said Alessandro Cavalli, a professor of sociology at the University of Pavia. "But in the long term, of course," he said, young people "are very important for the country." Population figures made public this week show that of Italy's 58.4 million residents, more than half - 30.7 million - are older than 40.

The graying of Italy, said Tito Boeri, an economist at Milan's Bocconi University, has the potential to create an "intergenerational conflict" in which young people are bound to lose. "But an economy that doesn't invest in young people," he said, "is bound to decline." Boeri pointed to issues affecting young people that candidates have glossed over during the campaign, like the question of Italy's high public debt, which will translate into higher taxes for future generations. At the same time, he said, the government's labor laws have created a parallel labor market of entrance-level workers who move from contract to contract with little protection and intervening spells on unemployment. Poverty is increasing among these young workers, he said.

With no serious progress on pension reform for the last 10 years, Boeri argues, young Italians will have to pay higher taxes to receive lower pensions when they retire. "They're twice hurt," Boeri said.

At the same time, Italy is attempting to reduce government expenditure by discouraging workers from taking early retirement, which means that younger workers must further postpone their entry into the workplace. Job instability, experts agree, is a big reason why Italian young people are staying home longer and getting married and having children later than before. "The pension crisis is slowing he process of generational renewal and there's a real contradiction," said Cavalli, who pointed out that in a country that "rewards seniority," the average age of the political class was also high, making it difficult for young politicians to emerge. "At the same time no political group wants to assail the pension system in a country of pensioners."

Berlusconi's main campaign tactic has been to defend his government's record. In a glossy publication sent to millions of Italian families this month, the prime minister cites labor reform as his government's main achievement.

Experts say that the reform, which introduced greater flexibility, had the merit of opening up a stagnant labor market. But in Italy's zero-growth economic climate, some worry that various innovative elements, like temporary contracts, are becoming permanent. "You can't eliminate these jobs, but lawmakers and unions should work together to ensure that these temporary jobs don't go on forever," said Carlo Dell'Aringa, a professor of political economy at Milan's Catholic University. "If they stretch out, they turn into insecurity about the future." One corrective proposed by the center-left during the campaign would be to make it more onerous for employers to hire workers on temporary contract - an incentive to hire workers full time.

Simone Baldelli, who heads the youth movement of Berlusconi's Forza Italia, is also running for Parliament in the Marches region. In a telephone interview, he dismissed fears about job instability as "leftist propaganda and pessimism" and defended Berlusconi's labor reforms as "opening new opportunities in Italy." He blamed past governments for today's problems. "We're still paying the price of the promises made by the generation that came out of 1968 - promises of secure, well-paid and creative employment - that cannot be maintained," Baldelli said. "That's an unrealistic dream machine. The truth is that people want concrete proposals."

In the rush before the elections April 9, both coalitions seem to be reaching out to young voters, at least on the streets. Last weekend, the National Alliance, the second-largest party in Berlusconi's coalition, held a rally, complete with rock bands, in the center of Milan, and mocked Prodi's plan to require a six-month civil service stint for all young Italians. On Sunday evening, Prodi made a headline appearance at one of Milan's best-known discothèques where about 400 people, mostly an under-25 crowd, had come to hear him talk about laws supporting Italy's music industry and fighting piracy. Sitting on a fake leather sofa, hobnobbing with a handful of top Italian pop stars, Prodi turned down a free compact disc he had been offered. "No, you have to pay for a CD," he said. The crowd cheered.

Eric Sylvers contributed reporting for this article.

Financial Times   October 27 2006

Summers issues warning to leaders on stability
By Andrew Hill in New York

Complacency about global prosperity, world political stability and the business benefits of globalisation could lead to the same public policy misjudgments that pitched the world into war in 1914, Larry Summers has warned.

Speaking only days before the US congressional ­elections, the former US Treasury secretary called on US and world politicians not to take stability for granted, as their predecessors did between 1910 and the start of the first world war.

“The decisions that will be made in the US by government officials through public policy will determine to a very great extent whether these [economic] imbalances lead to financial crisis, whether the world maintains a broad geopolitical stability and whether capitalism develops in a progressive tradition - in ways that ensure that it benefits everybody,” he told an audience of business and media executives at a New York gala dinner for the Financial Times and Goldman Sachs Business Book of the Year Award. The £30,000 award was presented to China Shakes the World, an analysis of the rapid rise of China by James Kynge.

Mr Summers, who was Treasury secretary under Bill Clinton, said the growth of China and India was bringing about a “change unlike any change the world has ever seen”. This was likely to pose challenges in the short-term because of unbalanced capital flows from China and other emerging economies to the US and developed world.

Mr Summers also drew attention to the rift between the US and the developing world that last month’s summit of non-aligned nations in Havana exposed. He said that as a result, the US was having to pay court to China in its effort to rein in North Korea’s nuclear ambitions, and to Russia in respect of Iran. “Whether this world is to be brought under control isn’t certain and it will depend very much on choices being made here in the US,” Mr Summers said.

In an interview on Friday, Mr Kynge, a former FT bureau chief in Beijing, said he agreed with Mr Summers that the onus was on the politicians to make sure that rapid growth in China and elsewhere is managed but he described the position of policymakers in the west as “unenviable”.

Mr Summers warned that while globalisation was “the most fantastic thing” for executives, “there’s a vast world of people in Dusseldorf, in Detroit ... who fear the prospect of competing with New York on smarts [intelligence] and competing with India and China on cost”.

Financial Times    October 29 2006

The global middle cries out for reassurance
By Lawrence Summers

Against all odds, we are living in a time of plenty. Neither the after-effects of September 11 2001 nor a tripling in oil prices has prevented the world’s economy from growing faster in the past five years than in any five-year period in recorded economic history.

Given this recent performance and the pricing-in by world markets of an optimistic outlook, one might have expected this to be a moment of particularly great enthusiasm for the market system and for global integration.

Yet in many corners of the globe there is growing disillusionment. From the failure to complete the Doha trade round to pervasive Wal-Mart-bashing, from massive renationalisation in Russia to the success of populists in Latin America and eastern Europe, we see a degree of anxiety about the market system that is unmatched since the fall of the Berlin Wall and probably well before.

Why is there such disillusionment? Some anti-globalisation sentiment can be seen as a manifestation of resistance to the US arising from the Bush administration’s foreign policy misadventures. But there is a much more troubling source: the growing recognition that the vast global middle is not sharing the benefits of the current period of economic growth – and that its share of the pie may even be shrinking.

Two groups have found themselves in the right place at the right time to benefit from globalisation and technological change. First, those in low-income countries, principally in Asia and especially in China, who are able to plug into the global system. The combination of low wages, diffusible technology and the ability to access global product and financial markets has fuelled an economic explosion.

It is important to remember that the period between the late 18th and early 19th centuries in Britain and continental Europe was called the Industrial Revolution for a reason. For the first time in human history, the standard of living of one generation was demonstrably better than the one before: in a single lifespan, real per capita incomes doubled and then doubled again. If one looks at the growth rate of China during the past 30 years, living standards are increasing at a rate that will lead to a hundred-fold improvement over a single human lifespan. The impact cannot be overstated.

Second, it has been a golden age for those who already own valuable assets. Owners of scarce commodities have seen their returns rise prodigiously. People running businesses that can take advantage of globalisation to source labour less expensively and sell to larger markets have seen their incomes rise far faster than incomes generally. Certainly those in the financial sector in a position to benefit from the asset revaluations associated with globalisation have prospered.

Everyone else has not fared nearly as well. As the great corporate engines of efficiency succeed by using cutting-edge technology with low-cost labour, ordinary, middle-class workers and their employers – whether they live in the American midwest, the Ruhr valley, Latin America or eastern Europe – are left out. This is the essential reason why median family incomes lag far behind productivity growth in the US, why average family incomes in Mexico have barely grown in the 13 years since the North American Free Trade Agreement passed, and why middle-income countries without natural resources struggle to define an area of comparative advantage.

It is this vast group that lacks the capital to benefit from globalisation and is desperately seeking either reassurance or a change in course. Yet without its support it is very doubtful that the existing global economic order can be maintained.

Let us be frank. What the anxious global middle is told often feels like pretty thin gruel. The twin arguments that globalisation is inevitable and protectionism is counterproductive have the great virtue of being correct, but do not provide much consolation for the losers. Nor can they rally support for policies that maintain, let alone promote, international integration.

Economists rightly emphasise that trade, like other forms of progress, makes everyone richer by enabling them to buy goods at lower prices. But this offers small solace to those who fear their jobs will vanish.

Education is central to any economic strategy, but there is a limit to what it can do for workers in their 40s and beyond. Nor can education be a complete answer at a time when skilled computer programmers in India are paid less than $2,000 a month.

John Kenneth Galbraith was right when he observed: “All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership.” Meeting the needs of the anxious global middle is the economic challenge of our time.

In the US, the political pendulum is swinging left. The best parts of the progressive tradition do not oppose the market system; they improve on the outcomes it naturally produces. That is what we need today.

There are no easy answers. The economic logic of free, globalised, technologically sophisticated capitalism may well be to shift more wealth to the very richest and some of the very poorest in the world, while squeezing people in the middle.

Just as the Federal Housing Administration’s effort to make owner-occupied housing more available after the second world war was a crucial part of the policy approach that permitted the Marshall Plan to go forward, so also our success in advancing international integration will depend on what can be done for the great global middle.

Our response will affect not just the livelihoods of millions of our fellow citizens but also the prospects for continuing global integration, with all the prosperity and stability it has the potential to bring.

The writer is former US Treasury secretary

San Diego UNION-TRIBUNE    October 31, 2006

How business can spread morality
First of two columns about the business stewardship ethic [second]
Richard Louv

Last week, Newsweek published a bizarre quote by a Republican candidate for Oklahoma state superintendent of schools. He proposed that students, when confronted by school shooters, use thick textbooks “until police get there.” He also suggested that school book manufacturers consider covering books with Kevlar. "People might think it's kind of weird – crazy,” he added.

Well, yeah, but in the current culture, a Kevlar book jacket seems almost plausible. Technological prophylactics – metal detectors, surveillance cameras, body armor – along with more laws, regulations and prisons, reflect society's standard-issue responses to repeated violence and scandal.

But such approaches just aren't working. The central problem is not technological, but ethical; our society struggles to find a workable balance between the benefits of tolerance and absolute moral values. So says Daniel Yankelovich, one of San Diego's resident wise men and an international expert on the shaping of public opinion. “The rise of social tolerance, which is good, has gone hand in hand with business corruption, crude violence in pop culture, public rudeness and worse,” he argues. Ethically, we're in no-man's land.

“We live in a culture in which people unblushingly announce, 'I didn't break the law so I didn't do anything wrong.' In past decades, such a statement would have been met with incredulity,” says Yankelovich. Today, it's every man, woman and child for himself or herself. Kevlar might help.

Given the fix we're in, Yankelovich offers an unexpected proposal: that the most immediate and potentially effective way to reclaim our moral compass is through the business culture.

To many people the idea that the corporate world could lead us to safe ethical ground is as strange as proposing Kevlar book covers.

But Yankelovich may be on to something.

In June, Yale University Press published his new book, “Profit with Honor: The New Stage of Market Capitalism.” Yale Press offers its authors – even ones as well known as Yankelovich – no publicity, so the book has had to surface on its own. Fortunately, the ideas in the slim volume are catching on, in such places as the Harvard University Business School.

Business scandals constitute just one symptom of national ethical confusion. He refers to countless others – “the troubles of the Catholic Church, the blind spots of the Congress in budget making, the corruptions of state and city government, the muddled priorities of the American Red Cross, even baseball's steroid scandals.”

Let's not forget ethics as a moving target in a current war, or recent rationalizations for torture – based on so-called new realities – made by some of the same people who have railed in the past against moral relativism.

Experts decry our moral slippage, and recommend more technology, laws and prisons. Or they condemn parents while calling for a revival of traditional religious values. Fine. But, as far as can be told, such talk hasn't produced much except political polarization. In red states and blue, the beat goes on.

Yankelovich's thesis is this: Following a series of devastating scandals, from Enron to WorldCom, business is well positioned not only to put its own house in order, but to turn the scandals of recent years to good use – to help establish new ethical norms in the wider culture. He chooses to focus on ethnical confusion in business for one primary reason. Practicality. He believes the chances for success are far better in the business world than in other spheres of American life, “and that a high standard of ethical clarity in the business sector will help to dispel moral confusion in the culture at large.”

But wait. Yankelovich wants to establish order in the chicken coop by giving the fox civics lessons? Not exactly. He is, in fact, one of the foxes. He has served on the boards of numerous corporations, including CBS, Loral Space & Communications, U.S. West, and Diversified Energies. As chairman of Viewpoint Learning and of DYG, Inc., Yankelovich is all for profit.

He is, as he puts it, “in the game.”

Impatient with those who demand “corporate responsibility” but show no understanding that a business must survive in order to be responsible, he argues for a radically different approach.

“If we rely primarily on regulatory and legal mechanisms to repair the damage, we will not get very far,” he argues. “We will force the gamesters of the system to be more ingenious and more careful. But we will not transform the ethical climate.” He's right about this: the usual fixes and the usual suspects are failing to cure corporate corruption, stop youth violence, or reroute road rage.

What will? The infusion of what Yankelovich calls a new “stewardship ethic” first in business and then in the society.

Idealistic? Sure. Profitable? You bet. Details in the next memo.

San Diego UNION-TRIBUNE    November 7, 2006

A prescription for business sanity
Second of two columns about the business stewardship ethic [first]
Richard Louv

Not long ago, on an airplane, I sat next to a businessman who was insane, at least by one measure. The owner of a San Diego technology company, he said he considered dominant business practices hilarious. “Look at 'em,” he said. “They think they're so smart.” He broke into mocking laughter.

This guy expressed the most peculiar ideas about how to run a business: He said he offers every employee, including the custodial staff, the same health coverage that he receives and it's the best plan his money can buy. No special parking spaces, or other exclusive perks, for anyone. His company informs every employee about the salary level of every other employee. He makes his own salary known, too. “You want your employees quitting, well, you do the opposite,” he said. “You want your highly paid people to perform at their best? Make sure other employees know how much they make.”

His stockholders, if he has any, should send a medical team to cart him away. Or maybe he's the sanest American I've met in a while.

Daniel Yankelovich, a San Diego sage and one of the nation's leading public opinion experts, would likely agree with the second analysis. In his new book, “Profit with Honor: The New Stage of Market Capitalism,” Yankelovich argues that the deepest tradition of American business – the ethnic of enlightened self-interest – has morphed into unenlightened self-interest: a commitment to immediate profitability even if it means long-term loss of market share. This “I win-You lose” ethic infects companies and culture, and it's not doing us any favors.

“The smooth functioning of the market depends on trust. And the surest way to undermine our market economy is by letting mistrust run amok,” says Yankelovich.

DYG, a trend-tracking service for corporate clients, reports that a majority of the nation's employees no longer believe their jobs will be secure even if they perform well. Employees no longer believe in employer loyalty and concern; they have lost confidence that they will be rewarded for learning and expanding their skills. They are increasingly skeptical about the corporate emphasis on quality. (Quality is usually equated with fewer, not more, employees, resulting in devaluation of employees.) And most employees find little pleasure or meaning in their jobs, beyond the money they earn. As a result, the business culture is in for a rough ride.

Since the early 21st century, three major waves of distrust for business have occurred. The Depression produced the first wave of distrust. The second wave bracketed Vietnam and Watergate. Public trust in business fell from 70 percent in 1968 to 29 percent in 1980. A third wave of distrust began to build in 2002, with a string of major corporate scandals. This current wave may prove to be the most difficult to undo, says Yankelovich, because baby boomer consciousness was formed during the second wave.

“When inclinations of mistrust take hold in people's formative years, these are readily re-awakened and reinforced, making the new layer of mistrust more difficult to penetrate,” he says.

So what's the alternative? “Stewardship ethics,” suggests Yankelovich. For each business act, two questions should be asked: a) Does it improve the company's long-term profitability? b.) Does it advance the broader public good?

Toyota is a leading example of stewardship ethics in practice. The company took a big risk when it invested heavily in its Earth-friendly hybrid technology. The investment may yet reap major, direct rewards. But the company (which unofficially plans to introduce an all-hybrid line by 2010) dominates the auto market. Meanwhile, Detroit, motivated by what Yankelovich would consider anti-stewardship ethics, pushes gas-guzzlers with high profit margins “irrespective of long-term consequences, even the future well-being of the company.”

Similarly, Procter and Gamble is betting on its 20-year plan to introduce its water purification technology to the 40 countries with the highest rates of infant mortality. Yankelovich predicts that plenty of investors will line up for such an effort.

As for the work force, Starbucks now spends more on health insurance for its employees – including part-time workers – than it does on coffee; the company realizes that treating its employees well means that they, in turn, will be hospitable to customers. The philosophy seems to be working.

The blank spot in Yankelovich's theory is lack of research. Describing a few exceptional companies does not prove that stewardship ethics lead to long-term profitability by most companies that practice them. He admits the gap. “We're just beginning to ask those kinds of questions,” he says. But he predicts that companies that invest in improving everyone's long-term sustainability will be the companies that prosper long term; and that smart executives will learn that their status will become more secure when they stop worrying about their own status, and start treating their employees as equals.

Nuts? Naive? So was the Prius. The Hummer, of course, was sensible.

Bloomberg, in Daily Telegraph    8 November 2006

Revenue, Bonuses & Salaries 5 US Investment Banks

Financial Times    8 December 2006

Carlyle founder predicts $100bn buy-out deal
By James Politi in New York

    David Rubenstein, the co-founder of Carlyle, the US private equity group, has predicted that a leveraged buy-out worth a staggering $100bn coulcl be agreed within the next two years as he dismissed the notion of a bubble in the industry.
    In an interview with's View from the Top, Mr Rubenstein predicted a $100bn private equity deal would be signed by 2008 and a $50bn buy-out could come as early as next year.
    His comments highlight the growing ambitions of the world's largest private investors, whom he dubbed the new "face of American capitalism" in place of traditional industry titans such as IBM and General Motors.
    Last month, Blackstone, a rival private equity group, agreed to buy Equity Office Properties, a commercial real estate company, for $36bn including debt in the biggest buy-out deal in history.
    But there have been signs that this record could be broken.
Vivendi, the French media giant, was recently approached with a €50bn ($66bn) bid from Kohlberg Kravis Roberts, and last week Home Depot was forced to deny market speculation that it was involved in $l00bn buy-out talks.
    Talk of deals on such a scale have led many observers to believe that private equity firms have created a bubble that could burst painfully in a string of bankruptcies. But Mr Rubenstein insisted that these concerns were overblown.
    "There's no doubt there's a lot of money going into private equity - there's no doubt people are paying high prices on certain deals, but I don't think it's a bubble," he said. "What's happening now is people are beginning to use a different investment technique and this adds real value to the economy and real value to the companies that [private equity] works with."
    As private equity groups have emerged as some of the most powerful forces on Wall Street, there has been considerable speculation that senior executives may choose to monetise their success through initial public offerings.
    Mr Rubenstein said Carlyle was "not working on" a stock market listing but suggested that the recent IPO plans unveiled by Fortress, a private equity group and hedge fund, were being closely scrutinised by his peers.

Financial Times    December 11, 2006

Only fairness will assuage the anxious middle

A recent meeting with the incoming freshmen of the 110th House of Representatives made clear to me some of the forces that will shape American economic policy in the next few years. Coming from very different parts of the country and very different political perspectives, the new members of Congress have in common that they have all heard from the anxious middle class. They feel under enormous pressure to respond not just to the economic insecurity that middle-class voters feel, but also to voters’ resentment at what they see as disproportionately prospering corporate elites. If the new Congress sees itself as having a mandate for anything in the economic area, it is for policies that “stand up” for ordinary Americans against the threat they perceive from corporate and moneyed interests.

These populist impulses have roots much deeper than campaign rhetoric. In the past, real wages and corporate profitability have moved together – increasing during economic expansions and when the US became more competitive, declining in recessions and when it encountered significant competitive threats. The unique feature of the current expansion is the divergence between the fortunes of capital and the fortunes of labour. While workers normally receive about three-quarters of corporate income, with the remainder going to profits and interest, the Economic Policy Institute has calculated that, since 2001, labour has received only about one-quarter of the increase in corporate income, as real wages have failed to keep pace with productivity growth.

Indeed, for most groups of workers, wages have not kept pace with inflation over the past several years. College graduates have been particularly hard hit, with their wages struggling to keep pace with inflation over the past five years. At the same time, profits per share for companies in the Standard & Poor’s 500 index have increased at an annual rate of more than 10 per cent, even after taking into account inflation over the past four years.

This is not a trend that can be blamed on companies’ earning more abroad: the US national income accounts, which include only profits earned at home, reveal that corporate profits as a share of gross domestic product are at their highest level in two generations and still rising.

With this kind of cleavage between the economic fortunes of companies and their workers, it should not be surprising that ordinary American families do not feel they are in the same boat as US corporations and their chief executives. Charles Wilson, Eisenhower’s defence secretary, famously observed: “What’s good for the country is good for General Motors and vice versa.” Today, an increasing fraction of Americans see corporate leaders as part of Davos’s team rather than America’s.

These economic and political trends are and should be of great concern to the business community as well as to policymakers. They have led to populist policy proposals that cut against the grain of the market system by, for example, limiting free trade agreements, restricting outsourcing or limiting the ability of successful companies to expand.

The track record of such populist proposals is dismal. They rarely achieve their objectives and come with huge collateral costs. Policymakers forget at their peril that it is globalisation that has enabled the US economy to enjoy the favourable combination of low unemployment and low inflation of recent years – and that without open markets, product prices would be rising much faster, further attenuating living standards for middle-class families.

Yet it would not be a sufficient response for business or government simply to explain why populist policies would be counterproductive and to suggest – to borrow a term from a different debate – a “stay the course” strategy, perhaps with increased attention to the displaced. If the anxious middle’s concerns about fairness are this serious when the unemployment rate is 4.4 per cent, they will be far greater whenever the economy next turns down.

This puts a premium on finding measures that go with the grain of the market system while also responding to concerns about fairness. The place to start is by restoring the progressivity of the tax system – an area where much can be accomplished before considering changes to the rate structure.

It is neither fair nor efficient to audit disproportionately the tax returns of those in the bottom half of the income distribution at a time when most of the $500bn tax gap comes from those with high incomes. There is no policy justification for allowing the erosion of corporate income tax through pervasive use of corporate tax shelters and manipulation of transfer price rules. Not only does this cost the government revenue, it also puts undue competitive pressure on companies that want to meet obligations to their workers.

Much more can done in a range of areas, from disclosure of executive compensation, to ensuring that the government leverages the volume of its purchases, to making financing of education at every level more equitable, to making sure that businesses continue to take responsibility for their workers’ healthcare costs.

When, as now, concerns become sufficiently serious, those with bad ideas always win out over those with no ideas.

John Kennedy famously challenged Americans: “Ask not what your country can do for you. Ask what you can do for your country.” In the years ahead, this question will be put with increasing force to US corporations. A great deal depends on the vigour with which it is answered.

The writer is Charles W. Eliot university professer at Harvard

CASH    14.Dezember 2006

REKORD-BONI     2006 wird für die Banken ein Rekordjahr.
Allein CS und UBS schütten über 20 Milliarden Franken an Boni aus.
Banker lassen es krachen

    Für die Banker dominiert in der Vorweihnachtszeit ein Thema: der Bonus. Seit Wochen sind die Bankangestellten bestrebt, ihren Chefs zu gefallen. Schließlich geht es um viel Geld: Dieses Jahr werden die Boni höher ausfallen als 2005, und zwar um 10 bis 15 Prozent, wie Klaus Biermann vom Personalberater Smith & Jessen Schweiz schätzt.
    Möglich machen den Geldsegen die Gewinne, die dieses Jahr bei den beiden Grossbanken UBS und CS erneut klar über jenen des Vorjahres liegen. Am meisten profitieren werden einmal mehr die Investinentbanker im Ausland.
    Sehr gut abschliessen wird dieses Jahr auch das Private Banking, das Geschäft mit vermögenden Privatkunden. «In der Regel werden 15 Prozent des Nettogewinns als Bonus ausbezahlt», sagt ein hochrangiger Banker. Wenig bis fast nichts fällt dagegen im Klein- und Kreditkundengeschäft ab.
    Die Kehrseite der Medaille: Breite Bevölkerungskreise verstehen angesichts dieser Zahlen die Welt nicht mehr. Zum Neid kommt der Ärger über immer höhere Gebühren und tiefe Sparzinsen. Banker gelten als Schmarotzer - auch bei Experten: «Für den Gewinn der Banken müssen alle Nichtbanken bezahlen», ist der Luzerner Wirtschaftsprofessor Maurice Pedergnana überzeugt.
Grossbanken schütten Rekordboni aus
Vor allem die Investmentbanker bei der UBS und der CS
können sich die Hände reiben: Sie erhalten 2006 die höchsten Boni.
Am wenigsten bekommen jene Banker, die sich um das
Kredit- und Kleinkundengeschäft in der Schweiz kümmern.
Bonizahlungen Finanzplätze (2005, 2006)
Schätzungen in Mrd CHF
New York            28,0    31,2
London                 18,5    22,1
Tokio                    13,0    15,6
Schweiz                16,6    20,0
(nur UBS & CS) Ein Grossteil der Bonizahlungen der UBS und der CS fliesst
nach New York und London, wo die meisten Investmentbanker ansässig sind.
    Bei UBS und CreditSuisse (CS) finden jeweils im November und im Dezember die Jahresendgespräche statt. In Einzelunterredungen sprechen die Mitarbeiter mit ihren Vorgesetzten über das abgelaufene Jahr und darüber, ob die gesetzten Ziele erreicht wurden oder nicht. «Nach diesem Gespräch weiss ich, wie meine Leistung eingeschätzt wird, und kann ziemlich genau abschätzen, welchen Bonus ich erwarten kann», sagt ein UBS-Kadennann zu CASH.  Denn über die genaue Höhe der Bonus-Zahlung, der leistungsabhängigen Vergütuug, die zusätzlich zum Fixgehalt ausbezahlt wird, wird in einem Zusatzgespräch separat informiert. In knapp sechs Wochen beginnen denn auch die für jeden Bänker wichtigsten Treffen des Jahres: die Bonusgespräche. «Wir hatten ein tolles Jahr. Natürlich gehe ich von einem wesentlich höheren Bonus als im Vorjahr aus», so ein CS-Kadermann.
    Mit seiner Hoffnung steht der Kadermann nicht alleine da. Viele Banker rechnen damit, dass ihr Bonusgespräch für dieses Jahr ausgesprochen erfreulich verläuft. Schliesslich haben die ersten drei Quartale gezeigt, dass ein weiteres Rekordjahr bevorsteht. Analysten rechnen für die UBS im Schnitt mit einem Gewinn von 10,6 Milliarden Franken (nach operativen 9,9 Milliarden im 2005), für die CS wird ein Gewinn zwischen 7,9 und 8,9 Milliarden Franken geschätzt (5,9 Millionen im Vorjahr) - noch ist der Buchwert der Winterthur-Versicherung offen, die Ende Jahr an die Axa verkauft wird (siehe auch Seite 13). CASH schätzt, dass die Boni-Gesamtsumme von UBS und CS zusammengezählt mindestens 20 Milliarden Franken beträgt. Das wären 20 Prozent mehr als die 16,6 Milliarden Franken, die sie für 2005 ausbezahlt haben dürften. Beide Banken geben die Höhe der Bonuszahlungen nicht an. Für 2006 dürfte die UBS rund 12,6 Milliarden Franken ausschütten, die CS gut 7,8 Milliarden Franken. Für die Schätzung waren die Ertragsentwicklung und Analystenannahmen zum Personalaufwand für 2006 ausschlaggebend. In dieser Position sind alle Lohn- und Bonuszahlungen (Cash, Aktien und Optionen) enthalten.

Rund 600 Millionen Franken Boni für das Private Banking der Credit Suisse
Wie wird der Bonuspool verteilt? LetztesJahr wurden bei CS und UBS weniger als 2 Prozent an den Verwaltungsrat und die Konzernleitung verteilt. Dann folgt die Verteilung auf die einzelnen Sparten. Klaus Biermann, Chef des Personalberaters Smith & Jessen Schweiz, schätzt, dass die Boni für die einzelnen Bankmitarbeiter insgesamt 10 bis 15 Prozent höher als im Vorjahr sein werden. Bei beiden Banken erhielten über 90 Prozent der Mitarbeiter im letzten Jahr einen Bonus.
    Wegen der wachsenden Bedeutung der individuellen Leistung falle die Verteilung allerdings sehr unterschiedlich aus. So fliesse der Hauptharst der Boni einmal mehr ins Investmentbanking, und damit bei beiden Banken ins Ausland. «Teams in den Bereichen Derivate, strukturierte Produkte, Corporate Finance und Fusionen und Übernahmen, die sehr gut performt haben, werden weit mehr als 15 Prozent Bonussteigerung erhalten», schätzt Biermann. Deudich weniger falle dagegen für die Banker im Klein- und Kreditkundengeschäft (Retailbanking) ab.
    Sehr gut abschliessen wird dieses Jahr das Private Banking, das Geschäft mit vermögenden Privatkunden. Am Beispiel der CS erklärt ein hochrangiger Manager, wie die Boni verteilt werden: «In der Regel werden 15 Prozent des Reingewinns als Bonus ausbezahlt.» Von den schätzungsweise 4 Milliarden Franken, die das Private Banking für 2006 als Gewinn ausweisen dürfte, würden demnach 600 Millionen als Boni eingesetzt werden.
    «Davon gehen normalerweise 10 Prozent an den inneren Managerzirkel», so der Banker. Waller Berchtold, Chef Private Banking bei der CS, dürfte zwischen 10 und 15 Millionen Franken kassieren, dann gehe es im Pyramidensystem abgestuft nach unten. Berchtold direkt Unterstellte wie «der Chef Asien oder der Chef USA dürften zu ihrem Basissalär von etwa 400000 Franken einen Bonus von 3 bis 4 Millionen Franken kassieren». Eine Kaderstufe weiter unten seien es bei einem Fixlohn von bis 350000 Franken noch 2 Millionen Franken Bonus. Noch eine Kaderstufe weiter unten, bei einem festen Salär von bis 250000, würden wohl l bis 1,25 Millionen Franken Boni bezahlt, so der Banker.
    Bei der UBS dürften sich die Zahlungen in ähnlichem Rahmen bewegen. Allerdings «bezahlt UBS etwas weniger hohe Boni als CS», meint ein Kadermann, da die UBS «meist die Institution stärker als die einzelne Person gewichtet". Für die am höchsten dotierten Mitarbeiter, erfolgreiche Händler, die etwa Hedgefonds betreuen, bezahlen allerdings beide Häuser Fantasiepreise. «30 bis 50 Millionen Bonus liegen für Top-Performer durchaus drin», bestätigt ein hochrangiger Banker.

An der Wall Street herrscht Jubelstimmung

    Bei Manhattan Motorcars gehen gelbe Lamborghini und silberne Porsche 911 weg wie warme Semmeln. Börsianer bescheren dem Amohändler ein Rekordjahr, denn die Boni fallen hoch aus wie nie. Zwar rapportiert die Revisionsstelle in New York die offiziellen Zahlen erst im Januar. Zwei private Studien gehen von einem Geldsegen aus, der das Internetblasenjahr 2000 übersteigt.
    Zwischen 10 und 15 Prozent mehr als im Vorjahr kriegen Banker und Aktienhändler, berechneten die Beraterfirmen Options Group und Alan Johnson Associates. Total dürften es 24 Milliarden Dollar werden, sagt Eric Moskowitz von der Options Group. Vor einem Jahr gab es 21,5 Milliarden Dollar, 2000 waren es 19,5 Milliarden.
     Mit einem «markanten Anstieg bei Gewinn und Umsatz» begründet Moskowitz die Bescherung. Die real höchsten Boni zahlen Goldman Sachs und Morgan Stanley. Am meisten kriegen Hedge-Funds-Manager und die Händler von Derivaten und strukturierten Finanzproduklen. Den grössten Sprung verzeichnen mit 20 bis 25 Prozent die Investmentbanker. Die Boni der Händler von festverzinslichen Wertschriften stagnieren, gar weniger erhalten Devisenhändler.
    Laut Options Group kriegt ein Chef einer weltweit operierenden amerikanischen Investmentbank diesesjahr 10 bis 12 Millionen Dollar. Ein Generaldirektor erhält zwischen 2,2 und 3,8 Millionen. Der Grundlohn beträgt rund 200000 Dollar. Wer ein erstes Jahr an der Wall Street abgestrampelt hat, kriegt zwischen 130000 und 150000 Dollar. Am anderen Ende stehen Börsenhändler, die 5 oder 10 Prozent dessen kassieren, was sie für ihre Firma verdienen: Erwirtschaftet jemand 500 Millionen Dollar, kriegt er 50 Millionen. Das ist möglich, weil Finanzhäuser nicht mehr nur das Geld der Klientel verwalten, sondern die Händler anhaken, das Firmenkapital gewinnbringend anzulegen.
    Noch gibts in New York die grössten Boni. Doch wachsen sie im Schnitt in Europa (plus 15 bis 20 Prozent) oder in Asien (plus 20 bis 25 Prozent) kräftiger. Ein Trend, der anhält. Der Bedarf nach Finanzdienstleistungen in Lateinamerika, Osteuropa oder Asien steigt rasanter als in den USA.

Die Devise lautet: «Cover your ass»
Ohnmacht, Neid, Wut, Schadenfreude: Das Verhältnis zum Banker ist gestört.
Er protzt mit Geld, Autos und Zigarren, während sich der Bankkunde
über immer höhere Gebühren und tiefe Sparzinsen nervt

    Am Vorabend des Casual Friday gehört die Onyx. Bar im Zürcher Hotel Park Hyatt jeweils den Bankern. Nach Büroschluss gellt hier donnerstags die Post ab. An dieser Bar haben sich auch schon Mick Jagger und Robbie Williams vergnügt. Und was den Stars recht ist, kann den Bankern nur billig sein. Vor allem Leute ab 30 sind hier anzutreffen. Die Jüngeren tummeln sich - jeweils am Dienstag - lieber in der Carlton Bar. Da wie dort ist das Thema nicht der Advent von Christus, sondern der vom Bonus. «Reicht es diesmal für einen sechsstelligen Betrag?», fragt sieb ein junger Investmentbanker. Sein älterer Kollege liebäugelt mit einer Million - das Doppelte seines Jahresgehalts.
    Die Weihnachtszeit ist die Zeit der Duckmäuser. «Cover your ass», sich ja keine Blösse geben, lautet die Devise. Und man nickt und schluckt alles, was von oben kommt.
    Die Carlton Bar ist um 19 Uhr gerammelt voll. Ab jetzt bezahlt man für die After-Work-Party 10 Franken Eintritt. Vorher gab es den Fünl-nach-sechs-Stempel «5N6» gratis - und die Drinks zum halben Preis. «Ob ich den Job in London annehmen soll?», fragt einer. Und der andere - er hat den Laptop dabei - will nach Hause: «Sonst sehe ich den Kleinen nicht mehr. Wenn er schläft, kann ich dann wieder in Ruhe arbeiten.»

Am Zürcher Paradeplatz werden aus den Vorurteilen Urteile
In der Onyx Bar fliesst der Alkohol. Die Drinks sind relativ billig, dafür gehen die handgedrehten Zigarren ins Geld. Aber wie sonst will man den ganzen Mammon ausgeben? Zahlen bitte! 47 Franken. Von 100 gibt es kommentarlos, als wäre das Aufrunden selbstverständlich, 50 zurück. Wer hier an Kleingeld denkt, ist im falschen Film. Wer sich am Zürcher Paradeplatz umsieht, versteht den Neid des Nichtbankers. Sämtliche Klischees werden bedient. Vorurteile werden zu Urteilen. Bei manch einem Nichtbanker geht der 13. Monatslohn voll für die Steuerrechnung drauf. Von einem Bonus in der Höhe eines - sonst schon hohen - Jahressalärs kann er nur träumen. Der Neid paart sich mit der Wut über die tiefen Sparzinsen und die hohen Gebühren: «Theater spielen, abzocken, die Mitarbeiter auspressen - das können sie, die Banker», schreibt CASH-Leser Jürg Seidel. Er nervt sich über die hohen Kosten für Transaktionen. Unternehmer Bruno Huwyler ist beim Blick in die Zeitung der Kragen geplatzt. «Ich muss kotzen wegen der Arschkriecherei fürs Geld, wegen der Bankfuzzis und der raffgierigen Aktienverlierer», schreibt er.
    Keine Frage, die Volksseele kocht. Die sprichwörtlichen Gnomen von Zürich, 1964 vom britischen Aussenminister George Brown aus Ärger über einen Schwächeanfall des britischen Pfunds in die "Welt gesetzt, sind zu neuem Leben erwacht. Wen wundert es da noch, dass Neid und Wut in Schadenfreude gipfeln, wenn ein Ebner alles verliert oder ein Ackermann als Angeklagter vor Gericht stellt?
    Sogar Banker haben Verständnis dafür, dass ihre Spezies in weiten Teilen der Bevölkerung als Feindbild gilt. «Das entsteht aus einem Ohnrnachtsgefühl», sagt Claudia Nielsen, Ökonomin und Venvaltungsratspräsidentin der Alternativen Bank Schweiz. Aber: «Man kann ja die Bank wechseln, wenn man als UBS-Kunde mit dem hohen Lohn von Marcel Ospel nicht einverstanden ist» Und Raiffeisen-Chef Pierin Vincenz sagte jüngst in der Radiosendung «Doppelpunkt»: «Gewisse Banken wollen einfach den Gewinn maximieren, andere haben andere Werte, die sie dem Kunden gegenüber vertreten.» Wichtig für eine gute Zusammenarbeit sei Vertrauen: «Wenn dies nicht zustande kommt, dann bleibt nur, die Bankbeziehung zu wechseln.»

«You & Us», aber bitte nicht in der Kommunikation
    Auch Maurice Pedergnana, Professor für Bank- und Finanzwesen, warf einen kritischen Blick auf die Branche: «Für den Gewinn der Banken müssen am Ende alle Nichtbanken bezahlen.» In der gleichen Sendung war der Unmut der Zuhörer deutlich zu spüren. Der Tenor: Wer so viel Gewinn macht, muss das Geld sonst irgendwo wegnehmen. Viele Fragen waren an die Grossbanken gerichtet. Vergeblich, denn UBS und CS blieben dem Forum fern. Von wegen «You & Us».

Le Monde    14 décembre 2006

Un grand patron français gagne en moyenne 300 smics
Cécile Ducourtieux

En 2005, pour la deuxième année consécutive, les rémunérations des présidents des 120 premières entreprises cotées en France (dans l'indice SBF 120) ont baissé de 2,94 % par rapport à 2004, à 3 millions d'euros en moyenne. Celles des présidents des sociétés de l'indice CAC 40 (les quarante plus grosses capitalisations françaises) ont reculé de 14,07 %, à 4,86 millions d'euros en moyenne. C'est le constat que fait Proxinvest, spécialiste de l'analyse des résolutions soumises aux assemblées générales, dans un rapport (le huitième) rendu public mercredi 13 décembre.

Les 10 plus fortes rémunérations des dirigeants du SBF 120 en 2005, en millions d'euros*.
1. BUSINESS OBJECTS.    John Schwarz (directeur général, DG) : 26,38.
2. L'ORÉAL.    Lindsay Owen-Jones (PDG) : 24,97.
3. LVMH.    Bernard Arnault (PDG) : 12,98.
4. VINCI.    Antoine Zacharias (ancien PDG) : 11,77.
5. DASSAULT SYSTÈMES.    Bernard Charlès (DG) : 11,71.
6. AXA.     Henri de Castries (président du directoire) : 10,13.
7. LAGARDÈRE SCA.     Arnaud Lagardère (gérant) : 9,81.
8. VIVENDI.    Jean-Bernard Lévy (président du directoire) : 6,04.
9. SANOFI-AVENTIS.     Jean-François Dehecq (PDG) : 5,86.
10. MICHELIN.    René Zingraff (ancien gérant) : 5,75.

*Sont compris les salaires, les avantages en nature, les jetons de présence, et la valorisation des stock-options et des actions gratuites attribuées, en données brutes. Source: Proxinvest.

La baisse des rémunérations est en grande partie due à la diminution de la part liée aux stock-options. Ces dernières, attribuées gratuitement, permettent d'acheter des actions de son entreprise à bas prix. Les dirigeants en sont les premiers bénéficiaires. En 2005, la rémunération en stock-options n'a pesé "que" 38 % de la rémunération globale des présidents de l'indice SBF 120 contre 61 % en 2002. La part liée aux salaires (fixe et bonus) progresse, elle, de 5,65 %.

Le passage en 2005 aux normes comptables IFRS pour les entreprises cotées explique en partie la diminution des plans de stock-options attribués aux dirigeants. " Ces normes imposent en effet d'inscrire ces produits financiers dans les comptes comme des charges de personnel, ayant un impact négatif sur les résultats" explique Pierre-Henri Leroy, gérant de Proxinvest.

La crainte de l'opinion publique jouerait aussi. La loi sur les nouvelles régulations économiques de 2001 impose la publication de la rémunération des mandataires sociaux des sociétés anonymes. Du coup, les comités de rémunération au sein des conseils d'administration seraient plus attentifs aux abus et ne valideraient les rémunérations qu'après avoir multiplié les comparaisons avec d'autres entreprises.

M. Leroy continue à réclamer un plafonnement des émoluments à 240 fois le montant du SMIC (8,27 euros brut par heure de travail jusqu'au 1er juillet 2007). " En 2005, la rémunération globale des présidents du CAC 40 était de 298 fois le SMIC en moyenne. C'est complètement hors de proportion : aucun d'entre eux n'est suffisamment génial ou héroïque pour mériter autant" proteste M. Leroy. Et d'ajouter : " L'inflation salariale des patrons américains, souvent avancée par les dirigeants français, n'est pas un argument valable."

Par comparaison, le salaire net moyen des patrons de PME s'élevait à 3 973 euros par mois en 2004, selon une enquête de l'Insee publiée mercredi dans La Tribune. Et si on considère la population française dans son ensemble (sans les DOM-TOM), la moitié d'entre elle vit avec moins de 1 972 euros par mois (pour des couples) et 1 315 euros par mois (pour une personne seule)...

Proxinvest dénonce par ailleurs le manque de transparence des entreprises concernant les rémunérations "différées" de leurs dirigeants (les régimes additifs de retraite, les clauses d'indemnités de départ, les actions gratuites...). Pourtant, la loi Breton de 2005 les y oblige. Le cabinet pointe par ailleurs les procédés " occultes", qui consistent à faire profiter les dirigeants de systèmes de couvertures annulant le risque lié à la détention de leurs plans de stock-options.

M. Leroy note enfin que malgré la relative modération observée en 2005, les excès persistent. Et de citer le cas d'Antoine Zacharias, PDG de Vinci contraint au départ ce printemps pour s'être montré trop gourmand (les plus-values potentielles de ses stock-options se montaient, début mai, à 173 millions d'euros).

L'outil de rémunération "stock-options" pose aussi problème. A la suite des soupçons de délits d'initié chez EADS, un amendement proposé par le député UMP du 15e arrondissement de Paris, Edouard Balladur, a été intégré au projet de loi sur la participation salariale. Il préconise que le conseil de surveillance "soit décide que les options ne peuvent être levées par les intéressés (les dirigeants) avant la cession de leurs fonctions, soit fixe la quantité des actions issues de levées d'options qu'ils sont tenus de conserver" jusqu'à cession de leurs fonctions. " Ce texte est inutile. Pour empêcher les opérations d'initiés, il aurait fallu obliger les dirigeants à exercer leurs options à des dates fixes", regrette M. Leroy.

Tribune de Genève    décembre 2006

 Records Gérants de fonds, analystes, traders, conseillers en tous genres:
les employés les plus rentables pourront toucher 1 à 2 millions.

On savait l'année boursière 2006 excellente. On redécouvrait également toute la vigueur d'une économie mondiale où les fusions et les acquisitions sont chose courante. Dès lors, les chiffres - à ce stade encore estimatifs - ont commencé à tomber. Ainsi, les grandes banques d'affaires domiciliées à Londres distribueront plus de 20 milliards de francs en bonus à leurs courtiers, gestionnaires ou banquiers d'affaires, soit une croissance de quelque 25% par rapport à 2005, qui fut déjà une année florissante. Outre-Atlantique, à Wall Street, la progression est encore plus forte, puisque selon l'agence financière Bloomberg, les primes liées aux bénéfices des quatre «majors» de la banque d'affaires - Goldman Sachs, Morgan Stanley, Merill Lynch et Lehman Brothers - devraient bondir de 30%, pour atteindre 45,1 milliards de francs, soit, en moyenne, plus de 250 000 francs par emplpoyé ...

Concurrence à Wall Street
Extrêmement présentes sur ces places.financières, l'UBS et le Crédit Suisse ne pouvaient dès lors rester en retrait. Selon les estimations - souvent très justes - de la société d'investissements suisse Millenium Associates, spécialisée dans le secteur bancaire, les deux grandes banques vont octroyer des primes records cette année, lesquelles, au total, tourneront autour des... 20 milliards de francs. Et pour cause, explique le fondateur de Millenium, Ray Soudan, dans une interview octroyée au site Internet de Cash, «l'UBS et le Crédit Suisse, comme les grandes banques d'affaires, vont réaliser en 2006 des bénéfices absolument records. Elles sont dès lors obligées de distribuer des primes exceptionnelles, afin de conserver leurs spécialistes.» Ce seront donc les traders, les gérants de fonds ou les conséillers en fusions-acquisitions sis à Londres ou à NewYork qui, au sein des deux grandes banques suisses, vont le plus bénéficier de cette manne vertigineuse. Et pour cause: il y règne là-bas une concurrence féroce pour s'arracher les meilleurs. '«Vous devez payer ce qu'il faut pour attirer les talents, confirme ainsi Sandy Weill, l'ex-président  de Citigroup, la plus grande banque universelle américaine. Sinon, ils iront voir ailleurs.» L'UBS et le Credit Suisse, qui ont de puissantes divisions d'investment banking, s'alignent dès lors simplement sur leurs concurrentes anglo-saxonnes où un courtier performant, par exemple, touchera à Londres entre 1 et 2 millions de bonus, une somme qui peut carrément décupler à Wall Street. L'an dernier, un gérant de hedge funds de l'UBS a ainsi déjà touché ... 100 millions de bonus, c'est-à-dire cinq fois plus que son président, Marcel Ospel.

Salariés suisses frustrés
Pendant ce temps, l'Association suisse des employés de banques (ASEB) fait grise mine face à la réévaluation linéaire pour 2006, accordée aux salariés suisses de 2,5%: «Au vu des records que les banques multiplient, déclare ainsi sa secrétaire centrale Marie-France Goy, une augmentation de 3% de la masse salariale ne relèverait pas de l'ivresse des sommets.» Cette dernière fustige également l'énorme disproportion et le manque absolu de transparence dans l'attribution de ces bonus: «Cette politique est source d'insatisfaction au sein du personnel.»

December 15, 2006

Mack’s $40 Million Bonus Sets Record, For Now

Morgan Stanley gave its chief executive, John J. Mack, $40 million in stock and options for 2006, the largest bonus ever awarded to a Wall Street chief. But the record may be short-lived as press reports and analysts are predicting even bigger rewards for the C.E.O.s of rival investment banks.

The Wall Street Journal, citing unidentified sources, writes that Goldman Sachs’s chief executive, Lloyd Blankfein, is in line for compensation exceeding $50 million, and analysts told the newspaper that that some other chief executives, such as James Cayne of Bear Stearns and E. Stanley O’Neal of Merrill Lynch, could get $40 million to $50 million, or higher.

Mr. Mack received his entire bonus in stock and options. He was granted shares valued at $36.2 million as of Dec. 12, and about $4 million in options to buy Morgan Stanley shares. The firm also granted more than $57 million in bonuses for seven other top executives.

Shares of Morgan Stanley have climbed 40 percent this year, its best performance since 2003, according to Bloomberg News.

Go to Article from Bloomberg News »
Go to Article from Reuters »

107 comments so far...

    1.December 15th, 2006 8:19 am No wonder the McDonald’s of Brokerage houses charges such extraordinary fees. They have to generate that cash to pay this slob. Herewith is all the example I need in explaining why I am my own Mutual Fund.
— Posted by Carl La Fong

    2.December 15th, 2006 8:25 am With the continuing disparity in executive compensation with their employees, it is only a matter of time before the backlash against these large companies is felt in the form of political and legal maneuvering. Seriously, did these CEO’s really “earn” 50 million dollars?!
— Posted by Bradford Sullivan

    3.December 15th, 2006 8:48 am A good year for Mack….the SEC in his pocket dismisses Aguirre and the SEC IG finds things just dandy, and now a big bonus.
A good year indeed.
— Posted by RJCogburn

    4.December 15th, 2006 8:53 am That’s great! Now he can go out and buy shoes for the maintenance workers’ children. CEO’s should not make more than 10 times the lowest paid worker in their firm!
And we wonder why ten million young muslim men are angry?
— Posted by jb

    5.December 15th, 2006 9:31 am What a pig. CEO compensation isout of control. I’ll be the first in line with my pitchfork.
— Posted by Patrick

    6.December 15th, 2006 10:09 am In a nation where millions will remain hungry - I mean, “food insecure” - this Christmas, CEO compensation of this level is obscene.
In a country where hundreds-of-thousands have lost jobs, benefits, homes, careers - I mean, “been downsized” - as a consequence of greedy mergers and outsourcing, bonuses like this are a travesty.
In an America where the disparity between average workers’ salaries and the incomes of “top executives” has become mind-boggling, these figures are simply criminal.
I’ve always known that I was destined in my career to rise no higher than middle management, and that the ambitious individuals who head corporations would, quite naturally, be rewarded more handsomely than myself. But this is something else. This is something beyond the pale.
America has become a feudal society, a culture of viceroys and vassals. Information like that contained in this report will only fuel a righteous anger among those spending this Holiday season without insurance, without pensions, holding down two jobs merely to make ends meet. Many of us are already willing to join Patrick with torches and pitchforks at the ready.
— Posted by Bob Portune

    7.December 15th, 2006 10:13 am If you thought about it, shareholders and investors rather pay CEO huge bonuses rather than distribute excess profits in the form of dividends to employees whom enable soaring profits. Obliviously, it’s in the best interest of a CEO to ensure their company performs well from the standpoint of compensation. And investors rather pay a bargain of a few millions of dollars to one person, or selected “few” rather than distribute a nominal rate to the majority of their employees.
Classic example of capitalism! That’s America for you!
— Posted by JAC

    8.December 15th, 2006 10:20 am Instead of casting cynicism towards someone I am pretty sure no one has ever talked to, lets stop and admire Bill Gates and Warren Buffett(financier); these are of course two people who have given a sizable portion of their largesse towards noble causes.
— Posted by Kyle

    9.December 15th, 2006 10:29 am I’m willing to bet that all of you complaining about exec compensation, maintenance workers footware, angry muslims, and whatever else you want to throw on the heap aren’t actual shareholders and most likely don’t even work in the private sector.
Most of you are probably municipal employees who sound as if you would be happier in pre-1990 Soviet Union.
hugs and kisses!
— Posted by dash3456

    10.December 15th, 2006 11:08 am A pig indeed. Investment bankers are the scum of the earth. They charge for corporate takeovers. Then many employees are let go. I do admire someone like Bill Gates who have given money to causes, I don’t admire investment bankers who bring nothing to the economy. They are the scum of the earth.
— Posted by al

    11.December 15th, 2006 11:24 am I’ve talked to Mack in the elevator. He seems like a nice enough guy. I say let him keep the cash.
— Posted by IA

    12.December 15th, 2006 11:35 am It is true that I don’t know this person, but I am fairly certain that in order to get to the top, he spent a lot more time selling himself, managing upward, winning power struggles, and shirking blame than he ever did actually running the company. I’m sure that he treats the majority of his employees like cattle, especially the armies of 22 year olds working 100 hour weeks that these companies hire. There is no way to reach such a height otherwise. Fact is, he’s not worth that much money, but his pay inspires hundreds (thousands) to sell their souls and early twenties to the get rich quick dream, so that Merrill can take advantage of them. Some become millionaires, but more than half end up with sixty grand and two years away from anything resembling a normal life.
— Posted by Kevin

    13.December 15th, 2006 11:37 am And to think, if Morgan Stanley had spent just a fraction of that money in creating proper compliance procedures teh investing public may not have been so taken by teh firm.
A partial list of the fines Morgan has recieved recently for supervisory type violations.
    #1    Morgan Stanley has agreed to pay $19 million to settle charges by the New York Stock Exchange of supervisory and operational failings and to meet claims against former broker Carlos Soto.
Soto, who was based in Puerto Rico, is alleged to have stolen $56 million in customer funds.
    #2   Morgan Stanley has offered to pay $15 million to settle an ongoing regulatory investigation into its failure to retain e-mail records.
In a regulatory filing posted Monday, the US investment bank said it had reached agreement in principle with the SEC to resolve the probe into its e-mail archiving lapses.
Morgan Stanley’s shoddy record keeping practices were central to the imposition of a massive $1.58 billion fine by the US courts last year in a dispute with billionaire financier Robert Perelman.
    #3    NEW YORK (MarketWatch) - Morgan Stanley and Brown Brothers Harriman were among seven firms fined by the New York Stock Exchange’s regulatory arm in November 2006, the Big Board said Wednesday.
Morgan Stanley was fined $200,000 for improper order handling by NYSE Regulation Inc. An NYSE hearing panel determined that between October 2000 and November 2002, Morgan Stanley used a third-party floor broker so it could hold positions on both sides of the market, a violation of exchange rules.
Morgan Stanley also failed to record its instructions to floor brokers and comply with “know your customer” rules, the NYSE said.
    #4    By Aaron Seward November 22, 2006
Morgan Stanley was ordered to pay a hefty fine by the NYSE last month for failing to report on any of its short positions and for not having any supervisory procedures to catch the problem. The firm paid the highest fine this month as the NYSE released its monthly list of violations.
The firm consented to a censure and $500,000 fine. An NYSE hearing officer found that for an unknown, but significant, number of years the firm failed to report many of its short-interest positions to the NYSE, NASD, and AMEX. The officer also found that the firm’s supervisory controls were lacking in this regard. Morgan Stanley agreed to pay the fine in equal thirds to the NYSE, NASD, and AMEX.
    #5    Morgan Stanley Pays $50 Million To Settle SEC Action
Washington, D.C., Nov. 17, 2003 - The Securities and Exchange Commission today announced the institution and simultaneous settlement of an enforcement action against Morgan Stanley DW Inc. (Morgan Stanley) for failing to provide customers important information relating to their purchases of mutual fund shares. As part of the settlement, Morgan Stanley will pay $50 million in disgorgement and penalties, all of which will be placed in a Fair Fund for distribution to certain Morgan Stanley customers.
    #6    NASD Fines Morgan Stanley Firms $2.9 Million for Widespread Violations of NASD Rules
Number and Scope of Violations Indicate Extensive Reporting Problems at Both Firms
Washington, D.C. - NASD announced today that it has imposed fines totaling $2.9 million against Morgan Stanley & Co., Inc. (MSCO) and Morgan Stanley DW Inc. (MSDW) for extensive violations dealing with reporting obligations, best execution, short sales, and a range of other NASD, Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) rules.
    #7    NASD fines four firms for supervisory failures
Edward Jones, RBC Dain Rauscher, Royal Alliance, and Morgan Stanley to pay US$43.8 million
Wednesday, December 13, 2006
By James Langton
— Posted by Dave

    14.December 15th, 2006 11:48 am I think all of you are jealous. His bonus, while extreme, also came at the hands of a 40% increase in profits from last year. Last time I checked, a 40% increase from the year before is more than 40 million in stock options. Last year, he made only 755K and this year the company made hundreds of millions more and he was justly rewarded. An it is absolutely right for the head of a company to make 10 times what the lowest paid employee makes — its called a pay scale for a reason. What you are saying is we should pay the janitors 100K a year and the CEO’s 1 million? and then those same ceo’s would leave, the janitor would become the number one profession, and the company would go bankrupt.
— Posted by bw

    15.December 15th, 2006 11:57 am Wow, how greedy will these CEO’s get before they bankrupt America? How many yauchts, homes, resorts, airplanes, girl friends, do these execs. need to prove their manhood? Who cares that impoverished families are increasing their debts and suffering? Who cares about our elderly living in isolation and subnormal living conditions? Who cares that our teachers, our most important laborers, are poorly paid? Who cares that our health care/sick care costs are increasing beyond most family budgets?
This is really sickening to those of us who do care. And, I’m sure that most of these big bonuses are shared with lobbyists and our greedy Congress and other politicians to keep the status quo
— Posted by Jerry

    16.December 15th, 2006 12:47 pm What reward did the compensation committee reap by giving this guy 40 mil? I’m sure at the same time the folks that did the grunt work of ensuring the 40% stock increase were told that the bonuses would be small to nonexistent this year. That is the way it seems to work. What happens if the stock plummets the day after he sells his options? That is what seems to happens with these money grubbing corporate weasels.
— Posted by Craig

    17.December 15th, 2006 12:48 pm How finanically irresponsibile. It’s becoming more and more clear to me that America’s business leaders are no business leaders. They are only fools.
— Posted by Silver Owl

    18.December 15th, 2006 12:49 pm I am reminded of the day 10 years ago when the Texas Rangers signed A Rod for $250 million and I thought ‘wow that’s what the new hospital cost, 550 beds, a million patients a year, how is any baseball player worth that? My conclusion, excessive compensation contaminates the talent, coursens the genius and far overshadows any positive result. If you succeed at your game do you really want the story to be about ‘the largest compensation ever?’
— Posted by gopindrag

    19.December 15th, 2006 12:51 pm True, there are many worthy sorts out there that seem grossly underpaid (teachers, for example). And there is a huge income gap in the U.S. Still, these ideas seem to have little, if anything, to do with Mack’s compensation, which is based on performance. The logic I’ve seen in many of these postings is sloppy. Post again when you have an intelligent critcism of this man’s earnings.
— Posted by Noah McCallum

    20.December 15th, 2006 1:01 pm and one more thing, I remember reading when first elected in 2,000 that Cheney said to Bush, ‘this is our due.’ That seems to be the prevailing sentiment in corporate America today, as when United Health Cares #1 got $1.4 BILLION this year.
What I’d like to know is what does that guy say to his grandchildren? Bill Gates has already weighed with his opinion on what is an appropriate inheritance, but what about the rest of the obscenely wealthy.
— Posted by gopindrag

    21.December 15th, 2006 1:04 pm People like Bob and Patrick who make these insidious comments about compensation should consider moving to a communist country. If they choose to live in a capitalist society, they should be ready to accept the good with the bad.
— Posted by Capitalist

    22.December 15th, 2006 1:09 pm What is the big deal about CEO comp? I mean look at the amount of responsibilities they normally shoulder. A wrong move by them can put thousands out of jobs - Enron and MCI are a case in point. Moreover, they didn’t reach where they are overnight. It was years of effort and dedication. So, please work on the “sour grapes” syndrome instead of questioning someone’s pay package.
— Posted by Slam Dunk

    23.December 15th, 2006 1:17 pm He’s a notch below the common street thug holding up a corner market.
— Posted by muirgeo

    24.December 15th, 2006 1:39 pm $40 million dollars for Mr. Mack… Interesting… Mr. Mack, this note is for you and your organization.
The price tag for our educational systems music and art program is not nearly $40 million dollars a year. The cost for adding educational and after school programs are even less.
In the passing years I have noticed the diminishing support for such programs like the Boys and Girls Club. The Boys and Girls Club kept me from being a menace to society.
With that said how about redirecting the focus on individual compensation, and translate those funds as well as the resources that come up with such outrageous bonus packages into strengthening the educational system.
Note: I am sure I made grammatical errors. Please excuse them I am a product of the public school educational system.
— Posted by Orlando Malave

    25.December 15th, 2006 1:41 pm How can you all criticize what a CEO of a bank makes? This man earned every penny he’s made along with the legion of investment bankers and traders. If you have a problem with banking payrolls, you should have thought about it while you were in college doing keg stands. These folks worked hard to be where they are today. They keep our capital markets running smoothly while you folks complain about your tiny paychecks…
— Posted by cjs

    26.December 15th, 2006 1:49 pm Doesn’t matter. He still can’t dance.
— Posted by Mrs. Mack

    27.December 15th, 2006 1:59 pm Ever increasing CEO compensation and enormous bonuses are kind of interesting. Not only is it rather unfair to those actually producing results for those companies, but it really sends a pithy message to the shareholders… screw you and any ideas of dividends.
— Posted by Alpine

    28.December 15th, 2006 2:04 pm Mack is small potatoes. Hedge fund guys like Eddie Lampert and T. Boone Pickens make $40 million every couple weeks.
— Posted by Yawn

    29.December 15th, 2006 2:05 pm Wonder how many Americans got their pensions raided, stocks naked shorted, insider trading tips dismissed and covered up by the SEC. Wonder who’s on his Christmas list. Amazing that American’s trust our markets. Sham and scam, smoke and mirrors. I’ll never put another penny into this system.
— Posted by Junie

    30.December 15th, 2006 2:10 pm How can all of you make these accusations? If you were in his position you would do the same exact thing. He has done nothing wrong by accepting this compensation. 40% increase in profits for one of the largest banks is an insane amount of money. Additionally, this is the man who turned down excessive compensation last year because he felt that he didn’t deserve it. Educate yourselves before you start throwing ridiculous accusations out.
— Posted by Tom

    31.December 15th, 2006 2:33 pm There’s a difference between the founders of a company like google making billions and the CEO of a company making billions.
The google founders deserve every penny they have. That company is fantastic and amazing.
However, what exactly does the CEO of a company like Merrill DO?? what do these investment bankers do?? these guys are not heart surgeons.
— Posted by mm

    32.December 15th, 2006 2:35 pm Actually, to Junie’s point, think about all the enforcement cases that have taken place as of late in which Morgan Stanley was found guilty (without admitting or denying) of having lax compliance and supervision.
Isn’t that a decision a CEO makes? Pay the cost of overhead to comply or don’t and increase the bottom line via fraud and a savings in overhead.
I would think that the investing public would be better served if the board members held CEO’s more accountable for compliance matters thus, the bottom line growth will be representative of real growth and not revenues based on ill-gotten gains. Then maybe compensation for performance can be better discussed.
— Posted by Dave

    33.December 15th, 2006 2:41 pm It is sad to see so many people don’t have any understanding of how compensation works on Wall Street.
Why are you guys complaining? No one seems to be talking about the money Mack rejected when he came to MS, now that he has turned around the company and stopped the brain drain, all of you twats are on his case.
It is easy to throw stones and talk BS about others, but look at yourselves in the mirror and ask would we have rejected this money? I can guarantee the answer is no.
So stop taking the moral high ground and get a life.
— Posted by Yaser Anwar

    34.December 15th, 2006 2:48 pm Two words: spilt milk. Folks, look around you. We are citizens of a democracy. Managing global enterprises is a complex, nuanced, bone-crishing effort. One done sucessfully, I might add, that preserves oceans of classic New Jersey, neo-nuclear families made-good. Mack is a phoenix from the ashes. Hold back your jealousy, moralizing, and churlish refusal to acknowledge the simple fact: we are citizens of a “survival of the fattest” world. Granted, Mack redefines gross obesity. Show me a better system, though. Really, show me.
— Posted by Zeus McFreddy

    35.December 15th, 2006 3:22 pm I’m not moralizing. Money is always good. The more the better. Like I said, I understand how the founders of google are billionaires.
But investment bankers? what the heck do these guys do that so “revolutionary”?
— Posted by mm

    36.December 15th, 2006 3:46 pm Zeus, Your wrong about managing a global enterprise. It’s managing a global criminal enterprise. I think you should check out some history of these big wall street banks. Then figure out just where all this money comes from. Good ole boy white collar criminal system. Legal mafia.
— Posted by Junie

    37.December 15th, 2006 3:48 pm The issue is not who would or would not accept such absurd largesse. The issue is whether or not any individual could conceivably do anything worth that level of compensation. Were the employees below the executive ranks doing nothing to make things work at Morgan Stanley? Whose interests do the Bd of Directors have at heart when they dilute the value of a company by squandering it’s assets in this manner?
— Posted by Jack Spiegelman

    38.December 15th, 2006 4:19 pm For those who are trying to justify an 800k to a $40 million dollar increase in bonuses should read the NYTimes article, What’s Wrong with Profit? By Stephanie Strom.
Zues actually said that Mack is a phoenix from the ashes…
There has to be a cap on bonus packages. If he is that good and it’s viewed as a good position for the organization in being so generous, why don’t he then just get 50/50 on all the money he brings in. Why doesn’t he just get the entire bonus fund held by the organization? It’s obvious that the organization is sending a message that he is the one that did it ALL in bringing in those profits… There should be a cap, and everyone, I mean everyone should reap the benefits. There shouldn’t be a top dog getting bags of cash like that.
The image and the management of the organizations profitability should be held with discretion. I will bet my measly 10% that Morgan “Money Bag” Stanley will lose business due to this. It’s a distasteful image to see when a organization further chip their shoulder by making such a gesture taking into consideration how many settled regulatory cases, and fines where pinned on Morgan Stanley for 06’.
Make money at all costs is their business model. Even breaking the law “Possibly”, or bending the regulatory rules, “maybe”… Hey, its business right…
Unreal! Let me get back to work before I get the boot and then have to apply at Morgan. Hmm, I will get a bonus there though…
— Posted by Upset Employee

    39.December 15th, 2006 4:29 pm B.W. …you need to wake up and smell the collusion. And quit resorting to the “you’re just jealous” playground taunt when thinking people point out the obvious.
Just where do your think those increase in profits have come from for the most part. The American people and many other world citizens are being milked and bilked by a pro-financial institution environment they have little choice but dealing with. We’ve been sold down the river by our politicians to the point where banks can now take our homes and futures due to even medical bills, and after a year and a half cancer battle my husband lost, I can tell you how our “FOR-PROFIT” health care system is failing us. When I could hold $1000 in pills in one hand, pills that would fight his nausea for 5 days only, I wanted to scream.
Grow up and grab a paddle. I’m trading mine in for a pitchfork.
— Posted by linda hoover

    40.December 15th, 2006 5:37 pm Greed is killing the country. Nobody is greater than the society. If society, includes 50 percent population at large are poor, is unhealthy then that money needs to be used for betterment of that society.
Nobody is worth that kind of money if other 95% of the population makes under $80,000 annually. That country(it’s lawmakers) is evil which allows that to happen. Read current issue in Rolling Stone’s Paul Krugman article on “How Super Rich is Screwing America”. It talks about how from Reagan era, middle class has been systematically driven out of america using union mongering corporations and their friendly lawmakers. Now, largest employer, Wal-Mart has no unions. Their employees are paid minimum wage, whereas Walton family have 4 most richest people in the world out of top 10. It’s the responsibility of your lawmakers to keep that balance. They are sold to the super rich.
It is shame for a society that only 0.5 percent of population(super rich)have more than 5 million in assets.
What does it say about a society ? That it is a society run and manipulated by only the greedy elites. Rest of the talks are all b.s. And the elites are all screwed up in head to take care of a society and maintain the balance.
Arun Hamilton, Canada
Be ethical. Start the change.
— Posted by Arun Chatterjee

    41.December 15th, 2006 5:37 pm I don’t think it is just communists who believe paying someone $40 million dollars a year for anything makes sense. That is not capitalism. It is a broken market.
— Posted by Dave

    42.December 15th, 2006 6:18 pm Quit Playa Hatin’. He’s the Mack!
— Posted by Yo Mama

    43.December 15th, 2006 7:26 pm The CEO compensations in this country grow obscene by day. One wonders when this obscenity and the sinister collusion of ‘big money’ and ‘big government’ will end?
Short of social revolution Hugo Chavez style, one assured way to rein in the obscenity is to raise progressive taxation on ‘bonuses of 40 million’ to 90% income tax.
— Posted by David Gurarie

    44.December 16th, 2006 9:28 am Every CEO should be equitably compensated. To those on “the Street” get a grip on reality! You are what’s fundamentally wrong with America! You demand growth; it’s called acquisition and mergers. The result:downsizing You demand profitability; it’s called outsourcing. The people cry for more jobs; its called taxcuts. Whatever happened to re-investing in you childrens and grandchildrens future? I think that’s how this country was built.
On top of your bonuses, you want a “golden parachute!” How about $5.1MM/annum for life after you’re forced to step-down for back-dating stock, raising the premiums on your clients and then reimbursing healthcare providers less than what the Medicare Allowable Rates are. (William McGuire departing CEO United Healthcare) Now you can fully understand how your companies grow at 40%.
Do you ever listen to yourselves at a cocktail party? All you talk about is your vacations, your cars, your clothes, what club you belong to, what private schools your kids go, how much or how little you pay in taxes.
Have you recently asked what your kid’s teacher earns? (My kids are smart) Do you care what your garabage man makes? (My streets are clean, Do you know how much a nurse makes? (I want the best care for my mother) Where is the value-proposition in what you do compared to what they do?
— Posted by John Nieradka

    45.December 16th, 2006 10:56 am Why don’t you jealous ingrates stop maligning the wrong problem? At least this man’s work will nearly single-handedly revitalize sectors of the economy that have been struggling, not to mention benefit millions around the world.
Perhaps you guys should refocus your moaning towards the sports arena. Ask the New York Yankees what they accomplished this year and how much they got paid. And oh yeah, it was guaranteed.
— Posted by Andrew

    46.December 16th, 2006 12:10 pm Laissez-faire my friends… laissez-faire
— Posted by Wharton Undergrad

    47.December 16th, 2006 2:26 pm mm - Investment bankers do a lot. Unfortunately, in a lot of ways it is like brain surgery. To understand what they do, you have to go through years of school and experience, learning advanced statistics, analytics, financial deals, and so forth.
But anyway people, here is the idea to end all conversation on this topic: quit your job and try to become CEO of an Investment Bank. I’m warning you it will be damn near hard as winning the lottery, and if all of you try pay will drop below $40M a year. But if you want to get that amount of money, you have to take significant risks and make significant sacrifices. This Mr. Mack guy probably took big risks for decades and had to sacrifice family, friends, etc., to get where he is today. The price of that for him was a shot at a payday like $40M. If you want it so bad, go take those risks, go make those sacrifices, but guess what: its not guaranteed and you’re probably going to fail. Such is life. Get over it.
— Posted by JJ

    48.December 16th, 2006 3:50 pm Respectfully, I repeat my earlier unanswered question. Show me a better system. Outline it for me. Top dog of an investment bank is the keystone. Pull out the keystone, the arch falls. The arch falls and all those cosy neo-nuclear New Jersey hot shot families with lacrosse kids revert to their middle class origins. This cannot happen. There will be improvised exposive devices going off on the tidy streets of Short Hills. Wake up, America. Don’t like the products of the system? Show me a better system. No playground taunts. Just show me.
— Posted by Zeus McFreddy

    49.December 17th, 2006 1:46 am Good god… The quality of comments on this page is quite low, and I am not even speaking about the person who refers to Morgan Stanley as “Merrill.” A few people asked: “What is it that the investment bankers do?” Great question. Now why don’t you try to find an answer to it before you start bashing the man who in the last few years revived Morgan Stanley? The investment bankers are the grease that makes the economy function, and in a free market, they are getting paid exactly how much they are worth. They have nothing to do with most of the problems that some posters here have brought up. If you do not like your country’s health insurance policies, you should go to the polls more regularly and vote for a government that is actually going to listen to your concerns. If you don’t believe there are any candidates out there worthy of your attention, go on the streets and start protesting. But for god’s sake, stop pouring hate upon an industry of which you know nothing.
— Posted by Inno

    50.December 17th, 2006 8:47 am I work for one of the major investment banks and can say, from first hand knowledge, how extremely hard top executives work, how long their days and nights are running the businesses, and how complex and far-reaching their decisions can be. Whether they are worth $10m or $100m, you and I can debate but not decide; the market for talent decides that. If you attempt to control payscale in public companies as many here propose should be done, then, alas, nitwits will be in charge much like they are in politics. No one worth their salt will want to run a public company; he or she will go to private companies that are not regulated by some populous-pleasing mandate to control pay. However, if you are determined to live in an economy regulated by populous-mandated rules, move to France where workers are told to work 35 hours or less a week. Doesn’t that sound great! Oh, by the way, France enjoys a stagnant economy (1.9% GDP growth and 10% unemployment) and riots in the street. Oops, that one didn’t work too well, did it. Ce la vie. — No thanks, I’ll take excessive over inane any day.
— Posted by me

    51.December 17th, 2006 1:29 pm Don’t single out Mack or any other CEO of tremendously profitable entity without digging out the roots of his or her success. Our culture worships the accumulation of excessive wealth.
Unless you’re Amish, you’re probably as guilty as I am.
Until you’re ready to vote with your feet, you could be mistaken for a crybaby.
— Posted by George

    52.December 17th, 2006 10:52 pm Why is it so difficult to understand that a CEO makes much, much more than the lowest paid position in the firm? Sure, everyone working there contributes their special something, but it is the task of the CEO to manage these many tendrils effectively; he must understand the nature and function of every other position and how each is best used to further the company’s objectives. Most people can’t balance their own checkbooks or delegate household chores to their families very well–are we certain that “anybody” could do John J. Mack’s job? Do you think you could convince someone with the ability to do the job to stress themselves out that way only to be hit with a %90 income tax? Certainly, our teachers are paid far less, but let’s be real: who went to public school and can think of more than 2 teachers who deserve more than the average 30k they earn? I can think of about 3, the rest are well-represented by the level of intelligence to be found in any university school of education.
— Posted by Kevin Jones

    53.December 18th, 2006 6:05 am Can we all get a break here? If the man has $50m on his bonuses, it means he has earned it. Mergers and Acquisitions, whatever, he has a job to do, did it and is getting paid for it. Whats wrong? Honestly if everyone was getting that bonus money in the world, will they scoff at it and say no? NEVER! so why be hypocrites? As for charitable giving, do we know i the man has given his money to charity or not? NO! so why say he must do this and that. Why judge a person when we dont even know him? It’s his money and let him do what he likes with it. For heaven’s sakes get a life ya’ll!!
— Posted by Research Analyst

    54.December 18th, 2006 7:19 am Sheesh, 40 million, is that all? No wonder Wall Street can’t wait for Social Security to go down the crapper. I wonder how much of our Bush_style retirement accounts would wind up in the pockets of these Corporatists? I’m guessing at least 30%.
Merry %^&*%^&* Christmas, Corporatists.
— Posted by ChiffonBreath

    55.December 19th, 2006 1:11 am Ok, children, I have read your postings. Most of them are quite insightful and interesting. You all have tremondous potential and will go far. Here is your homework for the holidays:
Group A: Those of you who don’t know what investment bankers do, read a couple of books on Wall St. I recommend “House of Morgans” by Ron Chernow for starters (it will provide an historical perspective on the development of Wall Street).
Group B: Those of you who think that there is no better system than US, may I recommend you to read books and articles about (a) New Orleans, (b) death penalty, (c) health care, and (d) Iraqi occupation.
And please everyone read Hayek’s Road to Serfdom and Karl Marx’s Das Kapital.
Happy Holidays
— Posted by Jatram

    56.December 19th, 2006 1:57 am Here is something for everyone to think about while discussing this $40 million bonus. Around September of 2006, Morgan Stanley implemented a new money market option for their client’s IRAs. The previous money market, called ILAF, was replaced by an “in-house” money market fund operated by Morgan Stanley. At first glance, this sounds just fine because Morgan Stanley has that capability. However, in the letter that went out to all clients, they stated in small print that the new money market would have a smaller yield than the old money market. How does this make sense? They create an “in-house” money market that is actually less profitable for the client and then send a one page letter that no one reads detailing this yield decline. Of course, you can argue that people should read all the mail, but I disagree, because a firm’s first job, above making profits, is to act in the best interest of their clients. For those clients that did read the letter and objected to the new money market, they were asked to close their account. This new money market wasn’t a choice, it was mandatory. I’m willing to guess conservatively that 80% of clients aren’t aware they are receiving this lower money market yield in their retirement accounts, yes, their RETIREMENT accounts. They also increased their fees on regular brokerage accounts by 20%. I’m willing to bet this increased fee revenue, which the vast majority of clients don’t even know occurred, is more than the $40 million John Mack “earned” in bonuses. I’m not concerned about the amount he made, that’s fine, but I’m concerned about how that was generated. Sounds like legal stealing. The original foundation the company was built on during the days of Dean Witter of client appreciation have long since past.
— Posted by Anon Y Mous

    57.December 19th, 2006 3:33 am Personally, I’d not trade $40 million (or 40 billion $) for 40 years of uninteresting work. But, the “business types” on this forum have it right: Laissez-faire, etc. The only way to prevent this (if you want to) is to quit feeding the beast. Don’t max out the credit card, don’t trade up to a bigger house, don’t buy useless junk, don’t follow the ridiculous advertising carrots on your nightly TV, don’t flip the latest hot stock daily, etc. Prevent a 42% rise in morgan stanley stock and you’ll prevent million dollar bonuses.
— Posted by R

    58.December 19th, 2006 9:29 am On one hand I think that $40,000,000 is an awful lot of money (and probably seems excssive) for this guy’s payday….
But I have to say all this talk about comparing his compensation to angry Muslims, famlies without food, ‘underpaid’ average workers, etc. is specious. All these other people are not poorer because he took their money. All these other people do not find them themselves in a situation with little education, food, or an appropriate place to live because he personally took these things away from them. That is not his responsibility. It is each person’s responsibility to be responsible for themself and their family if they have chosen to have one. Where is the personal responsibility in all of this instead of all the whining that because someone makes a load of money, there MUST be something wrong/bad/evil/illegal about them? Their situation is their situation, and his situation is his.
And the logic behind, ‘his company does investment banking, and therefore some of these people lose their jobs in mergers and acquisitions’ is also specious - for all the people whose situation becomes worse, others have become better. But of course because someone has MADE money, well, they’re just bad! Is it his fault that XYZ’s corporate heads did a bad job running the company and left it in a position for a takeover? Is it his fault that the chairman of XYZ decided to sell or blow out XYZ company? Should Mack NOT have his company (whose job it is to make money for HIS employees and HIS investors) not have his employees do a good job?
You can compare that $40 million is equal to this amount of national spending, or that amount funding or whatever. But so what? If the people in this country don’t want to support this national program, or the education of there own children, or arts in the schools, or sports programs, or better health care, or whatever, why should he? If you want art in your schools, or better education, then get people together, and lobby for it! Elect officials whose views are congruent with your own. Work for change. Get off your butt and DO something! It has NOTHING TO DO with what this guy is making. BE RESPONSIBLE FOR YOURSELF!! Don’t have kids if you can’t afford to feed, clothe, and educate them! Don’t buy stuff if you can’t afford it! Don’t blame other people you don’t know or even understand what they really do for your own failures or frustrations!
— Posted by mj

    59.December 19th, 2006 9:49 am Top paid NBA stars are making nearly this much - and I bet their season and hours worked is a lot shorter than Mr Mack’s…
— Posted by Eliot

    60.December 19th, 2006 10:19 am Idiots, Being a janitor is a noble occupation…inherent dignity of work, etc. But let’s be serious–John Mack gets paid what he does because he is an exceptional talent. Not everyone could do what he does.
Finally, those that complain and agitate for socialism or communism should remember that it doesn’t work particularly well. There is corruption and excessive bureaucracy in both. While John Mack has a ton of money, he can’t order you out of your house and have you executed for treason like they could in the good ole USSR.
If you want to get mad about something, be upset about a President that lied to take your country to a war that only serves to distract it from the true challenges facing it. John Mack’s money wasn’t ever ours.
— Posted by Rollo

    61.December 19th, 2006 10:43 am Hey, I’m just jealous.
— Posted by cmd

    62.December 19th, 2006 11:15 am Perhaps what needs to be remembered through all this is the Biblical injunction that to those whom much is given, much is required. Much like in the mold of Bill Gates and Warren Buffet, I’m sure there are many notable causes in New York City that needs the noblesse oblige of the cities corporate zillionaires.
— Posted by Bruce

    63.December 19th, 2006 12:46 pm With the amount of poverty and the amazing discrepancy in wealth, it is sad anyone could feel justified in receiving 50 million dollars. There is a diminishing return to money, you can only be in one houses at a time, drive one sport car. That money can help thousands of people. I only hope that a large percentage of the outrageous bonuses go to something beside overpriced apartments and lavish vacations. I will consent that many in the investment industry work exceedingly long hours and sacrifice for their success. Therefore, if giving money away is difficult, created scholarships that rewards other for the same ambition you have.
— Posted by Don Gigamon

    64.December 19th, 2006 12:48 pm Wall Street, a place where so much money been made by so many people with so little talent. Once one of these unregulated hedge funds collapses and touches off a financial calamity, let’s hear back from all of you who think these guys are so smart and warrant this kind of pay.
— Posted by Fred F.

    65.December 19th, 2006 12:54 pm makes the rest of us losers
— Posted by aabai

    66.December 19th, 2006 1:05 pm WOW I can’t believe some of these comments! ONLY in the USA! Excuses! Excuses! Obviously, “Mr. Responsible” hasn’t gone a DAY without food or a roof over his head or he wouldn’t be as callous as to say “it’s the person’s responsibility”, etc. What a bunch of CRAP! We as a RICH nation (just look at Mack) are obligated, yes, I said obligated to take care of our own! Not just take care of the BIG people so they could make more money but the little people as well! NO ONE and I repeat NO ONE is worth that kind of bonus………
I agree with Patrick….people pick up the picthforks!
— Posted by Joyce Smith

    67.December 19th, 2006 1:15 pm There’s certainly been a lot of discussion regarding Mr. Mack’s $40 million bonus and all the long hours and hard work he’s put in to deserve it. If you assume he’s worked 50 weeks this year at 5 days a week (250 days), that $40 million breaks out to $160,000/day. And if you further assume he’s working 16 hour days, that comes to $10,000/hour.
I’m not sure Mr. Mack or any of the other fantastically compensated CEOs truly deserve what they’re paid (no matter how many long hours they put in), but it’s nice work if you can get it.
— Posted by Colin

    68.December 19th, 2006 1:21 pm Mr. Mack could be the nicest, smartest and most industrious guy on the planet, but the fact of his company’s 40 percent profits increase this year is not the result of his genius, nor is it the result of the exceptionally hard work of his underlings, many of whom toil away for 500 or 1,000 times less money than his bonus cost the company ($80,000 or $40,000 a year).
Rather, his bonus and the larger corporate windfall that inspired it are the result of a coincidence of several massive flaws in our legal system, which the average citizen permits to persist because (1) he doesn’t understand them and (2) he is powerless to choose the platform of the candidates he gets to select from, and thus powerless to change the status quo.
We need major overhauls of our tax system, securities and banking regulations, consumer protection and consumer fraud laws, among a litany of other reforms. Profits of this magnitude to institutions that jostle around with other people’s capital and end up being the most profitable (and powerful) enterprises in our society represent huge deadweight losses to our economy (business school graduates who wish to argue otherwise in the face of all logic be damned). But none of this will change as long as all politics and information is paid for, and the wealthiest bidders get all the voice in both.
— Posted by Tim

    69.December 19th, 2006 1:37 pm That’s nothin. Check out the top ten CEO total compensation packages for 2005:
(1) Richard D. Fairbank, Capital One Financial: $249,420,000.
(2) Terry S. Semel, Yahoo: $230,550,000.
(3) Henry R. Silverman, Cendant: $139,960,000.
(4) Bruce Karatz, KB Home: $135,530,000.
(5) Richard S. Fuld, Jr., Lehman Bros Holdings: $122,670,000.
(6) Ray R. Irani, Occidental Petroleum: $80,730,000.
(7) Lawrence J. Ellison, Oracle: $75,330,000.
(8) John W. Thompson, Symantec: $71,840,000.
(9) Edwin M. Crawford, Caremark RX: $69,660,000.
(10) Angelo R. Mozilo, Countrywide Financial: $68,950,000.
* Source for data: Forbes 2006 CEO Compensation Rankings.
— Posted by Michael

    70.December 19th, 2006 1:41 pm All this talk about laissez faire. Please. The phrase means that are markets run without government interference. There is both restriction and encouragement of industry by our government. Anybody, on either side of the economic/political spectrum, who thinks that our markets are pure and untouched is fooling themselves.
As to the comments from mj, your argument lumps everyone who finds this compensation disagreeable into a category of ne’er-do wells. Hopefully, that is just bluster and not truly indicative of your perception of those who disagree. I also take issue with your perception of most Americans. I think they do support many of the things you say they don’t. They doesn’t mean they are always adequately funded. Many of us work hard and earn plenty to take of our families. We clothe and feed our children. We do lobby for our cause(s) and become politically active. I don’t blame Mr. Mack, because he is just playing the game according to the rules. Yet I am apprehensive about the future of this country when I see the steadily growing gap between rich and poor. Only time will tell if our country benefits from this celebration of capitalism or is crippled by its inability to address the needs of the majority of its citizens.
— Posted by Lewie

    71.December 19th, 2006 1:54 pm It is difficult to moralize on executive pay when a baseball team will spend $50 million just to interview a prospective player.
The money that a family spends in the course of a year to go to “ball-games” would net them greater gains than wasting time at a ball game when the same game could be seen for no charge pn tv.
— Posted by Bertram R. Silver

    72.December 19th, 2006 1:58 pm Congratulations to Mr. Mack. He has earned the bonus. So many people complain about Execs being overpaid, but look at all they are responsible for shouldering. In this economy, those who take the risks are rewarded. Pure and simple Economics!!! If Morgan Stanley had declined by 40% people would be screaming for his head.
If you aren’t happy with what you are making, take the necessary steps to educate yourself and your children and maybe we might all be writing about you one day. This is America and everything is possible. It is obsurd to work as a clerk in a store and expect to be paid like a CEO. It is asinine to compare the accomplishments of a CEO and that of a maintenance worker! Don’t blame John Mack for what he is making, I mean who wouldn’t want to receive that type of bonus?
It is easy to form a mob and want to attack corporate America and all who do well, the bottom line is he simply chose a risker profession and is entitled to all that he gets. Stop complaining about the success of others and take steps to change your own fortune.
— Posted by Self Employed

    73.December 19th, 2006 2:29 pm i dont know this guy but it is a very competitive unfair and imperfect world…i would say most people would pocket the 40 million for themselves and not blink a eye…selfishness is not a rare trait of us humans
— Posted by leo derosia

    74.December 19th, 2006 2:31 pm I am a proud Morgan Stanley employee who is dismayed by the amount of people who had the audacity to publish rubbish in this column. They do not know the company or the charitable contributions and programs that it has for the benefit of mankind. What I think is: they must be confused and misread the article or simply forgot that politicians have far reaching salaries, profits, incentives and a benefits package that outweigh the 40 million anytime and WE pay for it! How much of Mack’s 40M came out of your pocket?, do you know how he spends it? and why so disrespectful in your choice of words?. This is a man that is greatly admired by everyone in the firm and he has earned it because of his respect for others.
Congrats Mr. Mack and thank-you.
— Posted by LIdlO

    75.December 19th, 2006 5:01 pm This kind of compensation is totally outrageous.What about those junior staffs who have worked so hard for the company success,this huge disperity will only tell them they are just been used for peanuts.
— Posted by Adelakun deola

    76.December 19th, 2006 5:13 pm If John Mack can’t live on $250,000 a year he shouldn’t be running a corporation.
— Posted by Alan Yungclas

    77.December 19th, 2006 7:05 pm Hey … Everyone. Haven’t you heard? GREED IS GOOD ! !
— Posted by C. C. Williams

    78.December 19th, 2006 9:11 pm The firm was trailing all the other brokerage houses dramically when he took over. Why, because of bad management. Mr Mack has he cleaned the firm up and the stock has moved up 40% since he took the reins. The bonus is technically paid by the shareholders, all of whome have made plenty due to Mr Mack. He deserves it all, simple as that
— Posted by Sam

    79.December 19th, 2006 9:49 pm Mack’s comp, whether grossly unjust or well earned, was paid by some combination of the following constituencies: (1) MS’ stockholders, (2) MS’ employees and/or (3) MS customers. If you are not included in (1) through (3) the impact on you is nil. And if you are included in (1) through (3), vote with your feet. It’s really that simple.
— Posted by Jonathan Swift
    80.December 19th, 2006 10:27 pm The guy is just another robber baron. Did Jack Welch really deserve to make the money he did? Probably not. Timing is everything and you would be hard pressed to attribute so much, in either direction, to the decisions and actions of the CEO. If a chimp had been running the bank, it would have made money. This criminal is nothing special. Behind spectactular returns are a group of dedicated people who make these things possible and who probably do not share in the financial windfall…paid out of the coffers of investors.
— Posted by jack

    81.December 20th, 2006 6:00 am I have no problem with folks making as much money as they can provided they are creating real value. Labor wages are held at a bare minimum we are told because workers can’t be paid more than the value of what they create. How does ripping off investors by nickel and diming them out of their money via fees create value? It’s not illegal, but it is a rip-off.
— Posted by ChiffonBreath

    82.December 20th, 2006 11:19 am Questions not addressed in the comments thus far: Is there really such a dearth of good corporate managers in the world that public companies need to pay their CEOs at rates vs. those of their employees that far exceed those known in earlier periods of capitalism (e.g., 1950s-1980s)? Why do other developed nations’ public companies pay CEOs at rates that are far lower, especially if there is little or no evidence that U.S. companies are generally being run at far higher efficiencies? Questions of what “public good” or societal model is or is not served by creating “superhierachies” of pay aside (for the moment), is it true that with the very large group of highly trained corporate managers now available, large public companies must actually spend to this degree on incentive pay for their leaders (especially if there is little evidence that such pay is tied to overall company success)? Can any true capitalist justify this practice as an example of market efficiency, or is it a sign of market de-evolution and systemic decadence?
— Posted by Hedge Guy

    83.December 20th, 2006 11:23 am I am really struck by the venom in most of these comments. Last time I checked, we were living in America. Capitalism is at the heart of our way of life. Here is a man who has made his company and his shareholders a lot of money. Morgan Stanley’s Board of Directors felt that his contributions in 2006 were worth $40mm. That is how our system works. Morgan Stanley is not a charity nor is Mack a professional philanthropist. He performed well in the eyes of his employer and his employer rewarded him accordingly. Get over it. What Mack decides to do with his money is his own business.
— Posted by J.S.

    84.December 20th, 2006 11:29 am What are you complaining about ? The end justifies the means, and if someone has worked hard, persevered, and by virtue of one’s own merit, whether that be “shirking blame” or “winning power struggles”, too bad the others couldn’t overcome that. In a world defined by survival of the fittest, this is an expected result. For those who disagree, it’s time you shed your notions of “America the Dream,” and moved on to other nations. Just a thought.
— Posted by ND

    85.December 20th, 2006 12:48 pm Made a lot of money for shareholders? This year, maybe. But when I had an account at Morgan for several years, I saw no gains, just losses! I don’t think the CEO that year saw less of a bonus because of it. They never do. And that’s because the rules for compensation change every year. In a good year, it’s about rewarding the guy who “brought in the results through hard work.” In a bad year, it’s about a smart guy who “worked really hard, despite the market.” I’m not complaining because I’m jealous. I’m complaining because the system doesn’t work for anyone but the investment bankers at the top and most corporate CEOs who make ever-increasing piles of money no matter how badly they manage their companies. God bless capitalism! For a few insiders, it works really, really well.
— Posted by VVE

    86.December 20th, 2006 9:09 pm Wall street companies that pay this absurd bonuses to their top managers when it comes to compensating their victims of discriminations pinch pennies!
Congress that puts ridiculous caps for discrimination awards should take notice too! Right now tens of employees are suing Merrill Lynch for gender, racial and religous discrimination. The money belongs to those victims.
— Posted by Magic

    87.December 21st, 2006 2:29 pm The wealth acquired by the few in this nation of plenty truely disgusts me.
Not one, I repeat, NOT ONE of the executives or founders of ANY U.S. company, including Microsoft, did it on their own! They accomplished their wealth accrual because of the U.S.A.! They could not have done the same in any other country. As such, they should have a responsibility to pay back those opportunities to those that helped create them, the American People! That means those that benefit the most from our system should also pay the most!
And really, does anyone ‘earn’ that sort of wage? Not really, in reality what happens is one set of Board members elect to give executive(s) extreme compensation so that that same executive(s), who sits on their Board, will do the same in return.
Reminders to previous posters: We do NOT live in a democracy, we live in a representative democracy. Big difference. Those ‘representatives’ should be bound to ‘represent’ their constituants, not big business and big money. We all know that’s not what really happens. Also, we really do NOT live in a free-market economy. We live in a pseudo-regulated government-subsidized corporation-controlled loophole-riddled economy.
Land of the free? I think not. When workers are required to obtain Federal approval to strike against a corporation or their government employer, that is not the mark of a free, or free-market, society. (For those that don’t know, few non-military government employees, no railway workers and no airline workers can strike without direct approval of the Federal Government.)
That being said, the U.S.A. is still the best gig going, in spite of her serious flaws.
— Posted by OldIron

    88.December 22nd, 2006 10:01 am Interesting thread to say the least. Mack works hard, Mack is a lug. Mack deserves the money, Mack is a crook. There is even the Mack turned this company around theme but nobody mentions that Mack is a former Morgan CEO.
My concern remains. This should not be about monetary jealousy but methodologies.
Isn’t Morgan Stanley presenting fighting an NASD settlement in which investors in aribitration cases were defrauded by Morgan Stanley because Morgan Stanley lied about the e-mail retentions? Would this not be a decision made by John Mack? The NASD claims that HUNDREDS of arbitration cases failed because Morgan violated the laws requiring the delivery of communications between client and broker. And this is not the first time Mack and Morgan were involved in such failure to provide evidence claims.
Now consider this, Morgan Stanley still holds what is potentially not theirs (client money) and is using this capital to generate additional profits while the clients possible live check to check as they seek restitution. Ultimately teh profits from this money turns into a John Mack Bonus.
This cycle is repeated over and over throughout the year(s) which is why NO Wall Street CEO deserves any bonus to these levels until they have set up systems to protect clients from being defrauded in teh first place. Unfortunately Wall street relies on teh enforcement delay game to benefit from defrauding people today of their money, getting their year end bonuses, and only years down the road paying the consequences (after significant profits have been pocketed).
Why not discuss this aspect of Mr. Mack and his deserving of a $40 Million bonus? As for charitable contributions: Does one get credit (in life) for a charitable contribution when the contribution is really somebody elses money that you took?
— Posted by Dave

    89.December 25th, 2006 6:08 pm Mack was the lowest paid CEO last year on Wall Street and amongst the largest companies in America. Morgan Stanley was not successful in the year before Mack took over and had lost several key personnel.
I bet that the majority of the people on this board can’t even get a job as an ibanking analyst let alone CEO of MS, therefore, Mack is an exceptional man in terms of capability. 40mm is high, but you pay what the market dictates and thats how much it costs to get a John Mack.
There are enough people who went to community college then teacher’s college that it only costs 30-40k for a new teacher, thats the way a market-economy works. If you think about it, the 45% tax Mack pays on that 40mm goes a long way towards benefiting a lot of public programs. Mack is also a well published philanthropist and very well appreciated across the corporate world. Hardly deserves to be critiscized for giving away more than 55% of his earnings to tax / charities.
That being said, it is sad that there is great discrepancy and such a high poverty rate in the US. Maybe you should all move to Canada where I’m from - everyone here has free healtcare and we still complain that we pay too high taxes,feel we are not properly compensated for our work and keep voting conservating to get a more ‘americanized’ economy.
— Posted by Dave

    90.December 26th, 2006 7:08 pm This is about a skill set which is in demand. How many of the people calling this man a “pig” would be able to effectively manage this company? It’s a simple matter of supply and demand. Most of the outraged, median wage earners commenting on this story simply don’t possess a skill set which can generate this level of compensation. Sorry folks, but if you can’t make it to this level yourself, don’t criticize what others earn. $40M: easy to deride, not easy to do.
— Posted by Bertram

    91.December 27th, 2006 1:49 am Who the heck is this guy? I’ve never heard of him! I’ve never seen him on my tv. Now if he were playing a popular sport (lets just say basketball) or if he was the lead role in a must-see movie (lets just say Mission Impossible 3 (which was awesome!!)) than I wouldn’t have a problem with the money he gets, because then he truly would’ve earned every penny.
— Posted by Tom Duane

    92.December 27th, 2006 8:26 am I would like to compliment the quality of the posted responses(despite what some claim), especially after some of the stuff I have been reading on the web regarding our War in IRAQ. Inno has a point and those of us who haven’t read Jatram’s assignment should get started, myself included. But Noah, O keeper of the Logic, did you approve Zeus’s(I’m a big fan of your son) the CEO is the keystone…arch falls…explosive devices littering the streets conclusion? And Mr Wharton’s laissez-faire idea used to get thrown at students in junior high in the 60’s, but not explained. I don’t think anyone suggested to bw that the janitor should or would take over the company. But what purpose does it serve to taunt those that disagree with you or you with them that they “get a life”, leave the U.S, or go communist? Please keep the discussion on track without the insults because overall it is a good one!
— Posted by NUWAYNER

    93.December 27th, 2006 11:31 am Immoral and obscene!
No need to be radical, just have some common sense to be outraged by this. Picture poverty, hunger, disease in the world. Picture the families working hard but can’t afford to send their children to College in this country. Picture people without healthcare.
Then picture CEO salary plus a 40 Million dollar bonus for 1 person.
Some balance needed?
— Posted by GA

    94.December 27th, 2006 11:36 am All I want to know is how much cleverer is this guy than I am or how many more hours a day does he work to justify this kind of compensation? What does he know that I don’t that justifies this kind of remuneration?.
— Posted by Garth

    95.December 27th, 2006 11:54 am Someone earlier in this thread pointed out something that I think should be clearly discussed. I remember a few months ago, and wish I could find the article, in the NY Times discussing the different management styles between corporations in the US vs Europe.
A distinct different is that corporations in Europe are driven by numerous management committees avoiding all decisions to be centralized to one individual. Likewise, senior managers including CEOs, are paid significantly less compared to their American counterparts. This management style in Europe ensures that critical strategic decisions are distributed across the company’s leaders, ideally minimizing risk and incorporating as much input from impacted areas.
Now there is a reasonable argument that such a style slows the process of change and the ability to respond to market forces quickly and effectively, which is better handled when decisions are centralized and managed by single individual leaders. Certainly credible.
But consider this, if power at the highest levels in corporations were not as centralized, and rock-star CEOs not as depended upon, would the travesties of corporate illegalities be as detrimental - think Enron, Worldcom, and the numerous other American companies where the fraud perpetrated all begin with the highest authorities in each company.
Consider also how much damage such individuals caused, destroying market segments, retirement savings, tax rolls, etc. These individuals do impact our society, significantly, which can result in a domino effect through an industry. As one poster noted, while Morgan Stanley enjoyed significant profits this year, it is still overshadowed with one of the worst compliance records in recent years. While litigation and settlement are years away from being resolved, Mack will reap the rewards of his decisions, and when those settlements come to finalization, and those profits disappear, I’m sure he’ll quickly move on, and them the company, its shareholders, and its clients will pay the price.
Therefore, the issue isn’t whether an individual deserves such pay, to me its a question of short-sightedness. Corporations should tie such compensation to longer term goals that require CEOs to be more cognizant of the long term effects of their decisions rather than focusing on short term deliverables of profit, by quarter or by year. Such short term targets create significant opportunities for fraud and other illegalities. Instead of the focus was on longer term strategy, primarily on growth, then the precision to deliver so quickly will be minimized - hopefully.
To be frank as long as our system is about short term gain, and short term acquisition, we will continue to see such inequitable compensation. This is a problem folks, and its effects, while not immediate, will eventually impact us down the road.
— Posted by YMM

    96.December 27th, 2006 12:20 pm We Americans have a terrible disease. We are a society built upon endless hunger for acquisition and consumption. It’s actually an integral part of our culture. In theory this sounds like a great and productive mindset, but in reality, life flutters by in the background while we waste our time panning for more, more, more! Americans have accomplished many great things as a result of our ambitions, but the resulting great divide has created one of the (if not the) most violent and uncivilized environments that I can imagine a first world country experiencing!
Please understand, I do believe that capitalism is a healthy system. Nothing is perfect. Hey, we have athletes making $20MM yearly for swinging a baseball bat! (Which actually sheds a less excessive light on the bonuses in discussion…)
I do think it takes a very special person to make a list like this (old money/nepetism not included). My goal is not to deflate the accomplishments or villify the individuals. For me it comes down to what they do with the fruits of their labor after the fact. As far as the super rich go, people like Gates and Buffett are making great strides. Unfortunately the majority of the super rich won’t let go of their cash until their hands are cold and dead. They then hand the baton to new generations of super rich brats that simply won’t know the value of a dollar (see documentary “Born Rich” ).
I must say that I pity the people who are only as good as their net worth. I wish the rich could obtain equal or greater feelings of prestige via philanthropic endeavors. I think the media can play a huge role in shifting this paradigm! Picture this, a yearly list of philanthropists ranked on how they stack up to their peers in the betterment of the world! I know Businessweek already publishes a “top 50? list, but this should go far deeper. Maybe even crossection their yearly income with their contributions and have a best and worst list?
I won’t hold my breath.
— Posted by Mike D

    97.December 27th, 2006 12:45 pm You guys need to calm down especially Garth…what do you mean how much cleverer he is…i doubt you can lead the company to a 9.5 billion annual profit
Blankfein is just getting what he deserves, it might be a little too much, but it’s not “Immoral” nor “Obscene”
— Posted by Uhhh

    98.December 27th, 2006 2:49 pm We are slowly, but surely inching toward another “Great Depression” as everything runs out of control–mergers out of control, corporate CEO compensations running “hog wild.” But at the same time they are squeezing every drop of productivity out of their workers for the same salary, which explains the everrising economic indicator of U.S. productivity.
This is not a surprise because that are only following the example of their leader. Still do not get it? Okay, here is the story.
Once upon a time, a company called Halliburton paid $43 million in stock options to its CEO, who went on to become a vice president. Then this former CEO repaid Halliburton by pushing for war in Iraq, taking advantage of his boss’ inexperience and shortage of political savvy in the calculus of world affairs.
To make a long story short, Halliburton got all it wanted and more; its former CEO’s dividends in escrow grew, and grew, and grew, while we mourned, and mourned, and are still mourning for our young men and women.
— Posted by Percy Nimoben

    99.December 27th, 2006 5:00 pm FACT 1: CEO’s need to be highly paid otherwise they wont be ‘incentivised’ to work.
FACT 2: Employees mustn’t be highly paid, otherwise they’ll have no incentive to come to work.
FACT 3: Yes, we’re all jealous. But really, how much is enough? As my daddy used to say, you can only eat three meals a day. (Admittedly, Mack can eat lobster on foie gras with a caviar chaser for breakfast, lunch and dinner. On gold plates. With a cutlery carved from a diamond as big as the Four Seasons. And then when he’s done, put everything in a platinum dishwasher which runs on champagne instead of water. Yes, he’s gotta a lotta dough. Infact he probably uses ‘dough’ for dough and bakes money bread… Mmmm…. moneybread !!!)
But seriously, I don’t think anyone would begrudge Mr.Mack his money if we felt that people were not being left behind. For one person to win, does someone else always have to lose?
And those excess profits aren’t coming from Mack putting in an extra weekend, read Barbara Ehrenreich ‘Nickle & Dime’ or ‘Confessions of an Economic Hitman’.
— Posted by David

    100.December 27th, 2006 6:35 pm Massive “annual” bonuses, how utterly fascinating.$40 million here, $50 million there. Where does it all end? Everything in America is just one big rock candy mountain isn’t it?
Poor old Warren Buffet; pays himself $100,000 a year for running Berkshire Hathaway and lives in the same home that he bought 30 odd years ago for $31,000 or so. Mr Buffet has managed to do fairly well in spite of his rather paltry remuneration considering the million dollar bonuses being passed out up and down Wall Street. (He was able to scrimp along and make a $31 BILLION charitable bequest recently, so if you can do that you aren’t doing too poorly are you?)
I really enjoyed all the self appointed business geniuses that felt compelled to take their fellow bloggers to task for the majorities’ revulsion over these sickening revelations. I’m not a communist or a socialist, but I am intelligent enough to recognize a capitalist, so-called “free market” economy gone wild. Bonuses similar to the ones cited are the product of schemes that don’t just fall out of the sky, but are carefully –very carefully crafted with very few individuals involved. When maximum limits are not incorporated in the bonus discusion, mind boggling results can and in the present case do occur.
Without question, good work should be rewarded. This is a situation that I think is a result of a failed–seriously failed contractual negotiation.I wouldn’t for a moment quibble if those company executives, Board members, Compensation Committeemen or whomever it was that made such idiotic give aways had to personally fork over that kind of money to the fortunate “Bonusees”. But the sad truth is that money comes from the owners/stock holders rather than themselves. Had that kind of money come directly from them, i doubt that the “arrangement’ would have been quite so generous.
My humble suggestion is for the affected owners of the companies, namely the stockholders, to vote their approval or their DISPLEASURE at the next annual meetings.
I intend to ask my Congressional representatives to take a look at the tax laws to see if they can do anything to significantly ameliorate these excesses. So see, I do still believe in the American democracy even though situations like these make it difficult.
— Posted by Alan Langford

    101.December 27th, 2006 7:48 pm Learned people if you politely find 40 million or 50 million dollar “Bonuses” a tad unpalatable, I would suggest that your Congressional representatives be made aware of your displeasure accompanied by a demand that tax laws be drafted that put the quietus on this kind of robbery.
On the other hand if you think that on some golden day in the future you will be the recipient of that kind of largesse then, by all means demand of your legislators that the tax laws be designed to reward you for all your personal intellectual brilliance, hard work, long hours, educational preparation,etc. However, with all those attributes I would imagine that your executive luminence would have managed your way around all obstacles regardless.
— Posted by Alang

    102.December 27th, 2006 10:44 pm Posters mostly reveal their own ignorance, hang-ups, etc… without offering useful insights.
to the poster who points out that teachers don’t deserve more than the lower-middle class wage they earn, i’d say, pay them twice as much and you’d get higher quality teachers. limit the pay of top execs and you’ll get a lower quality individual filling the job.
to the poster who points out the incompetence of politicians i ask: who put them their?
— Posted by Ziggy Freud

    103.December 27th, 2006 11:23 pm OK, it’s clear we live in a plutocracy. Government of the rich, for the rich, by the rich.
— Posted by Milan Kovacovic

    104.December 28th, 2006 7:43 am Mack just received “pig-dom” cover from Blankfein’s $54 mil.
This predatory form of capitalism has created a two class system. The only thing that has prevented the historic “off with their heads” revolution is that the wealthy have wisely filled the guts of the subservient class with so much high fructose corn syrup that they cannot move off their sofas to lead the revolution. Even if they could muster the strength to leave their flat screen tv’s, they probably would get lost in their SUV’s on the way to battle front - Goldman Sach’s corporate offices.
For a wake up call to have any meaning, one must have someone or some group worthy of waking up or capable of comprehending that a wake up call occurred.
The subservient class will finally get the message when the only jobs available are polishing the shoes of Blankfein, Mack et al.
— Posted by William A. Kerekes

    105.December 28th, 2006 9:07 am Its critical to understand that although Im sure the performance of these businesses have been stellar, that we live in a world where there are scores of humans are not able to afford basic needs. In America, people are struggling to get by. How do you think millions of people under insurmountable debt, not able to afford higher education, and even a decent home are going to react to the compensation of these few business-poeople? I like to think ideally that it inspires each of us to work towards achievement. However, the oppportunities are so few that most will become alienated and disgruntled. How long will it be until the masses rise up against the minority upper classes in this country? How can we even possibly manage the anger of those same people? We live in an age where wisdom and humility has been forsaken by greed in the majority of boardrooms. Perhaps when their palatial homes are overrun by people who haven’t been afforded the same opportunities in life, then they will regret speaking out in word and actions against overcompensation.
— Posted by ad3pt

    106.December 28th, 2006 1:35 pm Our son is in the military. He recently returned from his second tour in Iraq. His unit is preparing to go back again in 2007. He is a single parent of two children…one 15 yrs. & one 12 yrs. He, and those he goes into battle with…as well as ALL military who serve this country around the world…THEY are the ones that need to be compensated for “jobs well done!” While individuals like Mr. Mack, or Mr. L. Blankfein (who received $53.4 million), sit safely in their homes or their penthouses looking down on all those who worked so hard to get them where they are. Trying to figure out what expensive gifts to get their families for Christmas. Our son, and many like him, didn’t have the cash for even a tree! Except for the cards, with money from grandparents or other family members, there were NO gifts for our son or grandkids on Christmas morning! Many military personel didn’t even have the “PLEASURE” of being with family, or to be in a safe and happy environment!
This doesn’t even take into consideration the large number of people who make their homes on the “streets and underpasses” all across America!
If these corporations have money to get rid of…give it to the men and women who serve this country with PRIDE! The ones who do their jobs, leave their families and homes,and look forward to Jan. 1 of the New Year hoping to get a 3-4% “cost of living raise”! WHY? Just for the LOVE OF COUNTRY!
— Posted by Sam

    107.December 28th, 2006 8:58 pm Why is winning the lottery okay? How many of you buy lotto tickets in the hope that you too will win big?
— Posted by Sue

New York Post    16 December 2006


All the hoopla about giant-sized bonuses at Goldman Sachs has fueled rampant rumors inside the Wall Street powerhouse about who was lucky enough to get $100 million checks this year. Several members of the $100 million club are in Goldman's Asian offices. Morgan Sze, a head trader in Goldman's principal strategies group based in Hong Kong, is mentioned by several sources as a possible member of the club.

Goldman's principal strategies group makes bets on stocks and other securities using nearly $10 billion of the firm's own capital. Pierre-Henri Flamand, Sze's counterpart in London, is also rumored to be receiving a $100 million bonus, as are some traders in Tokyo. Raanan Agus, who is the New York-based head of the principal strategies group, could receive a bonus north of $70 million. "Apparently, a $100 million payout isn't as uncommon as some originally thought," said one Goldman source.

Goldman CEO Lloyd Blankfein is likely to get about $50 million, while co-presidents Gary Cohn and Jon Winkelried are expected to receive between $40 million and $45 million, sources said, more than the $40 million Morgan Stanley's John Mack took home.

While some of the top traders and bankers at the firm raked in bonuses that were 30 percent to 50 percent higher than last year, some of the junior staffers were upset at receiving bonuses that were just 20 percent higher than last year. "The discontent is pretty widespread among the junior ranks," said one source. "About 15 percent of the firm is unhappy with their bonuses and 45 percent are just content."

Goldman employees were informed on Wednesday of their bonuses, which make up between 80 percent and 90 percent of their annual salaries. The amounts are determined after a rigorous evaluation process and each employees' reaction to their bonus figure is recorded by their managers and placed in their personnel file, sources said. Word of the nine-figure bonuses came as Goldman yesterday named Marc Spilker to oversee its money management unit's alternative investments operation, which includes private equity and hedge funds.

December 17, 2006
Goldman’s Season to Reward and Shock

IF you happened to see Page Six of The New York Post on Thursday, you would have noticed a provocative cartoon: eight shady-looking executives, wearing black eye masks and smoking cigarettes, were holding a board meeting. Their company? Goldman Sachs. The caption read: “What’s next on our agenda? Oh yes, our end-of-the-year bonuses.”

You probably know by now that Goldman Sachs, Wall Street’s golden child, is paying its employees what seems like a king’s ransom: a total of $16.5 billion in compensation. That equates to $623,418 for every employee. Several top traders are said to have made as much as $100 million.

To some, it seems almost criminal.
ABC News tallied up all the things that $100 million could buy. “You could feed about 800,000 children for a year ($60 million), recreate the Tom Cruise-Katie Holmes and Brad Pitt-Jennifer Aniston weddings four times over ($16 million), buy one of Mel Gibson’s private islands ($15 million), and still remain a millionaire nine times over,” ABC News reported.

In London, Goldman’s office cleaners threatened to strike. “Whilst bankers at Goldman Sachs will be splashing out on second homes, cars and polo ponies with their multimillion-pound bonuses, cleaners at Goldman Sachs are being squeezed by staff cutbacks,” Tony Woodley, general secretary of the Transport & General Workers’ Union, which represents the cleaners, told BBC News.

Driss Ben-Brahim, a top Goldman trader who according to press reports collected $98 million, was stalked by paparazzi outside his home in London. One of Goldman’s holiday parties was mocked for its lavishness when it was reported that some of its managing directors anted up $10,000 each to pay for it.

As the cleaners and others have vented their outrage, one group has stayed largely silent on Goldman’s largess: its shareholders.

And they ought to be up in arms.
What’s that, you say? What does a shareholder of Goldman Sachs have to complain about? After all, its stock is up 61 percent so far this year with dividends reinvested. Goldman made a profit of $9.4 billion in its 2006 fiscal year ended Nov. 24, nearly as much as it did in the last two years combined.

And Goldman Sachs has taken great pains to tell investors that as a percentage of revenue, the compensation costs for its 26,467 full-time employees are actually lower than those of many of its counterparts. This year, the firm spent 43.7 percent of its revenue on compensation and benefits, compared with 46.6 percent last year. That’s lower than Lehman Brothers, for example, which spent 50.1 percent of its revenue this year on compensation. Last year, Merrill Lynch spent about 49 percent of its revenue on compensation; Morgan Stanley, on the other hand, devoted 41.8 percent of its revenue to paying employees.

Using a different yardstick, however, Goldman’s pay seems completely out of whack with its peers’. Goldman’s compensation per employee, as mentioned earlier, is about $623,418. That’s nearly double what the average employee at rival firms earns. Lehman spent the equivalent of about $314,000 for every employee, and Bear Stearns spent about $320,000.

You could argue that Goldman Sachs makes its money more efficiently, and it does. You could argue that Goldman Sachs is in a different business than its rivals, and in some sense, it is: its biggest profits come from trading, not from investment banking.

But are its employees so much more talented than the rest of Wall Street that they deserve a “Goldman premium” of such huge proportions? That’s a tough case to make. Yes, there is a competitive marketplace for talent, and the proliferation of hedge funds has only intensified the fight for top people. Some of Goldman’s superstars could quit, either for a hedge fund or to start their own fund, and make far more money. But a vast majority — especially those who are being paid at the mid- to top end — could not.

And for those Goldman employees who appear to be stars within the firm, their stellar performances do not always travel with them when they leave 85 Broad Street. Consider the example of Eric Mindich, a star Goldman trader, who left in 2004 to found Eton Park Capital Management. The firm raised an enormous amount of money based on his track record, and now has $5.5 billion, but its returns have proved to be a fraction of the regular double-digit returns he made at Goldman.

If Goldman shaved its compensation costs just 6 percent, profits would have been nearly $1 billion higher. The firm could then have issued a special dividend, which would have benefited all shareholders. Many of those shareholders are, of course, Goldman employees.

DER SPIEGEL    18.Dezember 2006

Sündenfälle des Kapitalismus

Wenn der SPIEGEL die Sündenfälle des Kapitalismus beschreibt, profitiert er bei der Titelbildgestaltung nicht selten von der Inspiration des australischen Künstlers Gregory Bridges. Der Zeichner erwarb sein Renommee mit futuristischen und surrealistischen Arbeiten, seine moderne Darstellung des biblischen Turmbaus zu Babel für den im März 2000 erschienenen Titel „Unternehmen Größenwahn“ zählt längst zu den Klassikern des Genres. Damals stand die Hybris zur Zeit des Börsen-Hypes im Mittelpunkt, in dieser Woche beschreibt der SPIEGEL, wie internationale Finanzinvestoren immer größere Teile der deutschen Wirtschaft kaufen – und Bridges zeichnete ein Exemplar jener furchterregenden Heuschrecken, die sich Unternehmen einverleiben, um ihren Profit zu maximieren. Die SPIEGEL-Redakteure Beat Balzli, 40, und Marcel Rosenbach, 34, trafen bei ihren Titelrecherchen in Frankfurt am Main einen Protagonisten der Branche. Thomas Krenz, 47, der sonst pressescheue Chef der Beteiligungsgesellschaft Permira, war gerade dabei, einen neuen Coup vorzubereiten: Mit Kollegen von Kohlberg Kravis Roberts kaufte er für 3,1 Milliarden Euro den Fernsehkonzern ProSiebenSat.1

December 18, 2006

The Goldman Sachs Premium

It has been a week of large numbers at Goldman Sachs, the investment banking giant. Confirming its status as Wall Street’s golden child, the company reported record profit of $9.4 billion in its 2006 fiscal year, nearly as much as it did in the last two years combined. It also said it was paying its employees a total of $16.5 billion in compensation this year. That equates to $623,418 for every employee.

Of course, that loot is not being spread out evenly.
Top bankers and traders are getting a large chunk of it in the form of year-end bonuses, which are coming in especially big this year. Employees were informed of their bonuses last week, and several top traders are said to have made as much as $100 million, The New York Post reported over the weekend.

The Post said that many of the workers whom Goldman has handsomely rewarded this year hail from the bank’s principal strategies group, which makes bets on stocks and other securities using the firm’s own capital. These people include Morgan Sze, a head trader in Goldman’s principal strategies group based in Hong Kong, and Pierre-Henri Flamand, Mr. Sze’s counterpart in London, the Post wrote.

Outside Wall Street, some are criticizing the bonus bonanza as excessive.
ABC News tallied up all the things that $100 million could buy. “You could feed about 800,000 children for a year ($60 million), recreate the Tom Cruise-Katie Holmes and Brad Pitt-Jennifer Aniston weddings four times over ($16 million), buy one of Mel Gibson’s private islands ($15 million), and still remain a millionaire nine times over,” ABC News reported.

In London, Goldman’s office cleaners threatened to strike. “Whilst bankers at Goldman Sachs will be splashing out on second homes, cars and polo ponies with their multimillion-pound bonuses, cleaners at Goldman Sachs are being squeezed by staff cutbacks,” Tony Woodley, general secretary of the Transport & General Workers’ Union, which represents the cleaners, told BBC News.

But as the cleaners and others have vented their outrage, one group has stayed largely silent on Goldman’s largess: its shareholders. And they ought to be up in arms, DealBook wrote in its column over the weekend.

Goldman Sachs’ stock performance for 2006
To be sure, Goldman Sachs’ shareholders have fared well this year: Its stock is up 61 percent with dividends reinvested. And Goldman has taken great pains to tell investors that as a percentage of revenue, the compensation costs for its 26,467 full-time employees are actually lower than those of many of its counterparts.

Using a different yardstick, however, Goldman’s pay seems completely out of whack with that of its peers. This difference raises a question: Are Goldman’s employees so much more talented than the rest of Wall Street that they deserve a “Goldman premium” of such huge proportions?

Go to Article from The New York Post »
Go to Article from The New York Times »

79 comments so far...

    1.December 18th, 2006 9:22 am Every single secretary, cleaner, janitor, maintenance man, para-professional etc etc should get up and walk out. Shareholders should revolt. These bonuses are excessive and demeaning to the majority of people without whom Goldman would go out of business.
— Posted by James LaForest

    2.December 18th, 2006 9:33 am Fine, fire every cleaner, janitor and maintenance man. Then hire others. Repeat as required.
— Posted by Bill Box

    3.December 18th, 2006 9:37 am If you can pay out $16 billion in compensation and still double your annual profit, then why on earth would shareholders be upset? The people who are earning $100 million bonuses could just as easily walk out of Goldman and start their own funds. Goldman has to give them a reason to stay employees. If Goldman tried to pay bonuses in line with their industry, then they wouldn’t be enjoying this profit growth for long. That’s when shareholders would be upset.
— Posted by Rich Smith

    4.December 18th, 2006 9:38 am “OUT OF WHACK”- is ANYBODY LISTENING.? OUR IRS Chief is the former CEO of Goldman Sachs-(he made $720,000/week just prior to Mr. Bush appointing HIM to the IRS) Then the IRS “quietly issued guidance that EXCUSES EXECUTIVES FROM A 20% PENALTY IF THEY SELL HOLDING IN A DEFERRED COMPENSATION PLAN-”when the caliber is raised to the secretary of the Treasury, it does make sense to accelerate it a bit”. How sad. But it gets better- Mr. Paulson goes to China ON BEHALF OF THE AMERICAN PEOPLE- to discuss OUR dealings with China. OUR leaders allow the bankruptcy of Delphi-orchestrated by CEO’s Wagoner(GM) and Miller(Delphi)-sanctioned by the FBI(Mike Anderson) and the SEC(Linda Thomsen) when GM exploits the Chinese people. Though I am not an attorney I know right from wrong. As a RN and retired General Motors Salary employee with documentation to Prove ALL I say- How can the “media elite” cont. to dismiss the Majority. The American People deserve to know th REAL story. Is there ANYONE out there that has the INTEGRITY to report the TRUE story to AMERICA??If Professional integrity is the cornerstone of a journalist’s credibility WHERE is yours.?TRUTH IS THE ONLY DEFENSE AGAINST LIBEL & SLANDER.
Gail DeCaire RN- the last GM nurse(general motors) L.A.W.S. & ACORN- God is working in mysterious ways. God Bless American and have a Blessed Christmas.
— Posted by Gail DeCaire RN

    5.December 18th, 2006 9:47 am I worked at Goldman for 4 years. I can tell you for certain that bonuses are NOT distributed in an equitable manner. Goldman is a white collar slaveship. It is not a job but a lifestyle, one where the least earning and lowest ranking “team” members are expected to act, behave and spend their earnings as if they too received 100 MM bonuses. They do this by spending above their means in expensive housing, wardrobe, accesories, jewelry and vacations to match. Don’t forget that many of the firms employees come join the firm straigh from undergrad, grad or law school from the top schools in the world and many enter the workforce saddled with student debt. They use most of their work time knocking each over for “face time” with more senior members of their team and other areas of the firm in the hopes of standing out and being noticed so they may rise above the ranks of their peer group and advance their level and career. I know one manager that not one person that was asked could note a single thing this person accomplished yet is running an office and is well compensated for their lack of effort and spends so much of their time “working the floors” that their nickname is “the happy wanderer.” I finally left this madness to work in a more normal and equally as fantastic investment bank that respects work-life balance and quality of life outside of the office as well as real hard work instead of jazzing it up with the big boys and girls.
— Posted by Marcia Kaplan

    6.December 18th, 2006 9:51 am Obscenely compensating highest-profile employees and CEOs, while outsourcing back office functions to disorganized labor pools (such as India), and squeezing salaries and cutting benefits for what low-profile staff that remain, should bring pause to all investment banking customers and investors as to the unethical principles of the leaders of these firms. A winner-take-all approach to executive and sales compensation distorts contributions made by others throughout the firm, the city, and the society that affords them the opportunity to flourish. Investment bankers are no more than heirs to the Robber Barons who should be roundly condemned. How does their siphoning off resources to such an extent for personal gain benefit shareholders?
— Posted by Zladislaw K.

    7.December 18th, 2006 10:07 am Amen Bill
— Posted by Fred

    8.December 18th, 2006 10:09 am The situation at Goldman Sachs is just symptomatic of the gross mal-distribution of wealth that is growing worse every day in this country and the world. It is an outrage that the few can consume so much while the many struggle just to get by and frequently have to forego regular meals and medical treatment. Yes, hard work, creativity and enterprise should be rewarded–even handsomely, but there must be some rule of reason that allows our society to allocate wealth in a way that permits all to have a decent home, adequate nutrition, access to health care and a life with dignity. We should also rethink how we value work. Is a stock trader, a baseball player or a movie star really worth so much more than a teacher, a healthcare worker or the people who keep the trading floor clean??
—  Posted by Stephen Somerstein

    9.December 18th, 2006 10:10 am “Using a different yardstick, however, Goldman’s pay seems completely out of whack with that of its peers.”
What yardstick is that?
Look, Goldman has to offer insane bonuses to keep insanely productive employees. There’s nothing to the business but large pools of capital and human resources, so you’ve got to pay a lot to maintain your staff. Goldman is paying a smaller percentage of its revenues on compensation than competitors, you say, so…what’s the issue?
—  Posted by dan

    10.December 18th, 2006 10:13 am 16 billion, something is wrong with this picture. This is how and why the rich get richer and the middle class poorer. 100 million dollar bonus,please! Our hard working nurses in our medical group will receive a 100 dollar bonus. Was it Marie Antoinette that said let them eat cake?
— Posted by jp bonnet

    11.December 18th, 2006 10:17 am My first reaction is that Goldman is paying a lot of money to people that will never have to work again. My second reaction is what are thousands of support people at Goldman getting paid (I used to write software for investment banks)? My third reaction is that as a public firm Goldman is doing what is has to do to keep talented people. My fourth reaction is that when Goldman decided what it would pay people it looked at what it’s competitors where paying people. This would include hedge funds and private equity firms, none of which are public and therefore do not report compensation information to anyone. My last reaction, is with such a great cash position, why not pay it’s stock holders a special one time dividend (such as the $3 special dividend that Microsoft paid a few years ago)?
— Posted by Peter Koppelman

    12.December 18th, 2006 10:19 am Yeah, Goldman Sach wouldn’t be in business without the janitors. Are you serious with that one? It’s not the janitors that are bringing the rain of revenue over there. I do feel like they should be compensated but let’s get real on who deserves what.
— Posted by Eric LaFleur

    13.December 18th, 2006 10:27 am The problem is that we are still using the rather benign term “executive compensation” when we should be talking in terms of “rape and looting” of corporate treasuries. This money belongs to the corporation, not the executives, but they treat it as their private cash register. There should be a mandatory relationship between the highest paid and the lowest paid in all corporations, then the top paid executives could not give themselves enormous bonuses (looting) without giving similar amounts to all of the other employees who have contributed, all in their own way, to the corporate success.
— Posted by Benjamin Platt

   14.December 18th, 2006 10:33 am And so our engine of self distruction motors on. I read on one page how Katrina still claimes victims and on another how Goldman-Sachs with its huge influence in the White House has made a fortune speculating on mythical hedge funds and various manipulations such as credit card debts with crippling rates. Hurrah for unmitigated greed!
— Posted by LaMont Parker

   15.December 18th, 2006 10:34 am Certainly, those folks who are already extremely* well paid could go off and start their own funds. And, you can certainly fire every single non-priviledged employee who felt they weren’t participating in the mega-profits. As usual, we are in a classic capitalist situation with respect to income equity. Can Goldman give 100 million to their valued deal makers? Yep. Should they? Ah, that social contract thing. We don’t want to be in any way associated with some sort of socialism. If there is some sort of obligation felt to lower-income employees (who are human beings after all)let’s make sure it is masked in economic lingo so we don’t feel in any way obligated or responsible.
— Posted by Shirley Spraguer

   16.December 18th, 2006 10:40 am What outsiders (people not in the industry) don’t understand is the competitiveness among employers. If they did not pay these talented individuals the amount they do, they would jump ship and move to other firms. Many large investment banks have lost their most talented traders to hedge funds that are often willing to pay higher incentive-based compensation. Traders are paid on their performance, unlike many Fortune 500 CEOs. Their pay is a very small portion of the revenue they bring to the firm.
— Posted by Jameson Weck

   17.December 18th, 2006 10:41 am Q. How much money does a person need to be happy?    A. Just a little bit more…
— Posted by Napoleone

   18.December 18th, 2006 10:44 am Maybe the rich people will share their money.
— Posted by Megan McGrath

   19.December 18th, 2006 10:50 am It’s so easy just extending your hand and ask for more money. Every cleaner should think as how to be better prepared and professionally educated so maybe one day they would be in the bonus list.
— Posted by Juan Balbontin

   20.December 18th, 2006 10:56 am The shareholders don’t complain as long as they get their share in this ponzi scheme. Unfortunately, they get it back in spades, since all our accounting system does is create inflation.
While the rich get richer, the number of rich is growing smaller. Just like the game Monopoly, all the money ends up in the hands of one person.
It is far more likely that the rich will lose everything when the system implodes. And it will! It is a mathematical inevitability. And those whose only skill is to push paper will find themeselves begging for mercy.
History repeats itself. Pride comes before the fall.
There is a reason why planes fly into banks. People who hide behind a wall of money (like Scrooges) eventually wake up to realize that they are the walking dead.
Who is more to blame, the blind, or the blind who follow? The shareholders are having their own children as lunch. Every generation pays for the sins of their parents.
— Posted by Steve Consilvio

   21.December 18th, 2006 10:58 am What should upset shareholders is that the bonuses are paid in cash instead of restricted stock. Goldman Sachs’ specialty is making cash appreciate, turning $1 into $2. But this $16 billion are assets they can no longer invest. It is foolish to take $16 billion of cash out of an organization that compounds as effectively as Goldman Sachs. Payment in restricted stock, by contrast, would leave the cash in the entity, would incentivize employees to grow the company and could be structured to encourage retention of those star employees.
— Posted by Thomas Chase

   22.December 18th, 2006 10:59 am I’d like to congratulate Bill Box on his oh-so-witty response to the Goldman Sachs article. Isn’t it wonderful that such a tiny percentage of our population live like kings while the vast majority of us barely make it from paycheck to paycheck. Yes, these very few must be very special indeed to deserve so much, but isn’t that the American dream - to get more and more and more? If there is a problem in this country, and clearly there is, it is people who think like you.
— Posted by Karen Johnson

   23.December 18th, 2006 10:59 am this really disgusts me - no one needs this much money - We could fix school systems with this money, significantly reduce worldwide AIDS, reduce hunger…..the list goes on and on. The rich get richer…and then even richer. Something is wrong with the entire system.
— Posted by Jennifer

   24.December 18th, 2006 11:00 am The question concerning the concentration of private wealth is not how much is received but how much is kept. Better to ask why we, in the form of our elected government, allow this inequity to continue. Eliminating the FICA limit and increasing taxes at the very top, e.g. incomes greater than $500K might be good first steps. It is our government that is irresponsible, not GS for rewarding its employees.
— Posted by P.Trager

   25.December 18th, 2006 11:11 am Call me jaded but I still think this is way over the top.
Goldman Sachs, Morgan Stanley, Bear stearns, Lehman, Merrill, etc… are financial services companies that are entrusted to protect the finances of our nations people and people around the globe. Profits come from decisions made and all are not in the best interests of safety. Instead the interest is bottom line profits which results in personal financial satisfaction.
Members of the Industry, Regulators, and Congress have long debated the merits of the large fines imposed on these firms and teh value they bring. we now can see the value they bring and should be calling for higher and not lower penalties.
If Goldman is having this kind of profit growth, and can afford to pay their employees nearly twich that of the competition, we should never expect to see a regulatory enforcement case brought against the firm for a lack of compliance procedures, lack of computer technology, or lack of supervision. They make enough money to put all of these in place and if they don’t EVERY employee should pay the price since every employee benefits if there is a lack of such.
The $1.4 Billion settlement being the perfect example as each firm reaped far greater profits than the fines levied, employees got the riches, and the injured were forced to take their cases to civil court individually. Heftier fines may be the deterrent these employees need if a violation will truly affect them all if caught.
The system needs to be fixed and that costs money. It is about time these firms stopped paying themselves first and instead put the money into systems necessary to protect us all from their indescretions.
— Posted by Dave

   26.December 18th, 2006 11:18 am Unfortunately, shareholders as a group are uninterested in fairness; they want profit, and they certainly got that.
Because traders’ skills are more necessary to the company’s profit than a janitor’s, traders should get larger bonuses. But Goldman should set a ratio by which the largest bonus may exceed the smallest. Thus, even if the ratio is 100,000:1, the janitors and receptionists will get their due.
To do otherwise, is not capitalism (check your Econ 101 textbooks–janitors are capital, too); it’s exploitation.
— Posted by J. D. Edelman

   27.December 18th, 2006 11:47 am Even if you triple the profit, it is absurd to think the collective effort of a few in a large company like Goldman were responsible for the large marginal profits. There are vicarious reasons why companies make profit, in the case of Goldman, the street cred is equally important.
Sure the company executives and managing partners diserve bonuses, so do the mail room and janitor. You are still ingnoring the stockholders. I suppose that is the difference between Goldman and Berkshire Hathaway. Warren Buffet would have never allowed this type of self aggrandizement. I highly doubt that Goldmans stock in the long run will show the kind of growth that of Berkshire.
— Posted by Navin

   28.December 18th, 2006 11:57 am Gains like these are an unseemly and immoral tax on the hard work of people like, well, the administrative and maintenance staff of Goldman’s HQ. These kinds of excessive payouts should themselves be taxed into oblivion. A 95% tax bracket for $100 million earners would not be too much. And that’s what it was as recently as 45 years ago.
Those who benefit disproportionately from the economic opportunity given them and protected by our democratic institutions should bear a disproportionate share of the burden of supporting those institutions. It’s only fair.
— Posted by James Linkin

   29.December 18th, 2006 12:46 pm Believe it or not there is actually a market for talented senior wall street professionals. If goldman paid their people less, they’d simply join another firm. That $100 million trader could leave and start his own hedge fund and probably make slightly more.
— Posted by efeezy

   30.December 18th, 2006 1:01 pm To those who are so opposed to paying heavily to CEO’s and others in general and at Goldman in particular:
Tell me how the money, if not given to employees, can fix the world’s problems? Say if Goldman gave away a $1B instead of 16.5B, do you really expect them to “donate” the difference to eliminate poverty or improve healthcare in the world? Come on, they are a business - not a philanthropic organization. They can donate a few million but not the entire kitty. Wish I were working for GS. What’s wrong with having insane amount of money?
Slam Dunk
— Posted by Slam Dunk

   31.December 18th, 2006 1:12 pm Most of you seem to be under the impression that investment bankers and traders get to work at 9 AM, talk to Rick and Suzie at the water cooler about the movie they saw over the weekend, file some papers, do some online shopping, and then go home at 5 PM. It’s actually long, hard, nerve-racking work that not many people can–or want to–do. Thus, it takes seemingly insane levels of compensation to keep people devoting their lives to their firm.
If you don’t like the way they’re spending their bonuses, compete with them for their jobs, collect the money yourselves and give it all to teachers and nurses. Problem solved.
— Posted by Jay

   32.December 18th, 2006 1:30 pm If anybody should get a ludicris bonus from Wall Street it should be Alan Greenspan.The Tsunami of capital created on his watch, and more pertinent to the Goldman Sachs of the world, the super low interest rates that generated the mega wave of liquidity (the pro’s & con’s a strident debate to be sure), is akin to $50.-$60 for Exxon-Mobil. Both industries do not often see margins so rich, and in the financial world so accomadating; especially, the near zero interest or free money period that appeared for some months, or quarters, following the 2000 implosion in equities, and the afore mentioned Mr. Greenspan’s response to it.
What does this have to do with Exxon-Mobil?
Lee Raymond, Exxon’s CEO set the bar for bonuses in recent times from a publicly traded company, notching it to a lofty $500 million.
Is it right?
That is for the shareholders to decide.
Does past performance guarantee future success?
Not in the financial or oil industry.
I have yet to see off the chart pay packages make a difference in performance as a collective. By that I mean, although the good times are pressing change here to, the monster pay cheque is an American phenomenon. Non U.S.Multi-national conglomerates do not, as a whole, have a better or worse track record for lack of zillionaires.
I will concede there are individuals with an “identity” in there work place that companies or owners will pay any sum to posses, and to that I say good for the individual.
What’s my point?
These are talented and driven people who are entitled to what those who have to give, will give.
Having conceded that, my experience suggests these record monies, (earnings corporate and personal)are a sign of the times. Right now times are good in global finance and the oil patch; real good!
These captains of industry, (bright and productive as they are), are in the right place at the right time. No mean feat to be sure, but were the heads of these instutions any less smart when interest rates were 15% or oil under $10/barrel.
The monies then, were swept out to sea in the last storm wrought by the vageraties of global forces on their respective markets.
Were the leaders then any less smart and deserving?
They were in the wrong place at the wrong time.
I have to include: We are talking about a rarefied strata of society, so even those “in the wrong place at the wrong time” are only so as a relative concept, and should be held in the context of Fortune 500 executive compensation packages.
Leslie Philipp
— Posted by Leslie Philipp

   33.December 18th, 2006 2:27 pm One thing no one seems to mention is that employees have to pay TAXES on these bonuses- TAXES that can approach 50%. So out of a $100M bonus almost $50M will got to the government. Why doesn’t the gov’t use that to feed the poor and not spend trillions on unnecessary wars?
— Posted by Analyst

   34.December 18th, 2006 2:31 pm Jay,
You sound like you are part of the industry. I actually know some traders and they do not all work these long hours you discuss. The filings, paperwork, research, etc… is done by the lesser paid “grunts” who make these traders what and who they are.
My underlying problem with the compensation packages, fraud! Wall Street has been riddled with one level of conflict after another as the firms fail to invest in the necessary tools as checks and balances. How many businesses and how many traders were involved in late trading/market timing? How many traders were involved in insider trading? How many traders were involved in illegal shorting for PIPE’s? Those are some that involve traders. Add in the various other compliance infractions levied against these firms (Morgan Stanley could set up a computer network to retain e-mails even though it was THE LAW Reason; too costly)
There is no problem with highly compensated individuals if your house is in order and thus there is a massive amount of excess cash hanging around. Wall street’s house is not in order and they need to first spend the cash putting it in order before paying people (some) to cheat the system and get away with it for a decade before getting caught. The delays in regulatory activities hurt the investing public and that is why compoliance must be a real time event funded accordingly.
My response again; With $16 Billion handed out in bonuses this year to Goldman employees, I do not want to hear about another regulatory settlement where Goldman failed to have supervion or systems in place to catch the fraud. If there is such an event Goldman management should be held personally liable for failing to invest, as management, in such protections.
— Posted by Dave

   35.December 18th, 2006 3:36 pm Whoops? Did someone outlaw capitalism over the last few weeks? Since when is it a crime for a company that made $9.4 BILLION in PROFIT (after it paid all employees, corporate taxes, etc.) Pay its staff handsomely. We live in a society that places emphasis on adding value, either throughthe manufacturing process or through the service add-on process. Does the person that cleans the wastebaskets add the same value to a company as its #1 sales person, or trader, or deal maker? Let’s be realistic. Of course teacher’s and nurses are underpaid and underappreciated - I don’t know of anyone that wouldn’t argue that point. But you can bet your last penny that if I and/or the team I worked on added over $1 billion dollars in revenue to the company - I would expect to get a piece of the action.
— Posted by JL

   36.December 18th, 2006 4:20 pm The “Analyst” makes an interesting point… how much of this windfall will end up in the government’s hands…?
So here’s a question: “How come there’s never much of an outcry when the government (at all levels) reaches into our pockets and pays itself huge bonuses?”
And just when did the purpose of government become redistributing income and wealth?
Capitalism used to work… we might consider trying it again!
— Posted by Walter

   37.December 18th, 2006 5:19 pm I hear a lot of whining and envious ranting in many of these posts. The beauty of America is that anyone, YES ANYONE, if they turn off the darn TV and hit the books, can work on the Street. (BTW, I do not and have not worked in the Finance industry, but wish I did.) Goldman owes you zippo, only honesty in their dealings. So stop complaining - if you are already past your prime then encourage your math-whiz kids to excel and go to a top school. Maybe when they make $100 million they’ll support you in your old age ~ and make a large donation to charity.
— Posted by ex-Socialist

   38.December 18th, 2006 7:37 pm Goldman Sachs hopefully is one of firms that will continue to provide funding to those in the south who were devastated by Hurricane Katrina. We work for an organization that is comprised of former NCAA student-athletes who run a niche career site. These are people who did not go professional but yet managed to raise over 100,000 dollars in cash through donations to give to the City of New Orleans. Our org continues to donate by giving the fees it charges firms to post positions on its’ site back to the city of New Orleans. If you want to not be like Goldman Sachs but someone who has not forgotten that there are still victims out there that need your help, direct your HR person to www.crtjobs.or
— Posted by Mike Tully

   39.December 18th, 2006 9:09 pm I think some changes in the income tax structure could conceivably go a long way, such as potentially raising the marginal tax rate on incomes over $1 million to 85 or 90 percent. But Wall Street owns all the politicians in a way they probably haven’t for 100 years; a vote for Chuck Schumer or Hillary or Giuliani or McCain or Obama is really no different than a vote for Blankfein himself, so the tax code isn’t going to change much–and even if it does new loopholes will emerge.
That said, the Bretton Woods II monetary system is very close to collapsing (if you subscribe to the Financial Times, be sure to check out Martin Wolf’s economist forum on so change may be here before we know it, but it may not necessarily be any better for the middle class unless we can restore the nation’s manufacturing infrastructure.
— Posted by Jake D

   40.December 18th, 2006 9:43 pm It’s clear that most posters for this article are more likely to read the Times Editorial page, than the business page.
The sum of all government waste is far more outrageous than the bonus distribution of intellectual and risk capital.
— Posted by BOB KHOURY

   41.December 18th, 2006 11:27 pm GS, MER, MS, LEH would not exist if opposing views of capital flows were not present between all mankind. The motivation by investors and those who require capital drives the P&L at these banks. As the absolute and relative size of transactions grows, it easily skews all trend lines upward within a static number of intermediaries. Refineries and investment banks share one common theme—not many new ones are being created in the face of rising demand for the raw material and finished product that is produced. The resulting rewards or risks remain concentrated which inevitably introduces volatility–good and bad. $100MM is undoubtedly more money than most of us can imagine we would need in several lifetimes. I say congratulations to those whose intelligence allowed them to develop the pathway to claim it. For those who wish to protest, remember that it is only 1/5 of what Michael Milken was paid in 1989.
— Posted by jss

   42.December 18th, 2006 11:34 pm Reading through these responses, I see several themes. A lot of people seem to be staggered by the bonuses these companies seem to award their employees. Three things are important though.
Some of the smartest people in the world work at Investment banks like Goldman Sachs. I have heard that some of the Minds there are probably sharper than Garry Kasparov’s. So these people do deserve lots of compensation since they take on tremendous levels of stress and think considerably about these problems.
Secondly these things will correct itself in the long term. There will be a few lean years. I think the current uncertainty in global dynamics is what makes people the money. Markets are fantastic and the War has pushed up certain stocks and provide a clear line of profit to companies which are related to say for example Oil, War Materiel etc. In addition, the dollar is fluctuating and therefore these smart people play the probabilities to make the money.
There is no use in whingeing that these companies should help World Poverty. Being mildly socialist in nature, even I think that is an untenable request.
As one of the people in this forum pointed out, I think the chosen few will get a lot of money the rest will have to act and behave like they got a huge bonus and hope one day they would have climbed the ladder to get the bonuses the big wigs currently get.
— Posted by AnInterestedPerson

   43.December 19th, 2006 12:10 am This is why Dick Grasso wanted such a huge salary at the NYSE. He saw all these other bankers raking in the dough at the end of the year, why couldn’t he??
— Posted by Joe

   44.December 19th, 2006 12:30 am The very basis of capitalism is the willing and free exchange of goods and services. If Investor willingly agrees to give Trader 20% of what Trader makes with Investor’s money and Trader makes a billion and thus entitles him to 200 million, then what is the problem? That Trader did too well? Maybe the Trader didn’t work 16 hours a day like some junior analysts or the cleaners, janitors, etc. But don’t we evaluate efficiency in this society? Suppose your kid gets straight A’s by studying only 2 hours a day while other kids struggle to get B’s by studying 5 hours a day. What are you going to say to your kids? “You shouldn’t do so well?”
Suppose you use a thousand dollar of your own money to start a business and builds it into a 100 billion company. Should parts of your company be taken away from you because you don’t need that munch money and having that much money is “obscene”?
If we punish those who do their jobs too well, then where would be the incentive to make them do their best and generate the most value they possibly can? Innate goodness? Communism presumed its success on the people’s own “revolutionary spirit,” and we all know how that turned out. I thought we won the Cold War because we want to give what one deserves but not one needs.
Suppose that everyone on Wall Street has followed the law, then their compensation should be presumed to be fair results of the free market (this is something we like, right). However, we should not hesitate to take away money from those who acted illegal in their pursuit of richness (like many of the executives who are involved in various accounting scandals).
— Posted by GJ

   45.December 19th, 2006 1:33 am What’s funny to me is the Goldman produces a lot more dems that republicans, at least the ones that end up going into public life — Paulson being the exception here of late.
This is probably all missing the point. If bonuses of this scale were indeed actually paid, the firm likely HAD to pay them by contract — the traders, before they even set up their current group, almost certainly negotiated a percentage of the post-hurdle profit as theirs to keep — it’s very common for select prop and internal HF traders. It’s likely that the profits were simply more outsized than expected by the firm……..
— Posted by Jeff

   46.December 19th, 2006 1:46 am Sure it’s out of whack to pay that sort of money. I’m sure when Goldman calculated the sum, they have many reasons behind. I’m also certain they are anticipating outcry from many people who never dream of that sort of money, let alone earning it.
In finance world, I assume more and more we will hear astronomical figures in this world, finance and IT alike. There are things that we just can’t measure by common sense. I wonder these guys (whoever making that much money in Goldman) will possibly be paying at the expense of health or relationship.
Good luck to them. SK
— Posted by SK

   47.December 19th, 2006 2:49 am Guys, please realize, as some others have posted, that those top traders who made $100 mil could *easily* go start their own hedge fund and probably make a good bit more than that. If they paid 10 instead of 100, say, those guys would all be gone tomorrow.
As for inequality, these guys aren’t just going to bury the money in their backyards. They’re going to buy things, which helps the economy. They’ll probably invest some, which also helps the economy. And many very wealthy people give a ton (sometimes nearly all) of their money away. They may do the same…maybe not this year, but eventually.
Also, it’s important to recall that though $100 million is a big number, very few people actually made that much. And that figure may be erroneous anyway.
— Posted by ab

   48.December 19th, 2006 5:19 am Amen, P. Trager. The company is behaving like a company; we must let it. It is the government’s responsibility to ensure that this largess benefits others outside the fortunate few. Beyond FICA and raising income tax rates, estate tax beyond, say , $5 million should be 80% or so. One might argue that Goldman’s employees sacrificed and took risks for their largess. But their children did not.
— Posted by Gregg B

   49.December 19th, 2006 6:01 am J.L., that people added value to the Goldman bottom line isn’t questioned. But we can look at adding value in a broader sense. There is a difference between bestowing wealth on those who create a better way to do things (say, Michael Dell or Sam Walton, whose innovations save every citizen money) and the investment banking captains who are more skilled at working the system than creating real value for our economy as a whole.
— Posted by Gregg B

   50.December 19th, 2006 7:03 am It is quite evident that Goldman’s employees are that much more talented than the rest (see, Morgan Stanley and the troubles its had trying to compete with Goldman in its principal strategy). As such, they deserve to be compensated more than the rest. While I disagree that every janitor should be fired, we have to remember that while most people have a life outside the office, these guys are working ridiculously long hours, are under an immense amount of stress and as easy as they make 20MM in one trade, they can lose 50MM on the next. Its not an easy job and for their brains, talent, and singular ability to spot opportunities opaque to most, they should be handsomely compensated! Hooray Goldman!
— Posted by FR

   51.December 19th, 2006 7:49 am Kudos to those who realize that much of the individual bonuses will go to the tax monster. Governor Corzine is licking his chops over the tax revenues that will be generated by these bonuses. He ought to know considering he is a former Goldman Co-Chairman.
— Posted by Sam

   52.December 19th, 2006 8:54 am Concern for the fat cat shareholder capitalist class over the interest of mid-level employees? Claims of overcompensating workers at the expense of the idle owners of the means of production? On the permanent pixels of the NYT interweb? I hope Mr. Ross Sorkin knows that we have a long memory and when the revolution comes, he’ll spend some time in Vermont with members of the Walton family getting re-educated on the place of workers in a fair society and social democracy. Floyd Norris will make sure it happens. And be warned: for reactionary counterrevolutionaries, the ice cream will not be hormone free!
— Posted by Leon T.

   53.December 19th, 2006 9:28 am I would like to congratulate Goldman and it’s employee’s for a great year. people if you no longer want to live paycheck to paycheck (karen) then go out and get a better job or more education. After the year the markets just had, its sad that you too didn’t make a nice paycheck. Since everybody should have made 100MM this year (even Janitors) why didn’t they invest some money and make some. And since when is Goldman Sachs a charitable organization who should save the world. Give part of the 16 billion hard earned dollars to charity? Please you can’t be serious.
— Posted by BD

   54.December 19th, 2006 10:18 am What people seem to be missing here is that the people getting paid 100MM are actually making more than that for the firm. If you started a company and could hire someone who could get to work and make 200MM for your company, wouldn’t it make sense that he would want a piece of that.
I agree that no one needs that amount of money but for all those looking for social change from the Goldman pot, why don’t you waste your energy trying to get the government to stop spending your money. Take a look at what this war is costing us and the Goldman numbers look small.
I happen to be one of the grunts at Goldman and my position here will never be one of the 100MM positions so I am not in line for the money. I do find entertainment value in all of the wacky people who try to sound educated by posting on things that they know nothing about.
— Posted by JL

   55.December 19th, 2006 11:53 am Good Heavens. The whining! Wake up to the fact that a trader making $100m and paying $50m in taxes, even $10 in taxes, has done more with one year of their life to support education and alleviate poverty than any of you whiners will accomplish over an entire lifetime. So stop wasting your lives in lazy pursuits, use the assets that got you admitted to Brown in a more efficient manner and contribute!
— Posted by Rick

   56.December 19th, 2006 1:13 pm It is quite unfair to say that WalMart and Dell add value to society, while Wall Street only siphons off resources from hard working Americans to pay $100mm bonuses to guys who don’t deserve it.
If you look around the world, the most prosperous countries in the world and those with the strongest middle class have the most efficient capital markets and strongest financial sectors - that is not an accident.
Many of the innovations that make Wall St firms rich and cause individuals to get ridciculously huge bonuses have positive impacts to the broader economy. The ability of banks to package and sell mortages allows interests rates to stay lower because their is less risk to banks and lets the average American to have more money to spend on healthcare. The guy making $100mm working for a hedge fund probably has YOUR pension fund invested in it earning a 30% return that will allow you to live a nicer lifestyle in retirement.
In every industry there is fraud and Wall St is no different, but the actions of select individuals that end up on the front page of the Times or on 20/20 are not reflective of the entire industry.
— Posted by john

   57.December 19th, 2006 1:51 pm WOW…hey if anyone at Bear Sterns is reading this: I predicted Microsoft was going to blow up when I was 2 years old back in the early 80’s can I get a job and a 600k bonus? Oh by the way, I make a smashing cup of coffee!
— Posted by Justin P. Sorrentino

   58.December 20th, 2006 6:02 am The janitors should offer an executive apartment cleaning service, based on performance, to top executives.
— Posted by Brendan

   59.December 21st, 2006 4:58 pm Can we be honest here for a moment?? Aren’t we just a bit jealous. I know I am!!!!
— Posted by DR

   60.December 21st, 2006 10:26 pm Would someone explain to me how janitors - individually or in aggregate - contributed to some risky financial bet that turned out to be a major revenue producer?
— Posted by balozi

   61.December 21st, 2006 10:33 pm Bravo, DR
I am sure everyone here, especially those who advocate social justice and “fair” allocation of benefits within society would change their mind, probably instantly, if they worked for GS and were one of those lucky individuals who were paid the million-dollar bonuses.
besides, i feel that you cannot run a successful organization such as GS and keep it sucessfully for so many years in the row, based on the greed alone. They have to have really really smart leadership there, who realizes that by paying 3-5 guys 9-figure bonuses will help GS maintain its prestige, so that hordes of young kids literally dream about getting a job in GS. Very few of those kids will get to the level of being eligible for such bonuses, but they would create so much value for GS shareholders that it pays to pay 100 MM once in a while. I am sure GS has thought over the PR impact 100 mm bonuses would make.
GS should record the cost of bonuses as advertising expense or better some sort of intangible asset, rather than a payroll expense.
— Posted by balozi

    62.December 22nd, 2006 12:29 am If you want this to solve the world’s problems, then get the government to tax and distribute it fairly.
Maybe we should pay these kind of insane bonuses in government for good performance? Maybe then, we’d actually get some intellegent people there.
— Posted by Jakamo

    63.December 22nd, 2006 10:57 am As a great man once said, “…Capitalism shares the blessings with a few, but Socialism shares the miseries with many…”
Make your own choice, I know what I’d choose.
My only issue is that the CEO was paid over $50 million for being in the right place at the right time. He didn’t trade the firms capital or bring in all of the huge advisory assignments. He delegated that responsibility to thousands of talented underlings (albeit some of whom got paid more than him). Nevertheless, his bonus was purely a subjective number without any real merit (in my opinion). Come on, how can yu give the guy credit for this tremendous year, when it was in fact the best year ever on Wall Street. Even lesser firms had blowout years. Rising tide lifts all boats. In light of this, how can one argue that the CEO was responsible for the performance and thus justify his bonus? Answer: You can’t, but he is the CEO of Goldman Sachs and he has to make more than John Mack at Morgan Stanley who was paid $40 million. End of story.
— Posted by John

    64.December 22nd, 2006 6:30 pm Well there is a lot of envy and economic illiteracy expressed in this thread and I’d just like to say: if any of the suggestions proposed here, such as 80% tax on estates over five million, 80% income tax on incomes over $500,000 EVER occurred, the resulting capital and intellectual flight that would occur from America would be astonishing. It’s not like the days of the early 1900’s where incomes over $5,000,000 paid 7% and pretty much every blue and white collar worker paid nothing in taxes - its where everyone is getting socked for taxes that the government wastes, on social welfare, needless excessive defence spending, subsidies to farmers and industry that impoverish developing countries and keep them down. The reality is that the problem here is that the government is keeping everybody from sharing in the success, like those at GS experience through regulation, taxation and intervention. If much of the government intervention was removed then America and the world could enjoy far higher living standards along with lower costs of living etc. To call for the fruits of GS’ traders and bankers labour to be redistributed even more is callous and obscene. Like Rick said:
“Wake up to the fact that a trader making $100m and paying $50m in taxes, even $10 in taxes, has done more with one year of their life to support education and alleviate poverty than any of you whiners will accomplish over an entire lifetime.”
— Posted by KF

    65.December 27th, 2006 8:19 am As a long-time student of Max Weber and Edgar Salin, I should be less bewildered than I am by what, globally, is happening in the wake of the fall of the Berlin Wall, i.e. the crumbling nation-state obstacles which kept out the societal, economic and political developments analysed and predicted by Karl Marx. Still, I am increasingly dismayed by the sight of the vast following of the Piper of Hamelin, of the naked Emperor to be so roundly and universally applauded for his made-believe beautiful cloths. And so I’m left to lean back, think things over and invite others to join me in “Revisiting Das Kapital while some dance on the Titanic” (
— Posted by Iconoclast

    66.December 27th, 2006 9:50 am The formula is simple: Revenue = Information = People. Keeping People = $$$. Thus, No $$$ = No People. No People = No Information = No Revenue.
Hmmmm…. I don’t even work in the industry and get this.
Finally, what to do you give the guy that just made you a billion dollars trading. $100 bonus and a box of chocolates. Yeah right. Let’s see what the shareholders say when that guy leaves and takes all his revenue producing talent with him.
— Posted by Ernie Taylor

    67.December 27th, 2006 12:10 pm Isn’t $100MM about what you need these days to pay
for a decent place to live in the NY area?
I heard that most of the janatorial staff were
commuting in from Buffalo.
$100MM may prove that you are 100,000,000 times
worthier in all respects, but you still only get
one vote. Maybe we should fix that.
— Posted by George Medakovich

    68.December 27th, 2006 12:11 pm One of the saddest days of my life was having to watch my cat die on new years eve 20 years ago. I couldn’t afford to keep her another night in the animal hospital as no one was availble new year’s day to do more testing on her and she couldn’t be seen until Jan 2. The vet on New Year’s eve pointed out that even if she did stay over another night and was seen on Jan 2, she was pretty much a goner–dehydrated and only living because of the intravenous feed. My wife and I went home in tears as a young couple as we had our cat euthanized, but it was a wake up call to me that ALL of the money in the world cannot stop death—only delay it. ALL of the money in the world cannot buy happiness–only mask the symptoms of saddness like a cold medicine not curing the cold, only masking the symptoms. The wise will see the wisdom in these words in relation to the bonuses. The others will continue to make nervous,sometimes snide comments to hide that they don’t get it, and never will. Could there be any thing worse in life than thinking that you have it all and can buy it all and realize that you have nothing? Take the blue pill–or the red pill.
— Posted by s moore

    69.December 27th, 2006 5:59 pm The relative difference between janitor and boss mirrors between janitor and trader. The more dire question is not trader versus boss.
A mandated correlation between the highest and lowest compensated employee is intriguing. I would favor A Hurdle to be cleared at certain profit/revenue levels or capital valuations in the form of special dispensation. All companies would have to do it. It could take the form of a tax or dividende whoch could then be taxed. Either I think it should be taxed.
Stock ownership is the great diffuser now… whosoever owns a large cap mutual fund out there likely owns a little Goldman Sachs. The profit engine runs through most all of us as well, in the desire not to work as much as to to work. I believe windfall profits taxes are among the fairest occasional taxes you could have, keyword occasional. Not sure if it’s quite fair to require the corporation to meet that hurdle, but I am still willing to do it.
— Posted by Simon

    70.December 27th, 2006 8:54 pm Does anyone know what the college grad/entry level Goldman Sach employees make in bonuses? I commented to a recent grad that I know about how great those bonuses must be (implying for her), and she downplayed it as “peanuts” compared to what the big wigs get. That may be true, but it’s got to me more than peanuts for a person in their early 20s who may be living at home with their parents.
— Posted by Bill D

    71.December 28th, 2006 1:09 am Forgiveness is the cash you need.
All the other kinds of silver really buy
Just strange things.
Everything has its music.
Everything has genes of God inside.
But learn from those courageous addicted lovers
Of glands and opium and gold –
Look, They cannot jump high or laugh long
When they are whirling.
And the moon and the stars become sad
When their tender light is used for
Night wars.
Forgiveness is part of the treasure you need
To craft your falcon wings
And return
To your true realm of
Divine Freedom.
— Posted by Hafiz

    72.December 28th, 2006 5:43 am Bill D: why don’t you apply and (_try_) to find out?
— Posted by Big Swinging Richard

    73.December 28th, 2006 8:15 am I wonder if a revolution now, in time of globalization and the internet would mean that the fat and evil have no place to go
— Posted by Danton

    74.December 28th, 2006 9:21 am One of the points of several of these comments is that the these people are deserving of these bonuses because they work much longer and are much more intelligent than most. Exactly what is the evidence of this? Finance was most definately not the most difficult major in the university I went to, nor do I seriously doubt it is in any other school. The computational programs use to model the market can be done by people from several disiplines and are no more difficult then those used for modeling in biology (protein folding), computational physics, astronomy, or even for certain manufacturing facilities. I am not even sure if the people who construct the models or do the guts of the research are the same people who are highly compensated in finance (?)
It is also ridiculous to say that people on wall street work harder than any other field and so are deserving of more money. Some high school teachers really do put in 80 hour work weeks as well as dealing with a work environment in the inner cities which is certainly more hostile than working in a posh executive office. This is to say nothing about doctors, charity organizers or any of the millions of minimum wage earners who are forced to work two full time jobs to support their family.
One difference about finance is money, generally everyone who goes into banking’s main goal in life is to make a lot of money. The fact that they do is not surprising nor is it wrong, the question is of magnitude. Should the average VP in one of these companies really be making 50X that of a high school teacher? I seriously doubt it, and when I see that nearly every other first world economy does not have this disparity of wealth it is concerning. It would be one thing if the US economy has been growing in influence and power over the last few decades but the exact opposite is happening.
— Posted by Peter

    75.December 28th, 2006 10:39 am At hedge funds, the average bonus per employee in a so-so performance year is over $1.3 million per employee (double Goldman’s) hence there are lots of ex-Goldman people here and they work 9am to 6pm and never weekends. They wear khaki’s and make their own hours. So who is underpaid?? Goldman is for saps.
— Posted by Bonfire Bob

— Posted by JOE BENSON

    77.December 28th, 2006 5:27 pm Hooray for capitalism! The traders worked hard and deserved their bonuses. How can I get a job at Goldman Sachs?
— Posted by Ben Tan

    78.December 29th, 2006 1:21 am The general trend of these comments seem to be a. whether or not Goldman Sachs employees are smarter/more gifted/harder working than most, and b. get off your arse and get a job at Goldman Sachs if you have complaints about how much money they make. First of all, if GS employees are intellectually superior, or all of the most intelligent people are already working for GS, then its kind of pointless to suggest that the ‘inferior’ complainers responding to this article would even be able to get a job at GS in the first place. Wouldn’t it be more accurate to say either that life isn’t fair, or if you are part of the 3, 5% of the intelligent people, but DIDN’T choose to work for GS, sucks to be you…all the advice that you received in your youth that you should pick a career that you love is wrong - instead of say, going to Brown and then joining the Peace Corps, you could have gone to work countless hours in soul sucking finanace but made a bunch of $, THEN quit by the age of 35 and then join the Peace Corps…The only problem is that making money is habit forming…and I believe robs creativity - why write a book or paint something when you can just buy something that is so much better? To read these posts, you’d think that Van Gogh, was just some poor loser and that money is the only thing that really matters. So to make a completely circuituous point more just based on gut instinct - a and b are besides the point, and YES, it is wrong that these gifted/intelligent/harworking folks are making so much money. I think we all know this whether we are willing to admit it or not.
— Posted by jenna

    79.December 30th, 2006 11:38 am Jenna, I would ask you the question NOBODY has yet addressed.
How many less victims of Wall Street fraud could there have been had Goldman Sachs taken money out of this “Bonus Pool” and decicated it to compliance? Goldman has been involved in every major scandal (big and small)and in each case they settled without admitting or denying teh allegation but…in each case they committed to spending more money putting in better supervisory and compliance procedures.
Bottom line, GS played rick vs. reward. Get away with stealing for as long as you can, get caught stealing, and only then pay a small fine (pales in comparison to years of gains), and then have teh settlement include putting in better compliancew systems.
I say, if you can hand out this kind of money you can certainly be more pro-active in insuring that this money comes from LEGAL and not ILLEGAL activities as the ILLEGAL activities is putting your personal gains against the rights of others to equal rights to profit. By my standards that is not capitalism, that is theft and must not be tolerated.
In the years to come we will see how much of this bonus money came from fraud. Unfortynately wghen the news breaks we will not be looking back to these bonuses and equate the two. Proof of that, take a look at the last scandals (research analyst fraud, market timing, late trading, mutual fund disclosures, improper short reporting, etc…).
Now Jenna or any other who supports these bonuses, address how these concerns are invalid relative to bonuses. Remember bonuses are a percentage of profits and higher profits are a result of controlling expenses (compliance expenses)!!!
— Posted by Dave

CONTACT: Press Office
(518) 474-4015                                  FOR RELEASE:  Immediately
December 19, 2006

Wall Street Bonuses Set New Record

Wall Street is expected to pay out $23.9 billion in bonuses in 2006, surpassing last year’s record of $20.5 billion, according to a forecast released today by State Comptroller Alan G. Hevesi.

"The securities industry had another great year in 2006, with some of the largest firms having their best year ever. This translates into record year-end bonuses and great news for the region’s economy," Hevesi said.

The State Comptroller forecasts that bonuses paid to workers in the securities industry in New York City will total $23.9 billion in 2006, which surpasses last year’s record of $20.5 billion by 17 percent. The forecast reflects the strength of traditional Wall Street activities, but also an expansion into global markets and increased demand for other services, such as hedge funds. The estimate does not include stock options that have not yet been exercised, which could increase the value of bonuses realized by employees by billions of dollars.

Bonuses will average $137,580 in 2006 or 15 percent higher than last year. These estimates represent an average for all securities industry employees. Actual bonuses, however, will vary by individual and by firm, ranging from hundreds of dollars for clerical and support staff to tens of millions of dollars for high performers and key executives.

The State Comptroller estimates that Wall Street bonuses will generate $1.6 billion in tax revenues for New York State and another $500 million for New York City. Total State and City tax collections from bonuses will exceed last year’s record level by 15 percent. The overall strength of the securities industry, with many firms reporting record revenues and profits, is helping to drive up State and the City tax collections beyond the estimates made at the beginning of their fiscal years.

According to the Securities Industry and Financial Markets Association, member firms of the New York Stock Exchange will realize profits of $17.2 billion from traditional Wall Street activities, such as stock trading and new issuances, which is the second highest level on record. This represents an increase of 82 percent over last year’s level and is second only to the $21 billion earned at the peak of the last bull market in 2000. New York City’s latest four-year financial plan assumes that Wall Street profits will total $14.5 billion in 2006, but actual profits are likely to exceed that amount by 18 percent.

Employment in the securities industry in New York City also increased sharply in 2006, although the rate of growth has slowed since the summer. During the first 10 months of 2006, employment averaged 177,300, or 7,200 more than during the same period last year. Previous reports by the State Comptroller have found that each new job created in the securities industry in New York City results in the creation of two other jobs in the City and one job in the surrounding suburbs.

"When Wall Street does well, New York City and New York State do well," Hevesi said. "Wall Street bonuses are spent in the City and in surrounding suburbs on entertainment, real estate, automobiles, and other consumer goods—all of which generates jobs and tax revenues."

The Comptroller also reported that:

The average Wall Street bonus is nearly two-and-a-half times the average annual salary for all non-financial jobs in New York City.
Wall Street accounts for less than 5 percent of the jobs in New York City, but more than 20 percent of the wages.
New York City’s share of U.S. securities employment fell by more than 12 percentage points between 1990 and 2003, but the City’s share has been growing slowly ever since as job growth in the City’s securities industry is outpacing the growth in the industry in rest of the nation.
Wages in New York City’s securities industry accounted for 94 percent of the securities industry wages paid in New York State and 37 percent of the amount paid in the nation.
Total annual wages in the securities industry grew by an estimated 49 percent since 2003, which was two and half times faster than wages in the rest of the City’s economy.
The New York Stock Exchange reported that revenues of member firms grew by 45.4 percent during the first three quarters of 2006, which was higher than the gains during all of 2005.
The New York Stock Exchange also reported that profits of member firms from traditional broker/dealer activities totaled $13.3 billion during the first three quarters of 2006, an increase of 86.5 percent from the same period in 2005.
Total profits at the seven largest financial firms headquartered in New York City, which are highly diversified, reached $29.5 billion during the first three quarters of 2006 or nearly 50 percent higher than the same period in 2005. The firms that have announced fourth quarter results (Bear Sterns, Goldman Sachs, Lehman Brothers, and Morgan Stanley) all reported record revenues and profits for 2006.
"Wall Street is a critical component of New York City’s economy and a key contributor to its budgetary health. I applaud Mayor Bloomberg’s efforts to support the industry and work to improve the City’s competitive position relative to other major financial centers," Hevesi said. "At the same time, New York City must also work to develop high-paying jobs in other industries in order to further diversify the local economy."

Click here for a chart detailing bonuses paid 1985-2006.

Albany Phone: (518) 474-4015  Fax:(518) 473-8940
NYC Phone: (212) 681-4825  Fax:(212) 681-4468

New York City Securities Industry Bonuses

  Wall St        Avg. Wall St
  Bonuses Change Bonuses Change
    ($bil)  (%)   ($000)   (%)
1985  1.9  44.8%  13.970  33.1%
1986  2.2  15.7%  14.120   1.1%
1987  2.6  18.9%  15.610  10.6%
1988  2.0 -21.3%  13.290 -14.9%
1989  1.9  -5.5%  13.260  -0.2%
1990  2.1   9.9%  15.540  17.2%
1991  4.1  95.7%  31.100 100.1%
1992  4.9  18.1%  26.200 -15.8%
1993  5.8  18.1%  39.660  51.4%
1994  4.9 -15.7%  32.190 -18.8%
1995  6.2  26.8%  41.410  28.6%
1996  9.8  59.3%  63.870  54.2%
1997 11.2  14.5%  67.800   6.2%
1998  9.1 -18.8%  53.040 -21.8%
1999 13.5  48.5%  75.010  41.4%
2000 19.5  44.3% 100.530  34.0%
2001 13.0 -33.2%  74.140 -26.3%
2002  9.8 -25.0%  60.900 -17.9%
2003 15.8  61.3%  99.930  64.1%
2004 18.6  17.7% 113.450  13.5%
2005 20.5  10.1% 119.390   5.2%
2006 23.9  17.1% 137.580  15.2%

1. Wall Street bonuses are for the securities industry (NAICS 523)
2. 2005 estimate has been revised from a year ago to reflect the growth in global operations.
3. 2005 and 2006 bonus estimates are forecasts and not final numbers.
Data Sources:
1. Historical bonuses are OSDC estimates drawn from the NYS Dept of Labor's insured employment series.
2. 2006 estimate was derived by OSDC from industry revenue and expense data.
Prepared by the Office of the State Deputy Comptroller, December 19, 2006

December 20, 2006

Is the Bonus Bump All in Their Heads?

As word came Tuesday from the New York state comptroller that Wall Street bonuses are expected to hit a record $23.9 billion in 2006, many were extolling the virtues of such cash on New York’s economy. The Associated Press cited $15,000 bottles of champagne, $40,000 BMWs and multimillion-dollar apartments as just some of the ways that cash-rich bankers are expected to boost the city’s economy. “Wall Street jobs create jobs,” Ken Bleiwas, deputy comptroller, told The A.P. “Why? Because they are pumping money into the economy. They’re going out to restaurants, they are purchasing all kinds of consumer goods.”

Much has been made of the record bonuses and their effect on the spending habits of bankers this season, especially on real estate. But is this influx of ready cash really making a difference in housing market?

Not really, BusinessWeek suggests. It mentions the buzz about a “bonus bump” in New York real estate each year, but argues that the link between big year-end payouts and sale prices is weak. “While Wall Street holds much of the money, it constitutes just 5 percent of all jobs in Manhattan — not enough to have a quantifiable effect on overall sale prices,” the magazine writes.

The magazine says that Manhattan real estate appraiser Miller Samuel has tracked the median sales price on a Manhattan apartment versus the average Wall Street bonus per person since 1989, and the results show a loose connection at most.

So what’s all the fuss about? “It helps lay the groundwork for a change in buyer and seller psychology,” Miller said.

The New York Observer looked at the issue in an article last month (using data from the same appraiser) and said it found that prices for New York co-ops and condos tended to spike in the second quarter of the year, not long after Wall Street’s top workers cash their bonus checks. But it also said the cause-and-effect was not entirely clear — other seasonal factors could be at work — and concluded that, in general, bigger bonuses have not correlated with bigger sales volume for the entire year.

There is at least one place where big bonuses are clearly having an effect: New York’s tax revenue. New York State comptroller Alan Hevesi estimated this week that Wall Street bonuses will generate $1.6 billion in taxes for New York State and another $500 million for New York City. “When Wall Street does well, New York City and New York State do well,” Hevesi said in a press release.

Go to Article from BusinessWeek »
Go to Article from The Associated Press via Yahoo News »
Go to Press Release from Alan Hevesi’s Office »
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42 comments so far...

    1.December 20th, 2006 10:55 am Very likely most of the people getting the bigger bonuses already settled into nice homes. Most parents satisfied with current living arrangements would think long and hard uprooting the children. Unhappy kids=unhappy parents.
— Posted by MARK KLEIN, M.D.

    2.December 20th, 2006 2:27 pm No doubt Marie Antoinette’s spending habits were good for business.
The Court of Louis XVIth attitude of today’s financial industry can only lead to serious political trouble.
Today’s tough economic and unstable family conditions for what passes for a middle class came to mind while watching the Ronald Coleman version of “Marie Antoinette”. There’s an amazing scene just before the end in which the imprisoned aristocrats awaiting execution seemed genuinely nonplussed why the people turned against them.
Closer to our time today’s Wall Streeters bring to mind the 19th and early 20th European and Russian nobility whose mad spending, gambling, penchant for war making, and distain for the middle class brought their world to an abrupt end.
— Posted by MARK KLEIN, M.D.

    3.December 20th, 2006 5:34 pm Indeed, it is a boon for the state and the city but don’t these rich folks already pay marginal taxes compared to everyone else. How much would there be in taxes and spending in the economy if this money was more equally distributed?
— Posted by robert

    4.December 21st, 2006 12:47 am Talk of equal payments and equal taxes. How about working equal hours as bankers do? Every one wants the cake and eat it too.
— Posted by Harry

    5.December 21st, 2006 2:55 pm Why are they tracking median housing prices vs. Wall Street bonuses. I would think that if anything, bonuses would only have an effect on the high end. Top quartile prices would be a better indicator.
— Posted by steve

    6.December 27th, 2006 8:27 am People who pay themselves mountains of money always try to find some way to justify it. They’re helping the economy by paying themselves more? Give me a break. They really think we’re stupid.
Oh, and bankers work long hours? Those poor bankers! Try the same hours but without heat and air conditioning, fancy clothes, expense account meals, and write-offs on any expense that their company doesn’t already pay for. Oh, it’s so hard to be rich. PUHLEEZE
— Posted by Tim

    7.December 27th, 2006 9:02 am I agree with Robert about how mucn tax revenue and spending would increase in the area if the money was more equally distributed — especially from the CEO bonuses. What’s sad is that the tax payers subsidize all these bonuses because the companies write them off as “business expenses”. Perhaps the tax laws should be amended so that bonuses of over $20 million for an employee (or of some multiple of the average employee’s salary) should be not be included as a “business expense” and be fully taxable. That would really help New York and the US government tax revenues and help boards to really consider how important these excess bonuses are for their business.
— Posted by Bill

    8.December 27th, 2006 12:25 pm Why all the hating? The people on Wall St. work hard to live like ballas, just like the rest of us. Let em’ live grand and stop the hating.
— Posted by Amp

    9.December 27th, 2006 12:38 pm You should all be happy to know that bonuses are taxed at an apprixamte rate of 40-42%. Bill, you are misinformed if you think that it is written off as a ‘business expense.’
Oh the green eyed monster in most of you.
— Posted by Hamako

    10.December 27th, 2006 1:11 pm Can someone — anyone — explain why Goldman Sachs
needed tax concessions to stay in NYC when it has all this money to give out to its employees? The pandering to the rich by the political rich is a joke and unfair to those businesses which do not get tax breaks and do their best to remain in business in this so-called “luxury product” city with its third-world infracstructure. If any one needs a break here it’s the small businessman who, as costs escalate, is being driven out by those who don’t pay their fair share of taxes.
— Posted by rob

    11.December 27th, 2006 1:12 pm Bill-
If salaries aren’t a “business expense”, what are they? Also, is it the government’s place to decide how much is fair pay?
Tim- A agree that some people work the same hours and don’t get the same amount of pay, but the reality is that for most bankers, the work they do is a choice and they do work awful hours. The alternative is a 9-to-5 without the action or the pay, but with much less pressure and stress. Life is full of such tradeoffs. I guess another harsh reality is that if your company generates, say, $50,000 in revenues per employee, you can’t pay everyone $70,000. But if the company generates $1 million+ (as I’m sure most investment banks do), why not reward and retain those responsible for doing it? It’s a private enterprise, after all, responsible to its owners / shareholders.
Anyway, we could argue this basic conflict until blue in the face. I guess the bottom line is life is not fair; anyone who believes it is or should be has a hard life ahead of them.
— Posted by hugo

    12.December 27th, 2006 1:15 pm I think these bonuses are embarrassing. I am a life-long Republican and have worked in (bonus-paying) consulting firms for years. My largest bonus was short of $100k, and worked out to about 40% of base comp. Thoguth that was fair and reasonable, and I did put in 60 and 70 hour weeks on many occasions. But $50M+ is all too over the top. Would someone work any harder for $100M?? If Wall Street and business in general does not act on exec comp and excessive bonuses (pay it to the shareholders, the real risk-takers!!)someone else will. And should.
— Posted by Chuck Newton

    13.December 27th, 2006 2:10 pm In banking, we have one weekend off every two months and we regularly work in the wee hours of the night. The bonuses are insane only for the top of the crop, the rest of us get paid very socially responsible wages, when divided per hours spent in the office.
— Posted by John

    14.December 27th, 2006 4:09 pm Before investing in a specific company,I researched how little competition they had,offered a great service,& expounded on how a prominent person would help make money by joining this company. Over several million dollars in incentives just to hire this person & about 14 months later, my stock has shrunk by 65%. If I don’t start seeing an upward trend over the next few months,I’ll sell it. I feel,as a shareholder,that my investment went to pay the bonus(not salary)of this individual & not to advertising to promote the products, since the stock has steadily gone down,not up over the past 14 months. After Enron collapsed,I’m more conscious of the companies I want to invest with in the future. Every few years, some of these CEOs stay at one firm a few years, want a change & another company hires them as many have already proven track records. Respect & value your employees, divvy up fairly all these millions you give to a few CEOs.
I’m so glad NY city & NY state are rewarded receiving extra tax money from these hefty bonuses; hum,what about the rest of the country?
What if CEOs went on a commission only basis with their expense accounts still in tact; of course,then companies could trim some fat. Bonuses use to be offered for extra profit made, not for what they are already paid to do,work.
— Posted by Cathy Costin

    15.December 27th, 2006 6:05 pm Life is not fair.
If being an investment banker was such a great life, I am sure we would all be trying to get there, or get your kids lined up to be bankers.
I understand that everyone makes their own choices, but I, for one, will not be encouraging my kids to go into banking. It is a perfectly respectable choice, but requires life trade-offs I do not want my kids to make. (All careers require these choices, and what is right for one may not be right for another.)
The tax system does tax those that earn more a higher dollar amount. Can you imagine a movie theater that charged you based on how much money you made. ($6 for a teacher, $1,200 for a banker.)
Whether the rates are appropriate or not is a societal issue. Certainly, most people owe a great deal of the credit to their ability to earn to society. Warren Buffet said something to the effect of over 90% of his earnings were due to society and the economic structure. Plant him as a child Darfur with his skills, and it would not be quite as good a result.
— Posted by bob

    16.December 27th, 2006 6:26 pm Thanks to the excessive bonuses on Wall Street and the trickle-down economics embraced by the Bloomberg administration (largely former traders and hedge fund managers themselves), Manhattan is well on its way to becoming a 2-class society of the sort common in the business capitals of the Third World.
Go to Mexico City, Cairo, or Karachi and what you will find is a small number of very rich people living in a protected, exclusive enclave surrounded by the vast majority of the local populace living not so nicely if not in absolute poverty.
As a native New Yorker, I have seen in recent years the formerly dominant middle class increasingly priced out of their traditional neighborhoods and buildings while their tax dollars subsidize the Wall Street firms like Goldman Sachs who are pricing them out. It’s not just a case of the government failing to protect the middle class citizenry, it’s a case of the government actively championing the cause of millionaires and global corporations at the expense of the middle class.
Recently, I wrote to the city government asking specifically what long term middle class New Yorkers are supposed to do as market rents skyrocket while middle class wages have stagnated. I received a form letter suggesting I check out their master plan for a city-subsidized project to build more affordable housing by 2013. That’s right, billionaire Mike Bloomberg wants middle class New Yorkers to apply for a welfare program and wait 7 years to get a decent place to live. Is this still America?
— Posted by Michael

    17.December 27th, 2006 6:31 pm No wonder Alan Hevesi loves Wall Street bonuses, this is the guy who himself just confessed to stealing some $200,000 worth of services from the taxpayers of this good state for his personal use. Since his plea got him out of serving jail time, I am sure Goldman Sachs already has a desk set up for him, he’ll fit right in.
— Posted by Scott

    18.December 27th, 2006 6:41 pm Rob, GS got a tax break to stay in NY. If they didn’t then their employees would work in, for instance New Jersey and pay tax there. So, NY state gives a little corporation tax and gets a lot back in personal tax.
That also answers Hugo, Bill and Hamako’s argument about the bonuses (sort of):
Let’s for this argument say that corporate tax rate is 30% and personal tax rate on bonuses is 40%.
Say Goldman does not pay bonuses of $50m. Then, their profit would be $50m more, right? Then they would pay the corporate tax rate on the $50m which would be $15m. BUT, they pay it out, so they make $50m less, and NY gets $15m less in tax. The people who get the bonuses, pay 40% tax on it, so they pay $20m tax.
So, NY is $5m better off when they actually pay out the bonuses.
— Posted by Charles

    19.December 27th, 2006 8:02 pm what do you expect in a completely unregulated industry? these people are parasites: they produce nothing and contribute zilch to society, and make their living off of the backs of people who actually do.
— Posted by Warren

    20.December 27th, 2006 9:14 pm Why all the fuss over a few bankers? The sum of all the bankers represents only a small blip in the population, yet here’s all this angst and agony over the injustice of society because of their disproportionate salaries. It’s an occupational hazzard- money people make money- the result of a healthy capitalist society. If you find this unjust, set up your investment bank across the street, undercut the competition and put them out of business.
— Posted by MJ Jackson

    21.December 27th, 2006 10:23 pm Charles: You have to know damn well that not all of the employees of the banks that benefit from the NY state tax breaks live in NY City or even NY State. In fact, I would guess that many of them live in NJ and CT precisely to arbitrage the lower personal tax situation. Also, the same bankers who benefit so handsomely from the local tax breaks (i.e. gifts from the majority of us that make a mid 5 figure income) would be the first to argue that banking, like all businesses, is becoming global and there is no need other than their own ego-stroking to have an NYC address, no more do they need to be here today than a car company has to be in Detroit. I say the same pure capitalism that fuels the banking system should be government policy, pay your fair share in NYC or you are welcome to go elsewhere.
As an aside, I know as a fact that GS for one has paid compensation to NYC employees out of offshore bank accounts so they keep as much of their money OUT of NY as possible. If they really want to be in NYC they can play by the same rules everyone else has to.
— Posted by Michael

    22.December 27th, 2006 10:46 pm Instaed of seeing the effect on Condo or BMW sales from end of year bonuses. I would be more interested to see how much charitable giving increased.
-posted by Alan
— Posted by Alan

    23.December 27th, 2006 10:59 pm Much, better to let those that earn money keep than to give to free spending politicians. Everyone should pay the same tax - 10%. Liberals love to be doing gooders - with other peoples’ money.
— Posted by David In Wash, DC

    24.December 28th, 2006 12:53 am Lao Tsu said:
“It is better not to make merit a matter of reward
Lest people conspire and contend,
Not to pile up rich belongings
Lest they rob,
Not to excite by display
Lest they covet.”
Many who live life to the fullest do not do so through accumualtion of wealth. Sanity born of simplicity is a treasure. It’s not that it’s so hard to obtain, it’s hard to prefer it.
Lao Tsu also said:
“Who would prefer the jangle of jade pendants,
if he had once heard stone growing in a cliff?”
Many of those clutching their bonus checks, that’s who.
If they use that money to benefit others, that somewhat improves the imbalance - in others and themselves.
— Posted by Stephen

    25.December 28th, 2006 3:03 am A clear example of an exagerrated sense of entitlement.
A letter to the editor said it best when he notes the work he does finding cures and treatments for to extend the life of these self-obsessed individuals with modest compensation, seems, in light of these attitudes, rather pointless.
This compensation, this arrogance, this narcissism is the unravelling of the fabric of a moral society; as destructive as any act of terrorism against our nation and our families.
— Posted by claude

    26.December 28th, 2006 3:25 am If these huge Wall Street payouts are so good for the local economy that they warrant tax-breaks for the companies that pay them, shouldn’t we also give tax breaks to professional sports franchises, Hollywood studios, record companies, and other for-profit businesses that happen to pay outsized compensation to a handful of employees? Why draw the line at just one high-paying industry?
Also, if having the Wall Streeters here is so beneficial to NYC as a whole, why are there still people living below the poverty level? Why is the infrastructure crumbling? The banks have been here for decades and no one has ever been able to quantify how their presence improves the quality of life for anyone except the bankers. In fact, they depress the quality of life by using their escalating wealth to drive up the cost of living, especially in terms of real estate prices, while the vast majority of New Yorkers make the same as they did 5 years ago
— Posted by Mike

    27.December 28th, 2006 6:45 am As a European this is a frigthening development, starting to become contaminating..but luckely still at far more resonable levels on the ‘old’ continent. As a liberal I am suprised that this is said to be “the result of free market pricing”.
As a reader I am wondering why the discussion focusses only on the “potential beneficial impact on the economy “
— Posted by Joanne

    28.December 28th, 2006 9:42 am saving the world one person at a time
— Posted by billy boy

    29.December 28th, 2006 1:10 pm Nope, “life” isn’t fair at all. That’s why humans attempted to establish societies: It’s the only tool we have to overlay the essential brutality of life with compassion, equality and justice. Those who attempt to justify the economic benefits of uncontrolled greed by citing the unfairness of “life” deserve to find out exactly what forces they are referring to.
— Posted by Middle class once

    30.December 28th, 2006 1:34 pm Why not?! These people made soooo much money for these banks, I’m sure the banks were happy to keep their best bankers beyond happy. When a job well done can, for the most part, be measured monitarily, why not pay accordingly?
— Posted by Tim

    31.December 28th, 2006 1:49 pm Those who deride the bankers for earning high salaries and pulling in large bonuses simply seem to harbor jealousy for their wealth. I have recently gone through a recruitment process in which I considered working for these I-Banks which are at the center of the controversy. Despite the high potential salary, everyone with whom I spoke told me that I would have to work incredibly long hours and not have a life in order to succeed in an I-Bank. In general, I-Bank employees do not have much of a chance to spend their bonus checks on luxury or other consumer goods which would help stimulate the New York economy. Instead, much of the bonuses are reinvested in their companies or in other public companies. For example, say the GS CEO’s after-tax bonus was $30M. No matter how hard he tried, he probably would not be able to spend the entirety of it on consumer goods. Instead, he would invest that capital into GS or into other companies, which is the sign of a healthy market economy. Trickle-down theory does not work when it comes to direct purchase of consumer goods or the fact that huge salaries and bonuses cause rises in housing prices. The capital from these bonuses will be used to energize, save, or start competitive companies. Those who work in such companies will benefit by retaining their jobs. Do not always denounce bankers for their high salaries. If we didn’t have them, the American economy would not operate in the competitive, productive, and hegemonic way it does.
— Posted by Drew

    32.December 28th, 2006 3:23 pm Claude’s comment is worth repeating:
“This compensation, this arrogance, this narcissim is the unravelling of the fabric of a moral society; as destructive as any act of terrorism against our nation and our families.”
28 yrs. ago I was driven out of NYC by the high cost of living, I was a teacher. I am now watching the same greed destroy San Francisco.
We call it “Manhattanization”. On the national level it is called Oligarchy.
— Posted by Janice

    33.December 28th, 2006 3:29 pm These insane Wall Street bonuses won’t last much longer. How many more mergers and aquisitions can transpire in the short term? What will happen to private equity when competition increases and interest rates climb? How will hedge funds continue to return 15% after fees when other hedge funds have already swallowed up all the opportunities. There’s a breaking point–and somehow I think we’re ALL going to bear the brunt of it.
— Posted by Jay

    34.December 28th, 2006 4:51 pm This latest round of Wall Street bonuses is a slap in the face of working people. The finance industry, indeed our corporate world in general, has functioned as the world’s most rapacious cartel for over a century (since the 1886 Santa Clara case establishing “corporate personhood”). Corporate ethics could not be more simple, or more myopic: maximize profit for shareholders, regardless of the social, environmental, or even existential consequences. On the rare occasion that a corporation takes a socially responsible stand, or makes the pretence of doing so, it is almost invariably for PR purposes; hence, for maximizing profit or minimizing loss. Any deviation would be subject to ridicule and condemnation; rightly so, under the logic of a lunatic system.
The radically dehumanizing and immoral corporate ethos permeates all centers of American power. Both political parties receive their major funding (and most of their candidates) from the corporate sector. All major media outlets are owned by publicly traded corporations; to whom are they responsible, and to what end? Through what system are our journalists, professors, and political leaders educated - or indoctrinated? And once we dare to ask these questions and find the inevitable answers, why not ask, what wealth do corporate executives actually produce? Where is the evidence of their efficacy or even usefulness? Evidence of their callous destructiveness abounds.
The powerful in every society have written laws and established social norms that promote the most heinous of crimes, so long as they and their strategic allies are the benefactors. The unimaginable opulence, decadence, and recklessness of the tiny American corporate class in a nation where the ever-shrinking middle class is over its head in debt, both public and private, and in a world where most people live in neo-colonial slave conditions is, by any historical paradigm, untenable. The continued accumulation of wealth and power by an increasingly minute fraction of the population should be recognizable as the universal precondition of revolution.
— Posted by David Levi

    35.December 28th, 2006 5:37 pm Of course the bonuses do not boost the nation’s economy - all they do is exacerbate the widening gap between the rich and the poor, with the middle class losing out all around. Rather than pay individuals obscene amounts of money that noone is “worth” and noone could possibly spend in a lifetime, (and I say obscene because people are starving - I mean “food challenged” - in this country), a better use for the money would be to supplement the paychecks of those who are stuggling to make ends meet, or create new jobs for the unemployed, or give it away to the “food challenged,” or make it easier for poor and middle class people to get educations. That we don’t do this is sickening and makes me sad for us all.
— Posted by Barbara Frazier

    36.December 28th, 2006 5:56 pm Jay is right that we will all suffer from the downside of this, while only a select few benefit from the upside. As to those who say “life’s not fair” and dismiss the destruction of the middle class, you could say the same thing about 9/11 or the war. Doesn’t affect me personally, why should I care? Because I am a part of a society, although increasingly I wonder about whether that society is breaking down along economically segregated lines. “Stuff happens,”"get over it,” “life’s not fair” are almost always said by people who can’t relate to the issues in question and are lucky enough to never have to.
And on the subject of 9/11 and the war, another point. As greedy bankers, private equity firms and hedge fund managers have in recent years become the face of America in the rest of the world, and as their values (or lack of them) are distasteful to many other civilized societies, anti-Americanism around the world can only grow further. If, heaven forbid, there is another terror attack on lower Manhattan, I wonder if New York can really expect the level of global sympathy we got the last time.
— Posted by Scott

    37.December 28th, 2006 6:05 pm I don’t see what the issue is. You tend to forget that the people who are making these $10MM+ bonuses are the CEO’s or managing directors at maybe a handful of firms who are RAINMAKERS and are DIRECTLY responsible for making dozens if not hundreds of millions of dollars for their firms.
Compensation at investment banks is egalitarian, you make money for the bank, you get a cut, you don’t square up at performance reviews, you get fired. Think about not having ANY job security.
It’s all about risk versus reward, bankers take extreme risks and so in good years they are rewarded. In crappy years (e.g. 1987-1988, 2000-2003) they are fired, jobless, and often not rehired after the downturn (there’s a fresh new army graduating, why hire you?)
Also, the banking firms cannot cheat i-bankers over their compensation, because the bankers know exactly what deals they’ve worked on and how much those deals were worth. If you spent a year overseeing five mergers between firms worth $5,000,0000,000+ EACH earning the firm $200 million you definitely deserve pay in excess of $5 million. A real estate broker who sells housing from one family to another earns a 6% cut, and he or she does far less than an investment banker in terms of pricing, structuring, due diligence, etc… why shouldn’t the top 2 bankers on a deal earn a 2% cut each as well?
I also don’t hear anyone crying foul about used car salesmen who make $250,000 a year or longshoremen making $110,000 a year or the Park Avenue dermatologists who make $1,300,000 a year working 4 days a week. If you’re entrepreneurial and have the drive you can earn those sums too. It’s not as though those positions are restricted to some landed gentry class, it’s egalitarian, most of those M.D.s started out as analysts fresh out of college and worked their way up.
The banks aren’t dumb, they pay what they have to in order to keep the best talent who can make sure the $5B deals flow smoothly.
— Posted by Eugene Franco

    38.December 28th, 2006 6:39 pm Jay- Waa waaa waaaaa….
Not so long ago I took ECO101 as I am sure (or I hope) many of you did. In a competitive market such as Investment Banking where demand is so high for top talent, what better way to determine equilibrium employment than price? Assuming employees are rent seeking they will go to who-ever pays the highest price, the price will rise. People this is America, a democracy where we have freedom to vote as we wish and work as we please. If we wanted society to be “fair” (I yak at the thought of the word) we would have done as China has. Unfortunately we would not be having this conversation under a communist regime. I agree with MJ Jackson, please do lower the price by setting up your own investment bank. Come back to me when you realize how incredibly hard these people work for their paychecks. Is it not enough that they give away virtually 50% of everything they earn? In addition I would like to remind everyone that when the press reports that John Mack was awarded 40 million as a bonus, more than half of this is company stocks and options which he cannot touch until a pre-determined period. So if Johnny boy has his own interests at heart he will ensure that his stock appreciates by governing the company well and returning value to the shareholders. This is his incentive.
I worked at a certain investment bank over the summer and yes, for a student, I was pretty well paid. However I did not have my own life for three months, I became pretty ill and I was incredibly sleep deprived. This was a trade-off that I CHOSE because when I graduate I hope to work for said firm. Why, tell me, do you think they say that working on Wall Street is like selling your soul to the devil? Well my friends because the devil is a capitalist and pays extremely well.
— Posted by James Cochran

    39.December 28th, 2006 6:57 pm Eugene’s rationale that the bankers should make a historically fixed cut of the deals they work on is as archaic as the three martini lunch and Gordon Gekko’s suspenders.
While it may have made sense 20 or 30 years ago when the deals were smaller and more localized, the issue today is that with global consolidation of almost every industry, bankers are getting a fixed percentage cut of something so massive, the old math should no longer apply. Expense leverage on Wall Street is huge, e.g. the number of bankers and the amount of paperwork needed to do a billion dollar deal is not that much more than needed to do a $100m deal. So a small number of people are getting insanely rich off of doing 21st century sized global deals at old style 20th century percentage fees.
The good news is that when something becomes too egregiously costly, i.e. investment banking fees, hedge fund management fees, whatever, innovators often finds a way around it. Look at how the internet killed high commissions at the wirehouse brokerage firms, who are now all morphing into “wealth management advisors.”
Hopefully someday soon, the corporate and other institutional clients whose fees enable the excessive compensation on Wall Street will realize that the fee structure is no longer cost-effective for their stakeholders and demand the same efficiency they seek from other suppliers of goods and services.
If they don’t get it, someone will devise a more cost-effective way to procure financial services in keeping with 21st century innovation, globalization and technology. When Wall Street moves to Bangalore, let’s see if the newly unemployed bankers who can’t make their Lexus or condo payments still believe in the mantra of “life isn’t fair.”
— Posted by Michael

    40.December 28th, 2006 7:30 pm All the arguments back and forth are very interesting. The arguments illucidating the working and economics of the banking life provide objective views, where those who feel “cheeted” seem to have the more subjective “I am the victim” and entitlement deprived ones. Everything looks shinny and glossy on the outside, very few see the price paid to obtain that shine. Does anyone see the striking resemblance of the struggle between captialism and communism? I think social responsability is important and we all stand to gain from it. I pay taxes gladly. If I don’t pay it, it will be taken by the kid who car-jacks me for his daily needs, whatever that may be. At the end, no where else will you find opportunity to succeed the way you do in this country. This is not about what is fair - it’s about opportunity. If you want it, you need to stop crying and work for it.
— Posted by Krikor

    41.December 28th, 2006 9:16 pm Bonuses do not spur the economy in a healthy, long-term, or sustainable way. In fact, if the money were more evenly distributed among middle class and working class folks, there would be *more* consumption and *more* sales taxes generated, partially offsetting the higher marginal rate that the wealthy pay in income taxes. In spite of their lavish consumption habits, the wealthy only end up spending a fraction of their income; the rest is squirrelled away in investments which eventually become inheritance or donations to institutions and charities. Jobs are certainly created by catering to the tastes of the Wall Street elite, but how many more jobs would be created if this $23 billion were spread evenly throughout the New York region, how many more small businessmen would flourish, how many more families would be lifted above poverty, how much closer would we be to democracy than to aristocracy?
America should be ashamed of itself for allowing such a concentration of wealth, particularly in a sector of the economy which does not directly produce wealth, but merely facilitates the redistribution of finance capital. Those who directly produce wealth — small businessmen, farmers, and industrial workers with specialized skills — are the ones our economy should be rewarding, not a country-club network of Ivy League graduates whose most characteristic “talent” is their ability to shmooze their way into a high-paying finance job managing the pensions of people in Iowa who are doing somemthing genuine for a living.
— Posted by Jason Stockmann

    42.December 29th, 2006 3:05 pm For those who say the massive Wall St. paychecks are warranted on the basis of hard work, I say, are there more than 24 hours in the day of an investment banker? Do they not realize everyone works longer hours today, thanks largely to their demands for global efficiency? Don’t our soldiers in Iraq work pretty hard too protecting the system that enables bankers’ luxurious way of life? And yet, any time there is some measure taken to improve the compensation or equipment of our troops (or cops, etc.), Wall Streeters and the like shoot it down because they don’t like paying the taxes required to do it.
Wall Streeters love to have it both ways. They love the American system and wave the flag when it comes to unfettered capitalism and ’stand with the troops’ sloganism, but they hate the American system when it comes to providing for their fellow citizens for whom they have much disregard if not utter contempt. They say publicly here that they support America and its economy, then go to private investment conferences around the world and say all business is global and they do not want to be viewed as American companies but as ‘global banks’ with no real nationality and an allegiance only to profit. I know this because I’ve seen the pitch firsthand.
Another big lie of Wall Street is that it’s not a club and the opportunties are open to anyone. The reality is that a chunk of the good jobs are filled through connections and the others through a screening process that selects mostly ivy league graduates or global candidates from the foreign equivalent of ivy league schools, e.g. in India, China, Europe, etc. Despite their receipt of corporate welfare from NY City and NY State, go see how many CUNY or SUNY grads get hired at firms like Goldman Sachs these days. I would suspect zero, or close to it. Not many positions left for locals after you’ve recruited at Harvard, London School of Economics, Indian Institute of Technology, etc.
The good jobs Wall St. creates are not for New Yorkers, they are for the globally-recruited elite arriving at JFK from London, Tokyo, and Bombay and ready to bid up the price of housing in your neighborhood with their mid six figure starting salaries. New Yorkers like SUNY and CUNY grads get jobs in the back office, the mailroom or the cafeteria that pay the same as back office, mailroom and cafeteria jobs anywhere else in NYC. The only real way for real New Yorkers to get anything out of this is to sell the apartments they bought in the ’70s and ’80s to some Wall Street sucker for 15 times what they paid for it.
— Posted by Scott

Bloomberg News    December 20, 2006

Goldman Awards Blankfein Record $53.4 Million Bonus
By Christine Harper

Dec. 20 (Bloomberg) -- Goldman Sachs Group Inc., the securities industry's most profitable firm, rewrote the record book for Wall Street bonuses, paying Chief Executive Officer Lloyd Blankfein $53.4 million in cash, stock and options.

The firm also rewarded 11 other top executives with shares and options valued at more than $150 million for 2006, according to regulatory filings yesterday. Co-Presidents Gary Cohn, 46, and Jon Winkelried, 47, will receive $25.7 million each. Cash payments weren't disclosed for anyone other than Blankfein, 52.

Goldman's bonuses were set to surge after the New York-based firm's net income rose 70 percent in 2006 to $9.54 billion, a new high for the securities industry. Blankfein's take is more than double what Citigroup Inc. CEO Charles Prince, 56, earned last year for running the world's biggest bank by market value, a company three times Goldman's size, and it eclipses the $40 million that Morgan Stanley's John Mack received last week. ``That is the right amount,'' said Jeanne Branthover, head of the financial-services practice at Boyden Executive Search in New York. ``Clearly, these numbers are big, but they could be bigger. This is something that's record-breaking, but any more than this might be questionable.''

Blankfein was eligible for a maximum bonus of $87.4 million under a new compensation plan for Goldman's top 25 executives. The program, approved by shareholders in March, also eliminated a $35 million cap on bonuses in cash and restricted stock.

As high as Blankfein's pay is, it doesn't come close to the compensation levels at the pinnacle of the hedge fund industry. Each of the 10 highest-paid hedge fund managers made more than $200 million last year, according to a report in May by Institutional Investor's Alpha magazine.

Beating Hedge Funds
Goldman shares have gained 58 percent this year, more than four times the average hedge fund return through November. ``If you look at the price of Goldman Sachs stock over the last year or so, I think most of the shareholders would have no problem paying that bonus,'' said Eric Barden, chief investment officer of Austin, Texas-based Barden Capital Management, which holds Goldman shares.

Goldman gave Blankfein $27.3 million in cash, $15.7 million in restricted stock and options to buy shares that the firm valued at almost $10.5 million, according to the filing. No executive officer will get more, Goldman said.

Blankfein, who grew up in Brooklyn and joined Goldman as a metals salesman in 1982, took over as CEO from Henry Paulson in June. Last year he received $38 million in total pay, almost as much as Paulson. His 2005 compensation included a $600,000 salary, $10.8 million in restricted stock, a cash bonus of $19 million and stock options valued at $7.2 million.

Goldman's Mantra
Paulson's 2005 restricted-stock bonus was $30.1 million, a record at the time. Goldman spokesman Lucas van Praag said Blankfein's salary remained $600,000 in 2006. ``The mantra that we have is one that dates back to the founding of the firm, that wealth creation for your clients and yourself is good, ostentation is appalling and philanthropy is expected,'' van Praag said.

Blankfein is a director of the Robin Hood Foundation, a charitable group dedicated to helping New York's poor that counts some of Wall Street's most powerful executives on its board. He's also active in Goldman's philanthropic work, said van Praag. Paulson, 60, established a tradition as a Goldman CEO by taking all of his bonuses for the past three years in company stock. That ended this year with Blankfein, who also received some of his 2003, 2004 and 2005 bonuses in cash.

Executive Bonuses
Goldman's chief financial officer, David Viniar, 51, got a bonus of $19.1 million, the highest stock and option grant after Blankfein, Cohn and Winkelried. Suzanne Nora Johnson, 49, a vice chairman who's leaving early next year, was granted $15.4 million, while John Weinberg, 49, a vice chairman and co-head of investment banking, received $15.1 million. Chief Administrative Officer Edward Forst, 46, received $16.5 million.

Co-General Counsels Gregory Palm, 58, and Esta Stecher, 49, were awarded $8.96 million and $8.29 million, respectively. Global Head of Compliance Alan Cohen, Human Resources Chief Kevin Kennedy and Principal Accounting Officer Sarah G. Smith received smaller rewards.

This year, Goldman shares posted their biggest annual gain since the firm's 1999 initial public offering and the best performance in the 12-member Amex Securities Broker/Dealer Index. Net income for the fiscal year surged to $19.69 a share. Revenue also set a Wall Street record, climbing 49 percent to $37.7 billion.

`Nobody Close'
``They had an outstanding year and nobody came close,'' said Gary Goldstein, CEO of New York-based executive-recruitment firm Whitney Group. The five biggest U.S. securities firms -- Goldman, Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. -- are handing out about $36 billion of bonuses this year. Goldman set aside as much to pay its 26,467 employees, $16.5 billion, as it generated in revenue in 2000.

In New York City alone, employees of the securities industry will receive $23.9 billion in bonuses this year, surpassing last year's record by 17 percent, New York State Comptroller Alan Hevesi forecast today. That works out to an average $137,580 this year, almost 2 1/2 times the average annual salary for the city's non-financial jobs, according to the report from Hevesi's office.

Goldman's total pay averaged $622,000 per person.
``Because investment banking is so strong right now we're seeing very large paydays across Wall Street, and of course very large paychecks for those at the top of the firms,'' James Ellman, president of Seacliff Capital in San Francisco, which focuses on financial-services stocks. ``If the heads of the companies are generating very strong share performance, then investors really shouldn't have much to complain about.''

To contact the reporter on this story: Christine Harper in New York at

The Independent    20 December 2006

Goldman stays top of deal table
By James Moore

Fresh from unveiling some of the biggest bonus payments in history, Goldman Sachs has underlined its power by retaining its number one slot as the world's biggest adviser on deals.

Thomson Financial will today publish its hotly anticipated league tables, which show Goldman as the world's top deal adviser, with more than $1 trillion (£508bn) of transactions credited in 2006.

Citigroup, however, is the biggest improver, leaping into second place from fifth the previous year. And while Goldman dominated in the US and overall worldwide figures, in Europe it was knocked off top spot by arch-rival Morgan Stanley. Citigroup was in second place, pushing Goldman down to third. However, few tears will be shed by the bank because it topped the table in fees for Europe, the US and worldwide, earning an estimated $2.1bn against the previous year's $1.7bn.

Thomson's research also highlights the disparity between bids for UK companies and by UK companies. While British companies spent $109bn on overseas deals, foreign buyers spent $191bn on UK companies.

The figures come at a time of mounting concern over the takeover of UK companies by overseas bidders. Even the CBI has complained that while the UK is arguably the most open nation in the world to overseas bids, its willingness to give foreign bidders access to its markets is not reciprocated.

Thomson also found that global M&A volumes reached an all-time high of $3.6 trillion, up 30 per cent.

Washington Post   December 20, 2006

Wall Street's Season of Excess
By Steven Pearlstein

It's bonus season on Wall Street and there's plenty of holiday cheer this year. The New York State comptroller yesterday said the securities industry will distribute envelopes stuffed with about $24 billion -- a sum larger than the gross national product of many countries. If you were to add in the hedge funds arrayed along the Connecticut gold coast and the private-equity firms scattered around the country, the number could easily top $50 billion.

Near the top of this year's list is Lloyd Blankfein, who, we learned yesterday, will take home $53.4 million in his first year as chief executive of Goldman Sachs. That's a record for the head of any Wall Street investment bank and reflects another year of record trading volume, record fees for mergers and acquisitions, and record profits in Goldman's proprietary accounts.

And get this: Blankfein probably isn't even the highest-paid Goldman employee. The word is there is a handful of hot traders who will earn even more than the boss.

Who says Wall Street isn't a meritocracy? Actually, I do. Nobody who is hired help and who plays with other people's money "deserves" to earn $100 million. That's certainly true in a moral sense. But it is also true economically. For despite what you hear from all the apologists about the "market" for financial superstars, this is a highly imperfect market.

Let's start with the fundamental asymmetry of risk in the investment business.

If you were putting your own money at risk, there's the possibility of making lots more, but there's also the possibility you could lose it all. The same, however, can't be said if you are an investment banker, a hedge fund manager or a trader in credit default swaps. In that case, if you do well, you get a percentage of the winnings or the value of the deal. But if you do poorly and your clients lose money, the worst that happens is that your bonus is zero. You never have to give back anything from the bonus you earned last year. And you still get a base salary comfortable enough to keep up payments on the Upper East Side townhouse, the summer place on Nantucket and the tuitions at Brearley.

Wall Street is a classic example of an oligopoly, a cozy club of competitive firms that manage somehow not to compete on price. There are lots of reasons. Because the fees are, even now, a small fraction of the money at risk, clients are less focused on price than on the reputation of the firm and its key employees. Nobody ever lost their job hiring Goldman Sachs. Because of this reality, it is difficult for new firms to enter, while existing firms know they can get more business by bidding up the price of talent than by cutting fees.

To find the evidence of this less-than-robust competition, look no further than the bottom line. In the fiscal year ending in November, Goldman was able to report an after-tax profit margin of 25 percent, and an effective return on equity of nearly 40 percent. Those results are well above the comparable figures for other industries and raise the obvious question that why, in a free-market economy, have they not been competed away over time?

My biggest problem with the rationalizations for Wall Street pay, however, has to do with the widely held misconception that top executives are somehow entitled to some fixed percentage of the profit or a percentage of the gain in a company's market value.

This is, of course, the way we calculate waiters' tips. And it makes sense for small, closely held partnerships. But today's large, global corporations have become so big, the numbers so large, that they provide inappropriate benchmarks when calculating the compensation of a single human being. There's no limit to how big a company can get, but human beings are limited in how much they can eat, or how many homes they can occupy, or how many days they have to take vacation.

Acknowledging that asymmetry, Goldman Sachs used to have a $35 million cap on individual bonuses. Those were tough days, but people could still afford the bare necessities of upper-class life. Last year, however, that cap was replaced with a formula allowing the management committee pay as much as 0.6 percent of pretax earnings to each of its top 25 managers.

Goldman was quick to point out last night that neither Blankfein nor any other executive got anywhere near the $87.4 million bonus that would have been allowed under the formula this year. But where did 0.6 percent come from? Add it all up, and for 25 souls that works out to 15 percent of the profits of a firm with 26,400 other employees and millions of shareholders. Why not 0.4 percent? Or a sliding scale? Or better yet, why not set executive salaries the way salaries are set in just about every other labor market: paying as little as you can get away with while still attracting and retaining key employees.

Why should we care about Lloyd Blankfein and his millions? The answer is that excess compensation in one area leads to excess compensation in others.

A couple of summers ago, I played golf with a fellow who turned out to be a director at Tyco International. At one point, I casually asked him why Dennis Kozlowski, who got a big salary and bonus, was so piggy that he had to have a New York apartment and artwork paid for by the company. His reply was fascinating: Kozlowski, he said, was resentful that while he was masterminding Tyco's growth strategy, arranging for acquisitions and creating value for shareholders, he was still making less than the investment bankers he hired to do the deals.

And that, in the end, is how this arms race in executive pay comes about. It's more about envy than economics. The corporate executives complain they should make as much as the investment bankers, the bankers are upset if they don't make as much as the private-equity guys, the private-equity guys demand to make as much as the traders, and the traders won't sit still until they are paid like hedge fund managers. If you dare to criticize any of them, they'll quickly point out that they still make less than Madonna and A-Rod.

But don't get too exercised about the Wall Street bonus orgy. It turns out that these big paydays are not quite as big as they appear. For residents of New York City, the marginal rate for federal, state and city income taxes is 51 percent (although I doubt very many pay that amount). And because all these masters of the universe are competing for the same Park Avenue co-ops and sailboats and reservations at hot restaurants, a portion of the rest is lost to above-average inflation in the price of things people crave rather than the things they need.

What we have, then, is form of rough economic justice. The beneficiaries of an arms race in compensation are themselves the victims of an arms race in the price of luxury goods and services. It couldn't happen to a nicer group of folks.

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Your Comments On... Wall Street's Season of Excess
It's bonus season on Wall Street and there's plenty of holiday cheer this year. The New York State comptroller yesterday said the securities industry will distribute envelopes stuffed with about $24 billion -- a sum larger than the gross national product of many countries. If you were to add in the hedge funds arrayed along the Connecticut gold coast and the private-equity firms scattered around the country, the number could easily top $50 billion....
- By Steven Pearlstein
Steve ---so based on your comment, Warren Buffett does not deserve his riches either right? Since Berkshire is a public company he is hired help, and manages other peoples money, right? Nobody who is hired help and who plays with other peoples money deserves to earn $100 million. Thats certainly true in a moral sense. But it is also true economically. For despite what you hear from all the apologists about the market for financial superstars, this is a highly imperfect market. Also given your keen moral sense how much should people get paid?--is their a list hidden inside your moral compass? Can you share with us the other moralisms you have that are important to business page readers that follow the market? You say that the market is imperfect---hmmm imperfect in an economic or moral sense. Are you saying that people that make a lot of money are immoral or that the market that rewards their performance is imperfect, not fair and in need of legislation by moral folks like yourself? Curious in Annapolis.
By srrobinson | Dec 20, 2006 8:35:15 AM | Request Removal

Mr. Pearlstein: Thanks for the article. It seems to me that the lack of price competition between investment firms exemplifies the fact that the firms dont cater to normal consumers. They deal mostly with large pension funds and meglamillionaires, neither of which care much about trading costs. Maybe that would change if a few institutional investors switched to Charles Schwab.
By jipowers | Dec 20, 2006 9:55:00 AM | Request Removal

Mr. Pearlstein: Thanks for the article. It seems to me that the lack of price competition between investment firms exemplifies the fact that the firms dont cater to normal consumers. They deal mostly with large pension funds and meglamillionaires, neither of which care much about trading costs. Maybe that would change if a few institutional investors switched to Charles Schwab.
By jipowers | Dec 20, 2006 9:56:00 AM | Request Removal

Boards of directors have a responsibility to manage their company for the benefit of stockholders. When they instead divert large sums to executives, they are cheating the stockholders. We new new laws that would let stockholders set the executives salaries. If we cant do this, marginal tax rates should be raised to discourage this greed-fest. Robert Dove
By rdove | Dec 20, 2006 10:16:03 AM | Request Removal

these people are among the most highly qualified and driven people in the world, and have sacrificed their personal lives and families to get where they are.. and many of them were poor growing up - if you have it in you - prove it, stop blaming other people for your miseries
By amit.singhal | Dec 20, 2006 11:13:07 AM | Request Removal

What I resent is their making 25 when my investments average 8-9. Also, what about we who are paying the fees? Where is our rough justice? Your solution only means well have to pay more.
By brad | Dec 20, 2006 11:49:45 AM | Request Removal

Great piece. Pigs making fortunes for doing nothing pissed off that other pigs make two fortunes for doing nothing. But then again, dont try to teach ethics to a pig. It wastes your time and annoys the pig.
By dellis2 | Dec 20, 2006 12:27:16 PM | Request Removal

Its clear beyond any rational doubt that CEOs and other highly paid people have somehow rigged the system so their wages go through the roof while the rank and file wages are stagant or declining. The top wages are so high that they directly effect the compensation of thousands of employees. Lets say you have a CEO making 100 million. If CEO only made the 5 million that would have been great a decade ago, you could give 95,000 employees a 1000/yr raise instead. You a technical company, you could hire 100 top engineers at 200k for only 20 million, and vastly improve the intovation at your company. For the 5 million you would get 100s of equally education and skilled applicants for the CEO job if the top EMPLOYEE decided to quit.
By Muddy_Buddy_2000 | Dec 20, 2006 1:03:39 PM | Request Removal

Wall Street pigs are the the ones who demand companies fire employees, move to China and destroy their pension plans. The IPOs of 1990s were tailored not for the needs of the companies but to aid the stock brokers bottom lines and bonus. The traders attack workers wages as being too high even though, the workers take a life time to earn money equal to a fraction of a one years bonus. Governor Spitzer should go after these fat pigs.
By jameskir500 | Dec 20, 2006 3:01:51 PM | Request Removal

There is a lot of gripes from everyday people about how little Walmart pays its employees at the insistance of Wall Street to keep costs down and gripes from Wall Street types at how much Costco pays its employees compared to other retail outlets. Yet Costco is doing very well while Walmart flounders. So is it the height of hippocracy that Wall Street pays itself very well to advise its clients to pay their employees as little as possible? Even more troubling is that its very bad advice.
By SeanWise | Dec 20, 2006 4:26:49 PM | Request Removal

I started out thinking this would just be some liberal screed against Wall Street success, but I actually liked the article and ended up agreeing with one of its key points - that the percentage upside bonuses are not risk speaking symmetrical with downside risk of loss and therefore the bonuses are part of an oligopoly tilt. Compare that to the risk assumed by a small business owner, many of whom have entreprenurial and business building skills that far surpass the masters of the universe. Good article! Curtis E.
By wce | Dec 20, 2006 4:48:37 PM | Request Removal

Some years ago Goldman Sachs persuaded Montana Power Company, a rock-solid utility, to divest itself of its energy assets hydroelectric, gas wells, coal power plants and its utility business and turn itself into a telecommunications firm. It did. And it sailed into bankruptcy, injuring shareholders and pensioners. The end result of all this was that Montanans now pay among the highest regional prices for energy, even though they are in an energy-rich state, while before they paid among the lowest. My wife and I have a friend who retired on very little, but was surviving until the devastating increases in electric and gas costs caused by this turmoil hit her. We help her now, every Christmas. She is a victim of Goldman Sachs advice to Montana Power. It would be good if the company were to pay for the social damage it does before awarding bonuses to its high-fliers. I keep thinking that it would be just if these executives with their enormous bonuses would spend them on those who were severely damaged by their bad counsel.
By rwheeler | Dec 20, 2006 8:40:05 PM | Request Removal

Wall Street Executive Payments
Steven Pearlstein

Washington Post business columnist Steven Pearlstein was online Wednesday, Dec. 20 at 11 a.m. ET excessive executive pay on Wall Street. Read the [above reproduced] column: Wall Street's Season of Excess (Post, Dec. 20). A transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer. His [below-reproduced] column archive is online here.

Lovell, Maine: Do you consider the efforts of the federal government (SEC, etc.) to ensure that citizens and shareholders are told the true costs of corporate executives, including direct remuneration, options, retirement, bonuses, housing, private jet priviledges, health clubs, etc., adequate? If so, how so? If not, what are your suggestions and the feelings of those whom you are talking to these days?

Steven Pearlstein: The extra disclosure, and the rules that will allow us all to compare apples to apples, is a great idea. The SEC ought to be commended, including Chairman Cox. And this, by the way, includes more disclosure about post retirement pay and benefits. The next step along this path, however, is to have the shareholders get a vote on executive pay and bonus plans, and to insure that directors can be removed if they don't win a majority vote in the Soviet-style "elections" that are the rule in corporate America.

Annandale, Va.: Without going into too great a detail, could you tell us what a company like Goldman Sachs and other Wall Street firms actually do to earn the kinds of profits the companies reported reported this year and the amount of bonuses it paid to its employees especially the higher executives. Isn't greed great!

Steven Pearlstein: We need first to say that Wall Street firms have been incredibly innovative in recent years, creating all sorts of new products that allow big companies and institutional investors to raise money, lay off risk, price risk, etc. This has made all sorts of markets more liquid, more stable, more efficient, better able to price things, etc. And among the firms, Goldman is reputedly the best, particularly when it comes to making the right bets about which way interest rates will go, or what is the probability of a credit default, or whether oil prices will go up or down. These are smart folks who work incredibly hard, and they deserve to make more than the rest of us, at least in an economic sense.
But not that much more. And that's my point in today's column. It is one thing to say you want pay for performance, which we have. But you also have to ask whether the level is reasonable and necessary, and I would say it is neither reasonable or necessary. The people on Wall Street have got so used to these numbers that they have lost all perspective, and actually think they deserve these sums. They point to all the value they create, all the profits they earned for themselves and their clients, etc.
Funny that.
I never hear about when a merger that has been pushed by one set of investment bankers, and blessed in a fairness opinion by another set of bankers, goes bad, that anyone gives back the fees.
You never hear about the fund manager who loses money for clients dipping into his fees to make them whole.
The problem with this "deserve" thing is that it is a one-way ratchet -- a form of heads we win together, tails you lose kind of proposition. The big upsides would be "deserved" if they were matched with equally big downsides. But they are not. And that's the con game.

Any more on why the oligopoly stays?:"Clients are less focused on price than on the reputation of the firm and its key employees. Nobody ever lost their job hiring Goldman Sachs. Because of this reality, it is difficult for new firms to enter."
Just seems like there's so much money at stake and new financial instruments that more of this advantage should get competed away. Especially when some of the investment bank advice is so fad-driven: mergers and synergy are in one year, breakups and 'focus' are in the next. But despite poor results, the investment banks still make money on all the churn.

Steven Pearlstein: Precisely. As to why the oligopoly stays, it is a fascinating question that we could ask about lots of industries that are imperfectly competitive. In this case, the most important factor is that corporate clients are probably loath to take a chance on a lower-cost entrant because the savings are overwhelmed by what would happen if the deal turns out badly and the person who makes the decision gets second-guessed for going with a cut rate firm. And because everyone knows that, the investment banks don't worry about their pricing getting undercut. In fact, I suspect they compete to see who can charge more, on the theory that the higher price will send a signal that they are the quality player. And the corporate clients are suckers for that kind of thing.
This is also a market that has some scale economies and probably can support only a handful of key players. In that it is not unique. But it is the difficulty of entry, and the client insensitivity to price, that creates the oligopoly pricing and profits.

Oxford, Ohio: Steven - thanks for the thought-provoking column. Some of the things Teddy Roosevelt said still ring true today. Do you think the government should be doing something about the issues you raised today? Could shareholder activists change things? Or is it more of a social issue - i.e. if such excesses were regarded as evidence of "greed" rather than "success", maybe they would moderate their behavior to earn the esteem of others?

Steven Pearlstein: You notice I don't use the word greed. I don't think that is useful in an economic conversation. Why do I want a raise? Because I'm greedy. Why do you want a lower price on that flat screen TV. Because you're greedy. Calling someone greedy in a capitalist country doesn't really illuminate things very much.
As to what the government should do, I've already said making corporations more responsive to shareholders is probably as far as I would go. Then I'd hope that some major mutual funds and pension funds would get together and devise a set of standards that would govern their voting, which would set some real limits on pay programs -- not just in terms of how they are structured, to link pay to longterm value creation, but also by setting some absolute limits, so that we can lower overall levels. The shareholders ought to be the drivers of reform here, not the government -- the government should just make it easier for them to do so, individually and collectively.
In the end, however, this is largely a cultural issue. In Europe, nobody would dare pay themselves these sums because it would bring social disapproval down on them. And the press, the academic community, the religious community all have a role here, in discussing openly the moral and ethical dimensions of a market economy that is allowing the very top to pull away from everyone else. So far, the corporate community has been able to ignore that conversation, despite overwhelming disapproval of their pay schemes. But we have to keep at it, because I think we are finally gaining some traction.
In the end, this will break when more and more chief executives of visible companies declare they aren't going to play the old game, are going to set reasonable limits, and speak the truth about how corrupt the old system has become, with the directors and compensation consultants all scratching each other's backs.

Washington, D.C.: How much was your bonus this year?

Steven Pearlstein: Unfortunately, non-managers in the newsroom aren't really eligible for bonuses. I think that is wrong -- I'd be in favor of lower base pay with a fairly sizeable bonus pool. But I"m not sure most of my colleagues would agree.

Brightwood, D.C.: Fannie Mae told most of its non-trading-floor workforce to take annual or leave without pay for two weeks over the holidays, including 2,000 consultants on Catch-up and Get Current projects (earnings 2005 and 2006.) Apparently now Morgan Stanley has also furloughed most of its employees for a holiday spell. What is it with trillion-dollar piles of investment money trying to cut expenses on the backs of non-executive employees? Even Scrooge took the same half-day off he gave Bob Cratchit...

Steven Pearlstein: Is this just a game for the companies to raid the unemployment insurance pool>

Danvers, Mass.: Charlie Munger also says it's envy. Wall Streeters manage other people's money. Corporate executives manage their ownership of capital assets. Are these service worth a percentage of the assets' value? of their income? In aggregate, how should the managers' compensation compare to something like GDP over time? constant, rising, declining?

Steven Pearlstein: You would think that people who are constantly justifying corporate consolidation on the basis of economies of scale would have the intellectual honesty to admit that managers share of profits should be going down, not up. But my main point here is that this is not a proper way to think about compensation. The right way is to think about what a human being needs and can spend, and work up from there. Why is it that the person at the top of a huge organization is entitlted to any percent of the profit? If the company doubles in size, can he work any more than the 12 hours a day he now works? Or any smarter? Will he have any more direct reports? I don't think so.

Houston, Texas hello steven: Can you explain how these wall street xmas bonuses are determined? How do i get a job there?

Steven Pearlstein: Get born to prosperous parents. Go to Yale and Harvard Business School and get a summer internship at Goldman. And then work your way up the greasy pole.
The bonuses are determined on the basis of how much profit you or your group generated. Its a fairly elaborate process, with all the trappings of being objective and rational and market driven. But it still begs the question of how big the bonus pool should be in the first place.

Washington, D.C.: Why don't competitive forces reduce revenues at the big investment banks? I.e., if Bank X will do a major deal for a 1% fee, why doesn't Bank Y offer to do it for a .50% fee? Is there collusion? Or are the companies that use investment banks simply so big that it is not worth their time to trigger these competitive forces by inducing bidding?

Steven Pearlstein: Well, as I said, the banks are smart enough not to get in a price war with each other, because they know that, in the end, they will all be losers and nobody will gain any market share because of it. And it is a small enough club that they can pull off this kind of collusive behavior without actually have to have a meeting and collude. The real problem comes from the fact that it is almost impossible for a new firm to enter and try to get a foothold by offering lower prices. And the reason, as I said, is that the market is rather price insensitive.

Dayton, Ohio: My college roommate worked for Goldman out of college. He probably makes three times what I make, but I work many fewer hours, have a shorter commute, drive a nicer car and live in a much nicer home. Why? Because I live in flyover country.
I harbor no envy for bankers whose only perk is high salary. Money is just a number.

Steven Pearlstein: Yes, it is a mistake to equate pay packages with happiness, at least above a certain level. There is a diminishing return to income on the happiness scale.

Woodbridge, Va:"Funny that. I never hear about when a merger that has been pushed by one set of investment bankers, and blessed in a fairness opinion by another set of bankers, goes bad, that anyone gives back the fees.
You never hear about the fund manager who loses money for clients dipping into his fees to make them whole."
Yeah, whatever happened to the concept of suing for breach of fiduciary responsibility? Why don't these advisers face at least some liability when they push highly risky ventures that go south? Admitedly the final decision remains with the investor but the system does seem to be stacked in favor of the middlemen.

Steven Pearlstein: You got that right. They get you coming and going -- on the way up as well as on the way down.

Washington, D.C.: I'm a buy and hold index fund investor. There's a lot of wasted money in the financial and business world, but from a personal level, I'm not affected by a lot of it. For example, high mutual fund fees come out of the pockets of people who are dumb enough to pay them. Overly inflated corporate pay, however, affects my bottom line, since that means corporate profits are lower. Hedge fund salaries seem like they would, like mutual fund fees, come out of the hedge fund investors' pockets (other than the indirect effect you mentioned). But I'm not sure about how to think about the money going to investment banks like Goldman Sachs, a lot of which seems to come from mergers. Can you enlighten me?

Steven Pearlstein: Well, their biggest source of profit these days is trading for their own account -- in other words, they make money buying and selling financial instruments. The advisory business is smaller, less profitable but growing nicely. And there are fees for executing trades or coming up with new financial instruments for clients. In the end, all of these are paid, ultimately, by owners of capital, which could be individual investors or beneficiaries of pension funds or beneficiaries of university endowments.

Twincities: I agree with the central premise of your article that the executive compensation market is imperfect. But is it imperfect because the skill/expertise of these executives is rare and therefore rewarded disproportinately or is it a sort of collusion where the executives are artificially creating a supply-demand mis-match (not sure how they would though... after all no one stops me or anyone else from trying to be an executive)? Appreciate your thoughts. Thank you.

Steven Pearlstein: It is not because the skill is rare -- there are lots of people who are coming out of business schools and consulting firms who would love to get into the game. Potential supply is much larger than the demand. But this is a winner-take-all type market, in which all the clients want to deal with the top performers. If I told you I could get you a good deal on the services of the 20th best investment bank to handle your corporate merger, I suspect you'd pass up the opportunity. And that understandable caution on your part leads to the winner-take-all dynamic. In truth, the 20th best is probably good enough, and only increases the risk of the deal very little, if at all. But people don't know it or, if they were shown evidence, don't believe it. Again, its a defensive mechanism: If things go wrong, you don't want to be in the situation of explaining why you decided not to go with Goldman Sach.

D.C.: Also -- to Houston, TX -- make sure that you have the appropriate (i.e., required) gender apparatus. That is to say: no girls allowed in this clubhouse.-sigh-

Steven Pearlstein: they're allowed, if they're willing to act and think like the boys.

Arlington, Va.: For the most part, I agree with your contention that investment bankers in the U.S. are overpaid, but how is that any different from real estate agents (getting 6 or 7% commissions on real estate that has doubled in value or more in ten years) compared to the rest of the world, or auto workers making $25 to $30 an hour for the Big Three while Nissan and Toyota workers in the U.S. make roughly half that amount? It's easy to pick on Wall Street, but there are many places in our economy where I suspect compensation will be competed downward.
Europeans may not be paying themselves the same pay packages in private industry, but some of that is due to the best and brightest going into government and then getting sweetheart deals on housing, living allowances and other luxuries. The pursuit of self and self interest is not unique to the U.S.

Steven Pearlstein: We can argue about whether some autoworkers are overpaid (I've written that) or real estate agents (I've written that, too). But the degree to which they may be overpaid pales in comparison to Wall Street and executive salaries. Not necessarily in percentage terms, but in absolute terms. and my point is that percentages shouldn't be the way we think about these things. We can have a big argument about whether investment bankers should earn two or three million a year. But I don't think there is any excuse for paying them 25 million routinely.

Annandale, Va.: Steven,
I take great comfort in knowing, for a fact, that every single one of these greedy, immoral people are going to die. Their money can't buy them out of that. Of course, if they die sooner, rather than later, that just make my day a bit brighter.

Steven Pearlstein: Now, now. Let's not get into that.

"Get born to prosperous parents.": And isn't that the problem right there? Social mobility in the US is dying (even that notable left-wing rag, "The Economist" now is saying that). Meanwhile those at the top take an ever increasing amount of national wealth.
At a certain point, this tends to breed a leeeetle bit of violence.

Steven Pearlstein: Yes, at some point the losers will decide the system doesn't satisfy their needs and wants and will use the political system to redistribute income in some fashion. We don't need to have a Russian-style revolution to do that. We can do it the European way, through high taxes and government run health care, restrictive labor laws, that have the effect of lowering corporate profits, lowering returns to holders of assets and increasing the incomes and economic security of those at the bottom. Which is why the corporate leaders need to start thinking of ways to restrain themselves -- because if they don't, pretty soon somebody is going to do it for them.

Houston, Texas: Have observed over the years that when the U.S. government has a probe with these these wall street firms; i.e. Merril Lynch et all the rest, an out of court settlement is reached, the various firms admit nothing, deny nothing. They pay huge fines to the gov and then the federales keep the monies and we who have been harmed get more salt on our wounds. The fox is not guarding the hen house.

Steven Pearlstein: Not sure what your point is exactly. Most of those settlements have to do with wrongdoing. We're not talking about that today. This is about perfectly legal ways of setting pay for executives and top performers in financial firms.

Washington, D.C.: There's similar price snobbery when it comes to corporate law firms, too.

Steven Pearlstein: I'm sure there is. Too bad there isn't when it comes to newspapers!

"Now, now. Let's not get into that.": Why not? Our govt is for hire to the highest bidder, and we can't even get the most minor of ethical reform passed. The top 1% are pocketing 80% of economic growth. Social mobility is dying fast.
If all other options are closed, and a new de-facto aristocracy is forming, they should be deal with the way we dealt with the last aristocracy.

Steven Pearlstein: This is how we get into a bad political dynamic.

Washington, D.C.: This just sounds like a bunch of people who are bitter. Investment bankers work harder than anyone else in business. They routinely work 18-20 hours a day in thankless jobs, and the only thing they have to look forward to is their future earnings.
College grads who go into I-Banking basically spend all their time working for 2-4 years non-stop, whereas everyone else works normal hours and has a more laid-back life.
Don't be bitter just becuase you made the wrong decision or didn't work hard enough when you were young...

Steven Pearlstein: If you think there is some rational relationship between working very hard for four years, and earning $20 million a year every year from the age of 30 to 55, then we have problem. Deferred gratification is worth something, but not that much.

"bad political dynamic": Uh...if all options are closed, isn't using terms like "bad political dynamic" just a sop?
It's sort of like when the big dumb bruiser expects the scrawny guy he picked a fight with to follow Marquis of Queensbury rules, and berates him when he "cheats". Why should the rules be set by those who gain by them?

Steven Pearlstein: Because if you let these kinds of disagreements get raised to the level of wishing your enemies dead, then you are in Bagdad. Let's try to keep things more civil than that, even on line.

Steven Pearlstein: Good discussion. There won't be any chat next week. Wishing all of you a happy holidays and a great new year. See you in January.

Editor's Note: moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. is not responsible for any content posted by third parties.

December 21, 2006

Are Hedge Funds the World’s Financial Heroes?

As Congress and the Securities and Exchange Commission consider tightening the reins on hedge funds, an article in the latest issue of Foreign Affairs is suggesting they should let them run free. While critics of these kinds of investment pools often portray them as cowboys who disrupt the markets when their risky bets go bad, Sebastian Mallaby argues they are nothing of the sort. Hedge funds are the good guys, he writes.

Hedge funds have flourished in recent years, with assets under management ballooning to more than $1 trillion since 1998. Yet Amaranth Advisors‘ $6.5 billion meltdown this fall has rekindled concerns about another spectacular collapse on the order of a Long-Term Capital Management. The relative secrecy of hedge funds can seem frightening. More pension funds are turning to hedge funds in an attempt climb out of their financial holes, prompting some lawmakers and regulators to express concern about retirees’ funds disappearing.

Mr. Mallaby, a columnist for The Washington Post, paints a different picture. Instead of threats, hedge funds promote liquidity and right the markets by exploiting (and thereby reducing) pricing discrepancies. They assume risk that would otherwise fall onto mainstream institutions like banks, promoting a more stable marketplace. And the risk of a massive hedge-fund collapse — what Mr. Mallaby describes as a disastrous domino effect that wipes out hundreds of funds making the same wrong bet — is highly unlikely. In short, he argues, hedge funds are the sorely misunderstood guardians of the modern market economy.

So Mr. Mallaby’s prescription is to let hedge funds be. The proposed solutions, such as raising the minimum net-worth requirements for investors and forcing registration of funds, won’t work, he writes:

[T]he fear of hedge funds is overblown, based more on ignorance or simplistic caricatures than on actual knowledge. Many of the proposals for new regulation are so vague as to be impossible to evaluate or are poorly suited to address the supposed problems at issue. And even the most serious cause for concern — that hedge-fund operations might generate a “systemic risk” for the financial system as a whole — is neither limited to the hedge-fund sector nor best addressed through regulation of it. Rather than seeing hedge funds as sources of dangerous financial fires, in fact, it is more accurate to see them as the financial system’s benevolent fire fighters — and to let them have the tools they need to do their jobs well.

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7 comments so far...

    1.December 21st, 2006 3:31 pm I wholeheartedly agree with Mr. Mallaby. In their ill fated quest to show the American Public they are doing something, Congress and the SEC are hatching useless regulations in the free markets. I can’t imagine what Nancy Pelosi, Charles Rangel and Barney Frank could possibly tell Goldman Sachs, Bridgewater, D.E. Shaw, Citadel, SAC Advisors and ESL to help them improve their business and investment strategies. The bad decisions by Amaranth and LTCM and the several other hundreds of hedge funds can not be legislated away. Investors such as pension funds and endowments are seeking the highest yields. If not hedge funds then private equity or real assets. Where the regulators and politcians when the commercial real estate collapse in the early 90s? How come Congress didn’t stop pension funds from investing then? When the tech bubble collapsed in 2000 why didn’t Congress stop pension funds from investing in them? It clear the free markets have a way of sorting themselves out. The strong survive and the weak fail. If any of these guys have broken the law then by all means prosecute them to the maximum extent of the law. But none have them have to the best of anyone’s knowledge.
People are free to gamble their money away. They are free to pay outrageous fees for below market performance. Eventually, as all economists and psychologists will say these people will act in a rational manner. Unfortunately, the media has portrayed huge losses as being criminal or shady in nature. When in fact losses are due to poor investment decision making.
— Posted by mrskeptic

    2.December 21st, 2006 9:06 pm There is no question that certain hedge funds that have market moving heft should be required to disclose more than they currently do. At least follow an ADV. That being said all an ADV does for regulation is give regulators a door to knock on once something has already happened. I propose several principles (not rules, I am working on my MBA not JD)
1. A firm can only be called a hedge fund if they actively work to mitigate risk.
2. Disclosures regarding strategy, holdings, or management structures to clients should be disseminated to a regulatory body. They should not be made widely available in a timely manner to the general public.
3. All firms making investments on someone else’s behalf must be punished if they deceive clients about risks they will take on.
4. If the general partner’s strategy changes, clients any lockup is nullified.
Let the lawyers codify that but overall hedgefunds are not ticking time bombs. They are able to exploit inefficiencies in the markets to reduce mispriced areas.
— Posted by 1st year MBA

    3.December 22nd, 2006 2:55 am It is true that Hedge Funds hardly disclose any information at all. But this is also due to the fact that if they were to disclose their information, the investment strategies used by the managers would become known to everyone. This would ultimately benefit the financial markets, but would also be like a free lunch to all other investors, because they would gain knowledge on an investment strategy that was developed by a professional asset allocator.
And of course, the Hedge fund manager would not allow such a disclosure to happen (there are legal battles currently under way on this very subject). So basically on one hand you have these Highly Leveraged Investment Vehicles that have multiple counterparts, each of which has no clue to the real exposure of the hedge fund. Trying to regulate the Hedge Funds by domicile is futile: the only regulamentation that will work is indirect, on the counterparts. But of course, the more you regulate a sector that is able to generate “alpha” thanks to the lack of regulation, the more you damage the sector itself.
Hedge Funds do some good to the financial markets after all: they enter in illiquid sectors and create a market, they take risks that others don’t or can’t, they reduce spreads (particularly the market neutral HF’s) and therefore contribute to the global integration of financial markets. Basically, they “leverage” all the benefits that common institutional investors bring to the market.
Therefore, I agree that they do assume a lot of risk, and that it would be interesting to induce some sort of disclosure - in particular some risk measures, liquidity measures and leverage measures - but I also agree that they do benefit financial markets. It is a tough debate indeed.
Last, but not least, the gigantic losses by LTCM and Amaranth were do mainly to “gambling” rather than structural faults.
— Posted by Jcpfit

    4.December 22nd, 2006 5:26 am While Mallaby is right in his observation of the Hedge Funds’ market workings and the benefits of having HFs taking risks that otherwise would fall onto mainstream institutions, it must be noted that the sheer size of this industry is way too big to let it “unguarded”.
If the businessworld needs SarbOx regulation to keep executives under control and to hold them responsible, the hedge fund industry surely needs to have some kind of regulation, too. When the SEC announced its intention to regulate the HF industry, there was this huge outcry about “compliance” costs that would be mainly a drain on smaller funds. Well, if the smaller firms cannot afford to pay for compliance processes, they shouldn’t be in business in the first place.
MrSkeptic, losses may occur due to bad decision-making, but it is very easy for someone without any or not much “skin in the game” (own money and/or resources invested) to underestimate the risks. Sadly, most money managers lose money because they are simply using “other peoples’ money”. The ones who keep their investors’ bottomline in mind whilst doing their job, and the ones who have some skin in the game, are the ones that succeed and have succeeded, witness the likes of Steven Cohen.
— Posted by Neal S. Lachman

    5.December 22nd, 2006 11:20 am “How much fraud are you willing to accept for liquidity?” That was the question former SEC Chairman William Donaldson posed to Fed Chairman Alan Greenspan only 2 years ago. He was talking about hedge fund liquidity.
Hedge Funds create liquidity both legally and illegally and, for teh most part, regulators leave teh illegal liquidity alone because it is “good for our financial markets”. What they really mean is, liquidity is good for Hedge Fund profits and…good for the bottom line profits of those who are paid the commissions in trading this liquidity - The financial institutions that are now doling out $20, $30, $40, $50 Million in bonuses to CEO’s.
Hedge Funds are being accused of “buying” hatchet job’s to place negativity on a market they short. They can do that with the money and leverage they have. Hedge funds were the preferential customers involved in the late trading/market timing abuses that impacted us all. Can you count how many of them had to repay the victims? Bet you won’t get past your first hand.
Now, hedge Funds have become activists where they buy into a company, try to change it’s structure, and will quickly sell back out of it leaving the remaining investors to pay the price for their actions. Hedge Funds are not typically long term investors and this activism is just a charade to create a movement for a short term profit. We call this liquidity but in teh end, it is the hedge fund that profits while most remaining investors lose.
But one thing is true - hedge fund clients and managers do donate to charities, problem is, they are donating a portion of teh monies they acquired through these “special privaledges” that cost the rest of us our pay check.
— Posted by Dave

    6.December 27th, 2006 2:29 pm Hedge Funds are by themselves neither good nor bad. It is the way in which they participate in the markets - or fail to participate and make good their commitments in the market - that make them good or bad.
The amount of money that is invested by the HF’s in the regulated sectors of the markets while the hedge funds themselves remain unregulated - is just mind boggling ! I mean, why would the courts rule that the hedge funds are beyond regulation, unless they see that regulating them would destabilise the markets purely by flight of ’sensitive’ investment funds into other avenues where tax avoidance can be better enforced.
This may mean that Barbados and Nassau and other tax havens will benefit at the cost of the average american!
— Posted by Venkat Karimanasseri

    7.December 28th, 2006 10:49 pm Market risk cannot be regulated away. As long as there are free markets money will be made and money will be lost. Regulation or more “disclosure” will not change that.
Risk of fraud can be regulated very easily. All the lawmakers have to do is require hedge funds to use a third-party administrator and custodian. This puts a third-party between the fund managers and the money. These third-parties should also compute the returns. This will prevent managers from stealing the money and covering it up with fake returns. Add to that an annual audit of the hedge fund and problem solved.
The lawmakers can regulate the hell of of these third-party adminitrators and auditors to be sure they are doing their jobs. But please don’t regulate in an attempt to prevent market losses. All that will do is create dislocations and hamper the operation of free markets.
— Posted by William Eubank

December 20, 2006

Goldman Chairman Gets $53.4 Million Bonus

Just a week after Morgan Stanley chief executive John J. Mack scored an unprecedented $41.1 million bonus, there is a new record on Wall Street. Securities firm Goldman Sachs disclosed that it paid Lloyd C. Blankfein, its chairman and chief executive since June, a bonus of $53.4 million in 2006, the highest ever for a Wall Street chief executive. The payout comes soon after Goldman reported a record profit of $9.5 billion in 2006. Its stock price is up almost 60 percent for the year. And on Wednesday, Thomson Financial published preliminary 2006 results showing that Goldman once again topped the list of mergers and acquisitions advisers, taking part in global deals with a total value of more than $1 trillion.

Goldman’s compensation committee awarded Mr. Blankfein $27.3 million in cash, $15.7 million in restricted stock and options to buy Goldman stock valued at $10.5 million. Added to his $600,000 salary, the bonus means that Mr. Blankfein will make $54 million this year, up from $38 million last year.

Such large payouts can be controversial, as shown by the many comments from DealBook readers on last week’s item about Mr. Mack’s record-setting bonus.

The head of an executive-search firm told Bloomberg News that Mr. Blankfein’s bonus is the “right amount,” buts added that “any more than this might be questionable.'’ A money manager remarked that, given the big rise in Goldman’s stock this year, “most of the shareholders would have no problem paying that bonus.”

Bloomberg also put the bonus in context by noting that the heads of the top hedge funds, which are investment pools for institutional investors and the wealthy, can make hundreds of millions of dollars in a given year.

In fact, some employees at Mr. Blankfein’s own firm apparently got bigger year-end payouts than he did. A spokesman for Goldman Sachs told The New York Post that a few people at Goldman were given higher bonuses than Mr. Blankfein, but none of them “came close to the $100 million mark,” as the Post had speculated in a previous article.

Bloomberg also wrote that Mr. Blankfein is director of the Robin Hood Foundation, a charitable group dedicated to helping New York’s poor that counts some of Wall Street’s most powerful executives on its board.

Go to Article from The New York Times »
Go to Article from The New York Post »
Go to Article from Bloomberg News »
Go to Article from The Independent »

25 comments so far...

    1.December 20th, 2006 10:13 am Almost 10 million a month for a guy who has been with the firm only 6 months? This is unbridled American greed! Imagine what that money could do for Katrina survivors. Of course, we all know he worked so hard and has such a great deal of experience that no one else could have possibly made his firm so profitable. (BULL)
I wonder how much the landscapers are making trimming around his third or fourth vacation home?
His acquisitions and mergers are causing a reduction in American employment and wages.
This comment is certainly less abusive than receiving a $53.4 million bonus after 6 months.
— Posted by Jim

    2.December 20th, 2006 10:39 am The idea of rewarding movers/shakers obscenely when stock price goes up is seemingly never questioned and so happens all too often. What seems to never happen is a financial penalty for failure, such as a stock price going down or misfeasance. Indeed, the big shots are rewarded for failure when they get the big “go-away-and-don’t-write-a-book” Exit Bonus after screwing up the company or losing a political battle. The ruling class has rigged the game and there is no logic to compensation other than get as much as possible, regardless how. Let the (lowly paid) PR flaks justify it post-hoc.
— Posted by theo disante

    3.December 20th, 2006 11:38 am Hi “Jim.” Perhaps you should know what you’re talking about before your fingers take you on your next commentary tirade. Blankfein has been with Goldman for over 20 years and works 20 hours a day. Are you remotely aware that every time communism or heavier forms of socialism have been attempted that they’ve been complete disasters? Are you also aware that Lloyd Blankfein gives a ton of money to poverty reduction charities? Our economic system is far from perfect, but it’s better than the alternatives. Go for a jog and calm down. Better yet, study the history of Marxist regimes and take an economics course.
— Posted by JL

    4.December 20th, 2006 12:22 pm I don’t know if it’s simple jealousy or simple disgust or if in the back of my mind I am cheering for the guy. Yes Mr. Blankfein and his colleagues are highly skilled movers, but really now - are we all living on the same planet? Goldman is a publicly traded company. There should be at least A FEW jeers from the peanut gallery crying foul. If one is using his/her own money, or the money of a very small pool of investors such as hedge funds, and there is obscene profit then it should be taken without question. The line should be drawn somewhere with listed entities. Where? Somewhere that actually relates….to reality.
— Posted by Montgomery Kremers

    5.December 20th, 2006 12:38 pm This bonus, for 6 months work, is a very high multiple of my expected lifetime income. But then, I only do biomedical research……
— Posted by Dr. S. Rackovsky

    6.December 20th, 2006 12:58 pm These compensation packages are what is wrong with the free enterprise system. It’s only free for those on the top.
How can the middle class and below, change this? Are we and future generations doomed to this, obvious by any real thinking persons evaluation, rape of the financial resources?
What do any historians have to say re: this?
— Posted by Art

    7.December 20th, 2006 1:10 pm obscene wealth
definition; what the other guy makes
— Posted by thewiseking

    8.December 20th, 2006 1:11 pm What does tangible product does this guy actually make? Besides being a money lender that is? Obscene doesn’t begin to describe the payout?!
— Posted by elvis

    9.December 20th, 2006 2:07 pm This is theft, no more, no less.
— Posted by B. Ramsey

    10.December 20th, 2006 2:19 pm Jim is clearly not up on GS. Blankfein has been at Goldman for years, started at J Aron, and was a senior executive before he took the helm when Paulson left for Treasury. The success of GS is well deserved and is a function of market acumen, political acumen, and superb talent choice, acquisition, and, as the case may be, release. They all deserve it. If you want it then go work on the Street…
— Posted by Sid Weinberg

    11.December 20th, 2006 2:20 pm As a Connecticut resident facing a 52 percent electricity increase, this really upsets me. My electric company says “don’t blame us, blame the power generation companies that own the generation plants. We buy from them and simply pass the costs to you without mark-up.”
Guess who owns the generation companies? Yes, in some cases, Goldman Sachs. So my electric bill, in essence, is paying his $57M bonus. Nice!
— Posted by jeff nielsen

    12.December 20th, 2006 2:41 pm For the record, Mr. Blankfein has worked for Goldman Sachs for more than a decade. He has only been the Chairman & Chief Executive for six months–a position that he worked his way up to. (I don’t work for GS.)
— Posted by Meg

    13.December 20th, 2006 3:22 pm Welcome to the land of the free and the home of the brave !
Now you know what our troops in Iraq are valiantly defending….and so do they.
Remember that when Bush (and conservatives generally) talks of “Freedom” he means the “freedom” of capital to do what it will without any “interference” from mere Voters.
God Bless America !
Unless, that is, like Ayn Rand, (whose psychotic doctrines spawned the conservative “movement” that gave us the Rove regime), you are a proud atheist.
— Posted by Jay Diamond

    14.December 20th, 2006 3:43 pm For comparison let’s look at Japan. Most of the CEO’s earn about 4x the average worker’s salary and the highest paid atheletes earn about 250k.
A bit more realistic in terms of equality, but hey we are in America and God love it or hate it, the dollar does reign supreme.
More power to Blankfein, if the comp committee and the stockholders agree he’s worth it then that’s the bottom line as far as I see it.
— Posted by DUDE!
    15.December 20th, 2006 4:28 pm He’s worth the 50M. Probably more. If he ever lended money to any company you work for, or have clients or vendors at, he’s responsible for your bonus being feasible, never mind the ability to pay your mortgage, retirement, food, clothing, and electricity bills.
The truth is, if you work 90 hour weeks from the time you’re 16 until you’re 50 (basic requirements for near perfect SAT’s, 4.0 Ivy-League College Graduation, Near Perfect MBA program, and 20 Years on wallstreet 6-7 days a week ), you’re going to hit the 10M+ a year bonus mark. If you don’t, you’ll be the exception.
— Posted by Andrew

    16.December 20th, 2006 4:36 pm Works 20 hours a day every day? I don’t think so. 8 hours is worth $150,000 and 20 are worth $54M? And does it really matter how long he has been there?
The point is, $38 million last year, $54 million this year and who knows how much in prior years or the next. And this is just one guy. There’s another billion plus being spread around. A public company might ask, “Is there no one else with equal talent who will do it for less?”
The impression, and probable reality, is that the games are rigged; the game that creates these profits in the first place and the game that fixes the compensation. The talent is figuring out how to tap huge piles of cash in public pensions and public projects managed by people with demonstrably less talent (at least judging by their paychecks). Compensation at these levels just makes it easier to continue to rig both games. Or hasn’t anybody read the newspaper in the last five years?
As long as shareholders put up with executives treating these firms as their private oyster, and as long as regulators and “public” accountants make it easy to hide the ball, nothing will change. And my money stays out of the casino, I mean, the market.
— Posted by Jack

    17.December 20th, 2006 5:05 pm Obviously capitalism isn’t perfect, but our standard of living in this country can be attributed directly to it. Yes, it has its flaws, however, history has shown that it’s better than other economic approches. Instead of complaining about how someone is making absurd amounts of money in the free market, I suggest your efforts are better spent providing ways to improve the current system.
In response to the suggestion that the M&A that GS brokers reduces jobs in this country, let us not forget how many Americans shop at stores like WalMart, Target, K-Mart and various other discount stores that sell loads of items made overseas. It is the consumer’s desire to pay less for things that is driving so many jobs out of the country. American labor is too expensive for the American consumer’s taste.
— Posted by Dg

    18.December 20th, 2006 5:27 pm I’ve had a Goldman Mutual Fund since 2001. It is up about 9%, or 1.8% per year. And it’s even less if I deduct my expenses. So much for great financial acumen. Same old story, the rich get richer and the poor get poorer.
— Posted by Karl R. Gettmann

    19.December 20th, 2006 6:43 pm Its called capitalism, the free market system and intellectual capital. None of which are tangible and all of which are priceless. This man for better or worse has worked his way to the top of the most successful financial institution (check the related articles on this year’s league tables). If you want his job, I think Goldman takes applications like every other company in this great country. And while you’re at it, check your pension funds, mutual funds, and 401ks (i.e. Vanguard, Putnam, AXA, Fidelity, Janus, etc). If they are holding GS (that’s the symbol for Goldman Sachs), then you’ll notice that ol’ Lloyd has brought his shareholders quite a return (something in the ballpark of 30% since June). If you don’t like the system, then turn in your passport. Otherwise, read some Adam Smith and Warren Buffet and strive to earn your piece of the pie.
— Posted by IBank for All

    20.December 20th, 2006 9:37 pm Bonuses, work ethic, etc…are all meaningless if inocent people are being defrauded. Goldman sachs made fortunes screwing up IPO’s. Goldman sachs made fortunes defrauding investors because they failed to invest in compliance programs and adequate levels of supervisors, and goldman sachs made fortunes by charging excessive commissions and lending fees on securities they never possessed to lend.
I have no problem with free enterprise, $40 million bonuses, etc…if the system was working appropriately and if innocent people, who live pay check to pay check, are protected. Goldman Sachs is part of an industry that fails to invest in protecting people because it impacts bonus money. THAT is what is wrong with this picture and work ethic, work experience, and all that other BS is meaningless when grandma lost he financial freedom to the greedy pigs.
Maybe we should stop the debate over the money and really debate the business ethics that created the money. Anybody that wants to debate Goldman Sachs, Morgan Stanleys, or any other Tier I firms integrity towards investor protection I am all ears. That is ultimately what this issue comes down to.
— Posted by Dave

    21.December 21st, 2006 12:55 am I need to earn similar $$$$$$$$$$$ as Mr. Blankfein. Toward this end, will someone please come forward and be my mentor to provide me the opportunity to join, and participate in the strategic, managerial, and operational matters of a, company which manages a group of hedge funds and hedge fund investment techniques, mergers and acquisition advisory services, and corporate lending services?
Currently a retired engineer and managing director presently enaged not-for-profit in education-substitute teaching-classroom administration-banking and financial services/hedge fund investment techniques studies-research-and-investigation, I previously participated in the strategic, managerial, and operational matters of (1) the partnership of:– (1) a national commercial / international bank and an interdisciplinary engineering management firm. (2) Before that, the partnership of an investment and finance merchant/international bank and said engineering company. (3) Before that, the partnership of a firm of engineers, contractors and manufacturing representatives/ industrial sales and corporate finance/ international business, and its subsidiary international trust company, and the first-mentioned interdisciplinary engineering company, during a very successful tenure as a company managing director and chief financial officer, advisor, and quantitative/qualitative interdisciplinary engineering executive officer, during a very successful 8 years tenure; responsible for all of the functions of the three consecutive partnerships, including Finance, Strategy, Business Process Optimization, Corporate Platforms and Innovation, Procurement, Investor Relations, and Technologies, Manufacturing Finance and Reporting; completing a total of 21-1/2 years experience in the broad multidisciplinary mechanical, electrical, electronics, civil, structural, instrumentation and control, chemical and biochemical engineering and corporate finance/international business world.
Alas! My relatively very miniscule compensation never ever came even remotely close to above- subject compensation despite working 20 hour days as well as on Christmas Day. In conclusion, I do not begrudge Mr. Blankfein his financial accomplishments. Instead, I desire an opportunity to emulate him.
Respectfully Yours….
— Posted by Valdeck Rowe

    22.December 21st, 2006 2:59 am Well, if a Goldman Mutual Fund only earns 1.8% per year and it is enough to lure enough customers to record $9.5 billion profit. Kudos to Lloyd. He deserves is $53.4 million bonus. I know legit business owners who are currently offering approx 40% returns per annum to investors and still struggles to raise more capital. My point is, the chair/CEO is rewarded for how much profit he/she brings to his company, not how much return on investment he can guarantee for investors.
— Posted by Danny Ma

    23.December 21st, 2006 3:09 am You can look at this compensation figure in terms of recruitment and public relations as well. Maybe Mr. Blankfein did not deserve the money, but was awarded this much so that GS could set this record and continue to recruit the top MBAs. Maybe he deserved more but GS lowered his bonus to protect themselves against public anger (see above) and possible action by overzealous politicians.
— Posted by Chris Corliss

    24.December 21st, 2006 6:31 am He has done great good for the world and deserves every penny. There is less pain and suffering, hunger, and disease because of his work. Wars have ceased and a cure for cancer may have been found. No, wait, I think that is GWB.
— Posted by Mr. Stanley

    25.December 22nd, 2006 9:27 pm I am all for capitalism and people making money. We do live in the best country…now. However, America isn’t turning into communism or socialism; it’s heading towards facism. Correct me if I am wrong, but since the late 1990’s, America has had many, many mergers and acquisitions that have almost become an every day occurence. As a matter of fact, America is on pace for a record 4 trillion in acquisitions. More interesting, is that our government (under both Clinton and Bush) have approved just about everyone one…good or bad. You can’t blame Bush on this one! So far, this has been healthy for the economy and GS, but eventually, if it keeps going at this pace, it won’t be. Empires have been known to fall. Loyd and GS is not helping of all this. Good for Mr. Blankfein and his “real” salary. I hope he and the rest of Wall Street can work 24 hours a day in 2007 and keep depleting America of what capitalism really stands for: Competition.
— Posted by Jason

HANDELSBLATT    21. Dezember 2006

Inzwischen scheinen Übernahmen von bis zu 50 Mrd. Dollar möglich.
Den Private-Equity-Häusern fehlen die Ausstiegsstrategien für ihre Großbeteiligungen.
Finanzinvestoren werden zu Mischkonzernen

pot / rob FRANKFURT. Für Hermann Prelle, Vorstand der UBS, „werden viele Private-Equity-Häuser auf Dauer gezwungen, ihre Großbeteiligungen zu halten, da es keine Möglichkeit zum Ausstieg gibt". Inzwischen scheinen Übernahmen von bis zu 50 Mrd. Dollar möglich, da die Spitzenfonds mittlerweile im zweistelligen Milliardenbereich angekommen sind.

Einen Vorgeschmack auf diese Megadeals gab dieses Jahr die Übernahme der US-Krankenhauskette HCA für 33 Mrd. Dollar. In Deutschland gerieten Unternehmen aus den Aktienindizes Dax und MDax in die Reichweite von Beteiligungsgesellschaften, urteilt Berthold Fürst, Leiter deutsches M&A bei der Deutschen Bank. Andreas Raffel, Chef von Rothschild in Frankfurt, sieht zudem „eine steigende Risikobereitschaft von Finanzinvestoren". Die Beteiligungsunternehmen tun sich derzeit leicht mit großen Übernahmen, da sie nach den Worten von Prelle im Durchschnitt nur ein Fünftel an Eigenkapital einsetzen und den Rest über billige Kredite am Kapitalmarkt aufnehmen.

Allein in Europa addierte sich das Volumen von Firmenkäufen durch Finanzinvestoren in diesem Jahr nach den Berechnungen des Finanzdatenanbieters Thomson Financial auf insgesamt 234,8 Mrd. Dollar und markierte damit einen neuen Rekord. „Private Equity" steht für außerbörsliches Beteiligungskapital. Die Fonds sammeln bei institutionellen Investoren wie Pensionskassen Milliarden ein und kaufen damit Unternehmen. Nach zwei bis fünf Jahren werden die Gesellschaften bisher meist weiterverkauft oder an die Börse gebracht. Die Rendite liegt oft über 20 Prozent.

Prelle geht davon aus, dass die Umorientierung in Richtung eines Konglomerats ähnlich wie bei General Electric in den nächsten fünf Jahren schrittweise ablaufen werde. Großbeteiligungen seien kaum mehr zu verkaufen. An neuen Kaufgelegenheiten mangele es ebenfalls. Gleichzeitig fließe immer mehr Geld in Fonds der Finanzinvestoren. Eine Änderung der Geschäftspolitik zeigte jüngst Blackstone durch den Kauf von fünf Prozent Telekom-Aktien.

    December 22, 2006

Just Capitalism
Not all attacks on business are crazy. Here is the sane version.

THIS SERIES has described ways to address inequality: Increase tax progressivity; invest more in education; reform health care. But there's pressure to reach beyond that: to tackle inequality where it apparently originates, meaning the workplace. This pressure can be dangerous. Companies are not instruments of social policy; their first duty is to make money by serving customers, and they can provide for their workers only so long as they do that. Nevertheless, two sorts of corporate reform are warranted. It should be easier for labor unions to organize. And it should be harder for top executives to pay themselves outlandish sums.

Union membership has fallen from 20 percent of the workforce in 1980 to 13 percent in 2005, and part of this decline is inevitable. It reflects attrition in the manufacturing industries that are most easily organized. It reflects the rise of sophisticated human resource departments that provide workers with training, savings plans and grievance procedures -- usurping some of unions' traditional functions. And it reflects the deregulation of domestic industries such as trucking and airlines, plus tougher foreign competition. These forces spur businesses to innovate, but they also constrain their ability to make wage concessions to unions. In competitive markets, companies will pay workers what it takes to prevent them from being lured away by rivals -- and not more.

Yet the decline of organized labor also reflects a legal climate that is neither inevitable nor desirable. The way labor law is enforced now, employers can block attempts to establish unions by intimidating workers; a supervisor can summon an employee to daily meetings to discuss the dangers of unions or ban discussion of a union during work hours. If these tactics are not enough, employers can fire union organizers; although this is supposed to be illegal, the penalties are too feeble to serve as a deterrent. Meanwhile, a series of decisions from the National Labor Relations Board has narrowed the definition of workers who are eligible for union membership. Two months ago, for example, the three board members appointed by President Bush outvoted the two appointed by President Bill Clinton in ruling that relatively junior workers can be defined as "supervisors," thus restricting their right to join a union.

A fairer legal climate might reduce inequality slightly. According to David Card of the University of California at Berkeley, de-unionization explains about 15 percent of the increase in wage inequality among men over the past quarter-century. But the larger gain from reforming labor law would be political. Freedom of association is a core democratic right, and polls suggest that between 30 and 50 percent of nonunion workers would choose union representation if they had a chance to vote for it. The suppression of freedom of association is wrong in itself, and it fosters the suspicion that the rules of the economy are rigged against workers. Setting aside the debate over how much union membership can improve wages or benefits, the option of union membership is crucial to the legitimacy of capitalism.

The same goes for rules on executive compensation. Since 1970, the pay of chief executives has jumped from less than 30 times the average wage to almost 300 times that level. This helps explain why the richest 1 percent of Americans pocketed 21.6 percent of all the gains in national income between 1996 and 2001, according to Ian Dew-Becker of the National Bureau of Economic Research and Robert J. Gordon of Northwestern University. As with the decline of labor unions, some of the rise in executive compensation reflects market forces and is inevitable. Yet similar market forces are at work in other advanced nations, where executive pay has grown more modestly. In 2003, the ratio of U.S. chief executives' pay to that of manufacturing workers was more than double the norm in 13 other rich countries.

This reflects the way that bosses' pay is often set in the United States. Chief executives negotiate with a committee of board members whose independence is sometimes suspect, whose personal interests (particularly if they are CEOs of their own companies) may be served by rising executive-pay scales and who see little upside in risking a fight with the chief executive. In the absence of real discipline from compensation committees, CEOs can get away with pointing to the typical pay rate in their industry and asserting that they deserve a little more. The result is an inflationary spiral in executive compensation, unhinged from CEOs' real contribution to firms' performance.

What proportion of bosses' pay should be regarded as excessive? In a paper published last year, Harvard's Lucian Bebchuk and Cornell University's Yaniv Grinstein take a careful look at this question. They begin by noting that executive pay was already raising eyebrows back in 1993 and that it has nonetheless grown mightily since then. Then they observe that sales and profits of top companies have risen, which would tend to cause the bosses' pay to rise in tandem; and that an increasing share of the top companies are new-economy outfits, which tend to pay more. By analyzing the statistical relationship between executive pay and firms' size, profits and product mix, Mr. Bebchuk and Mr. Grinstein calculated how much compensation could have been expected to rise between 1993 and 2003. Their result: In 2003 the top five executives at the average public company could have been expected to earn a collective $6 million -- but they actually received almost twice that.

Overall, that means that the 1,500 companies studied "overpaid" a total of $8.7 billion in 2003 -- and this number is an understatement because it leaves out executive pensions, which are thought to have grown especially dramatically. If corporate governance reforms reestablished discipline over executive compensation, that excessive pay might shrink a bit. Inequality would decline, though only slightly -- the money would flow to shareholders, and more than three-quarters of all stocks are owned by the richest 10 percent of the population. But, as with labor law reform, the chief gain from corporate governance reform would be political. Executive overpayment running into the billions sends a terrible signal about the justice of the capitalist system.

Most critics of business are misguided. It is wrong to denounce managers who relocate factories to other countries or who fight to control wages; they are responding to market signals, as indeed they should. But when managers distort market forces by rigging the legal environment, that is a different matter. An entire industry of consultants exists to advise companies on how to avoid recognizing a union; a second industry of consultants exists to legitimize super-sized executive pay. Until this changes, the growing material inequality in the nation will be compounded by the corrosive perception that the rules are unequal, too.

This is the ninth editorial in an occasional series on inequality. Previous editorials in this series can be found at

Le Temps    23 décembre 2006

Les entreprises distribuent-elles leurs gains sous forme de primes? A peine
Les gratifications de fin d'année ou les autres «cadeaux» accordés aux salariés de base
ne compensent de loin pas l'écart entre la petite progression des salaires et celle,
plus importante, des bénéfices dans maintes branches.

 Yves Genier, Collaboration: Elise Jacqueson

 Les salariés de base ne profiteront que très marginalement de la croissance de la profitabilité de leurs entreprises. Les hausses de salaires, comprises généralement entre 1,5 et 2,5%, seront certes supérieures au renchérissement, estimé par l'Office fédéral de la statistique à 1,1% pour 2006.

Il ne faudra toutefois pas compter sur les primes, gratifications, bonus ou autres formes d'intéressement pour permettre une redistribution sérieuse des gains de productivité. Selon un coup de sonde réalisé par la rédaction du Temps auprès d'une vingtaine d'entreprises de divers secteurs actives en Suisse romande, les «cadeaux de fin d'année» devraient s'élever en moyenne entre 500 et 1000 francs par salarié, pour atteindre, très exceptionnellement, 2000 francs.

Cette modestie dans les gratifications et autres primes contraste avec la progression des bénéfices des entreprises suisses, qui se situe, selon les estimations, entre 21 et 29% pour 2006. Elle s'inscrit légèrement en dessous de la hausse de la productivité horaire (voir graphiques).

Les augmentations de salaires, fixées dans le cadre des conventions collectives de travail (CCT), reflètent la santé de chaque branche. En revanche, les primes, bonus et autres formes d'intéressement sont alloués à bien plaire par chaque employeur en fonction de sa santé économique propre.

- Les généreux
Ces entreprises accordent primes et bonus en plus des hausses de salaires. On y trouve notamment Swiss qui élève les salaires de 1,1%, à quoi s'ajoutent une prime exceptionnelle de 2000 francs et un «versement extraordinaire» de 1200 francs.

Les employés de Swatch (UHR.VX) encaisseront une part des performances de leur entreprise. Leurs salaires progressent de 1,5% en 2007. Une part supplémentaire de 0,5% de la masse salariale est consacrée à des augmentations individuelles, à quoi s'ajoute une prime extraordinaire de quelques centaines de francs distribuée à tous. L'employeur accorde aussi la gratuité des places de parc qui lui appartiennent.

Outre des augmentations de salaires de 100 francs par mois, les employés de Coop bénéficieront de primes de 300 francs pour les personnes à temps complet (moins pour les temps partiels) ainsi qu'un certain nombre de bons de réduction pour des biens et services fournis par le groupe.

DPD, concurrent de La Poste, diminuera de 30 minutes le temps de travail hebdomadaire de ses employés et accordera deux jours de vacances supplémentaires, en plus d'une augmentation moyenne de 70 à 90 francs par mois.

- Les prudents
Cette catégorie regroupe les sociétés restrictives dans l'octroi de primes ou de bonus. Par exemple, Vaudoise Assurances (VAH.S) élève ses salaires de 2% contre une hausse de 1,9% en moyenne dans son secteur. En revanche, les primes ne seront accordées qu'à un nombre très réduit d'employés: moins de dix, sur un effectif de 1350 personnes environ.

La distillerie Morand à Martigny va distribuer des primes comprises entre 500 et 1000 francs par personne à 20% de son personnel environ après une année particulièrement chargée. La direction veut étendre ce système.

Le Montreux-Palace, même s'il n'annonce pas d'augmentations de salaires, s'aligne sur la CCT de l'hôtellerie, qui prévoit une hausse comprise entre 1,7 et 1,9%. Seuls ses employés très engagés lors des surcharges de travail, notamment lors du Festival de jazz, recevront des primes exceptionnelles. Les salariés reçoivent des bons pour des nuits dans les hôtels de la chaîne en Suisse.

Minotel à Genève ne distribue pas de primes, mais des bons d'une valeur de 180 francs pour des nuits dans tous ses hôtels, en fonction de l'ancienneté des employés.

- Les pingres
Ces sociétés ne versent aucune prime ni autre forms d'intéressement, même si elles adaptent les salaires. On y trouve notamment un groupe fribourgeois d'agroalimentaire ou encore un gros garage genevois.

Le Père Noël n'existe pas
Jean-Claude Péclet

«Pensez aux primes» titrait Le Temps en septembre dernier. Les entreprises qui y ont pensé ont dû échapper au coup de sonde pourtant assez large auquel nous avons procédé en cette fin d'année. A quelques exceptions près, c'est le royaume des grippe-sous et du bricolage à la tête de l'employé. La majorité des employeurs interrogés perpétuent, voire accentuent, un système qui rétribue d'autant mieux la performance qu'on est mieux placé dans la hiérarchie, la finance poussant le modèle jusqu'à la caricature. Et cela alors que les bénéfices ont connu en 2005 et 2006 deux années exceptionnelles de croissance à deux chiffres. Les prévisions sont moins optimistes pour 2007 et 2008.

Une occasion rare a été gaspillée de traduire en actes les belles paroles sur «l'effort collectif» et sa récompense. Les écarts se creusent, la frustration augmente. On aurait aimé conclure sur une note positive cette année de croissance solide. Hélas...

Sonntagszeitung    24. Dezember 2006

Warum christliche Topverdiener sich davor scheuen, ihren Glauben zu bekennen
Himmlische Saläre, Spiritualität,
und der Wunsch nach Diskretion

Zürich - Daniel Vasella, Verwaltungsratspräsident und Konzernchef von Novartis, wirkt bei einer Stiftung mit, welche die Schweizer Garde im Vatikan fördert. Unter anderem, indem sie ihre Waffenausrüstung modernisiert. Sodann berät er den Abt des Klosters Einsiedeln in wirtschaftlichen Fragen. Offensichtlich hat Vasella eine Affinität zur katholischen Kirche. Doch auf die Frage, ob er praktizierender Katholik oder einfach religiös sei, lässt er ausrichten, dies sei seine private Angelegenheit.

Früher bekannte er sich noch zu seiner Konfession. Früher, als er nur Konzernleiter war und nur einen Bruchteil der 21 Millionen Franken verdiente, die er heute bezieht. Als ihn 1998 fragte: «Sind Sie ein gläubiger Mensch?», gab er die knappe Antwort: «Ja.» Immerhin.

Sein Diskretionsbedürfnis ist verständlich. «Abzockermanager» erregen bei bibelstrammen Christen Anstoss. Der Katholischen Volkspartei, einer Abspaltung von der CVP, ist es ein Ärgernis, dass sich der Abt von Einsiedeln von Vasella sowie von Roche-Chef Franz Humer – Einkommen 15 Millionen Franken – beraten lässt. «Soll die Raffgier zum neuen Leitbild der Stiftsschule werden?», donnert Parteipräsident Lukas Brühwiler-Frésey. Jesustreue Christen warnen Daniel Vasella in Briefen vor dem Jüngsten Gericht und dem ewigen Feuer.

Im Gestus eines Propheten im Büssergewand geisselte der Generalvikar des Bistums Basel, Roland-Bernhard Trauffer, die angebliche Habsucht der Manager als «räuberisches Verhalten».

Was Wunder, spricht Roche-Chef Humer nicht gerne von seinem katholischen Glauben. Zwar sagt er, dass er regelmässig in die Kirche geht und dass ihm sein Vertrauen in Gott «Kraft und Zuversicht» einflösse. Das Okay, dies in einem Artikel aufzunehmen, gibt er aber nur zögernd.

Angesprochen auf seinen katholischen Glauben, reagiert James Schiro, Chef des Zurich-Versicherungskonzerns, ambivalent: «Ich möchte hier nicht über meine Religion sprechen, auch wenn ich gern dazu stehe, dass ich fast jeden Sonntag zur Kirche gehe», sagte er.

Die Scheu hat auch damit zu tun, dass es schwierig ist, Spiritualität und Shareholder Value auf eine Linie zu bringen. Thomas Ebeling, Pharmachef von Novartis, ist katholisch. Bei seinem Antritt forderte er von seinen Verkaufsleuten Killermentalität. Mit Slogans wie «Kill to win – no prisoners» oder «Be smart – be paranoid». Das ist kommerzieller Sozialdarwinismus statt katholischer Soziallehre.

Der Widerspruch zwischen Matthäus-Evangelium und Mammon ist kaum auszuhalten. «Es ist eine Art Schizophrenie, die verdrängt wird», sagt der ehemalige Pfarrer Johannes Czwalina, der gestrauchelte Führungskräfte betreut.

Internationale Unternehmen müssen multikulturell sein
Auf ihre Konfession festnageln wollen sich Topmanager auch aus einem anderen Grund nicht: Ein internationales Grossunternehmen muss multikulturell geführt werden – auf der Basis eines Wertesystems, das mit den kulturellen, ethnischen oder religiösen Andersartigkeiten der Belegschaft im Einklang steht. Da macht es sich schlecht, wenn der Chef seine religiöse Orientierung hervorhebt. So kommt es, dass Humers Comingout im Verwaltungsrat ein ungutes Gefühl ausgelöst hat: «Wir sind doch kein katholisches Unternehmen», sagt ein Insider. Die Rücksicht auf Andersgläubige geht so weit, dass auf Daniel Vasellas Weihnachtskarte nicht «merry christmas» steht, sondern neutral «happy holidays».

In kleinen und mittleren Betrieben gibts weniger Reibungsflächen. So ist Ricola-Eigner Felix Richterich der Vereinigung Christlicher Unternehmen beigetreten. Ascom-Chef Rudolf Hadorn engagiert sich in einer Freikirche. Kaum Probleme gibts auch für Unternehmer und Manager, die sich öffentlich als gläubig bezeichnen, sich aber nicht konfessionell festlegen, etwa Uhrenkönig Nicolas Hayek oder Coop-Chef Hansueli Loosli.

Hält der Abt von Einsiedeln Vasellas Lohn für gerecht? In einem Interview sagte Martin Werlen: «Ich glaube, es ist ungerecht, einen Einzelfall hervorzuheben.» Als Abt ist er notgedrungen selber Manager. Und Diplomat.    December 24, 2006

My Advice Earns Me Some Angry Readers
Jonathan Clements

I have a seriously weird job. Most weeks, I bang out two personal-finance columns, trying to offer guidance on an endeavor that's fraught with uncertainty. The reality is, we have only the vaguest idea how the stock, bond and real-estate markets will fare in the years ahead.

Layered on top of that is a heap of personal uncertainty, including what will happen with our jobs, what surprise expenses we might face and how long we each might live. Make no mistake: Managing risk -- in all its manifestations -- is critical to managing money.

Yet many investors aren't exactly overwhelmed by the uncertainty of it all. In fact, as I discover every time I open my email, these investors are pretty sure of themselves -- and they're pretty sure I'm an idiot. All this got me to contemplating life as a personal-finance columnist. Here are four observations about what I do and how readers react:

1. It's your party -- and you'll cry if you want to.
Investors get caught up in financial frenzies and buy investments that have recently posted big gains. It happened with technology stocks in 1999 and early 2000. And it happened again with real estate in 2004 and 2005. Frankly, I am astonished that the hoopla over Florida condos could so quickly follow the hoopla over Internet stocks. Did we learn nothing?

The answer is, maybe. I suspect that, even as folks pony up their hard-earned cash for the latest hot investment, they have this gnawing concern that perhaps the easy money isn't quite as easy as it seems. And the last thing they want is some ink-stained wretch confirming their worst fears. Indeed, this column would likely be a whole lot more popular if I stopped offering words of caution and instead took to touting whatever has lately performed well. Not only would I be telling people what they want to hear, but I also would be considered considerably smarter, because touting hot performers leads readers to presume you foresaw the past performance.

2. When in doubt, folks scream.
As people make their way around town, they don't generally use phrases like "you're a total idiot," "you're utterly clueless" or something similar involving somewhat more profane language. Yet, when they fire off emails to me, such phrases flow with surprising ease. Given all the uncertainty involved in managing money, this seems a little unjustified. We have all bought investments that have disappointed. You would think this would breed humility, not belligerent self-confidence.

Maybe the hate mail I receive reflects the anonymity of the Internet. Maybe there's been a national breakdown in civility. But whatever the reason, if folks send me nasty messages, they shouldn't expect a response. While I regularly reply to thoughtful emails, I almost never respond to hate mail, because there is really no point. If people feel that strongly and they're so uncivil, there is no way we will have an intelligent dialogue.

3. Angry? That's so predictable.
What gets folks to send angry emails? Clearly, financial advisers and actively managed mutual funds are both controversial topics. But I don't get a lot of messages defending their virtues. Instead, the two stories that ignite the most hate mail are surprisingly prosaic.

First, if I suggest real estate is a lackluster investment, I will get a torrent of messages arguing otherwise. Partly, this reflects the recent boom. Partly, it reflects wobbly math, with many real-estate junkies conveniently ignoring some or all of the costs of homeownership, including mortgage interest, closing costs, maintenance, property taxes, insurance and selling commissions. It also, however, highlights the power of anecdotal evidence. Even if homes, on average, enjoy only so-so price appreciation, there are always some big winners -- and everyone knows one or two homeowners who have supposedly clocked fabulous gains. For some reason, these few examples have a far bigger impact on people's views than cold, hardnosed analysis.

Second, whenever I argue in favor of delaying Social Security retirement benefits, I get a truckload of dissenting emails. Suppose you're trying to decide between taking Social Security at age 62 or at your full Social Security retirement age of 66.

Let's assume you will invest your government checks, earning a healthy after-cost investment return of three percentage points a year above inflation. In that scenario, delaying Social Security until 66 will prove to be the smart move if you live until at least age 81. Today, a 65-year-old man is expected, on average, to live until age 82, while a 65-year-old woman can expect to live until 85. Throw in the survivor benefit that could go to your spouse if he or she outlives you, and the case for delaying is even stronger.

Despite all this, many retirees are absolutely convinced that they should take Social Security at age 62, on the off chance that they will die early in retirement. What about the risk of living a long time, depleting your savings and ending up with nothing more than a reduced Social Security check? That, it seems, is a risk that only mealy-mouthed financial journalists worry about.

4. Yes, you've heard this before.
To earn a paycheck, I have to generate 80,000 words a year in 84 neat little packages, which are then published on Sundays in this newspaper and on Wednesdays in The Wall Street Journal. One way to come up with these 84 stories is to find something newsworthy to write about. Problem is, in the financial markets, while there is much news, there isn't much news that has long-term investment value.

My preference: Take solid time-tested investment principles -- and make them seem like news. That means focusing on key issues like saving regularly, limiting taxes, diversifying broadly and clamping down on investment costs. Sometimes, I will go ahead and write about these principles, even if there's no news peg. But with any luck, something will happen that allows me to expound on these issues once again. The news angle can make my standard advice appear fresh and interesting. But don't be fooled: If you think I am saying something new, either you are a new reader -- or you aren't paying nearly enough attention.

• Jonathan Clements also writes the "Getting Going" column that appears Wednesdays in The Wall Street Journal. Write to him at:    26. Dezember 2006

Das Jahr der Heuschrecke
Finanzinvestoren im Kaufrausch

Das Jahr 2006 geht als ein Rekordjahr zu Ende. Noch nie wurden weltweit derart viele Übernahmen und Fusionen verzeichnet wie 2006. Finanzinvestoren spielen dabei auf dem Markt eine gewichtige und auch zwiespältige Rolle.
uhg. Der gefrässige Heuschreckenschwarm, der über ein Feld gesunder Firmen fällt und diese leer geplündert zurücklässt, ist eine beliebte Metapher für die boomende Private-Equity-Branche, die 2006 getrost die Champagner-Korken knallen lassen darf. Im zu Ende gehenden Jahr wurden gemäss dem Informationsdienst Thomson Financial weltweit Fusionen und Übernahmen in der Höhe von rund 3610 Mrd. Dollar getätigt. Dies sind über 200 Mrd. Dollar mehr als im bisherigen Boom-Jahr 2000, das wesentlich von der New Economy geprägt war.

Heuschrecke an Bord geholt
Für rund ein Drittel dieser Mergers & Acquisitions (M&A) sind Private-Equity-Firmen verantwortlich, eben jene, die der deutsche SPD-Politiker und Vizekanzler Franz Müntefering als Heuschrecken zu bezeichnen pflegte. Unterdessen ist man in der Bundesregierung mit dem Vergleich aus der Tierwelt etwas zurückhaltender geworden. Schliesslich holte man mit der amerikanischen Blackstone ausgerechnet eine solche Heuschrecke an Bord der deutschen Telekom.

Die Rolle der Private-Equity-Branche ist auch in Finanzkreisen umstritten. Zu gute halten kann man der Branche, dass bei vielen übernommenen Firmen schlummerndes Potenzial geweckt wurde, lange aufgeschobene Restrukturierungen endlich vorgenommen wurden und auch Wachstumskapital zu Verfügung gestellt wurde.

Nicht nur kurzfristige Interessen
Eine McKinsey-Studie aus dem Jahr 2005 zeigt, dass bei den besten Übernahmen die neuen Herren immerhin mehr als die Hälfte ihrer Zeit während den ersten drei Monaten für die übernommene Firma aufgewendet hatten. Dank dem Know-how seien in diesen Fällen klare operative Verbesserungen erreicht worden, zum Vorteil auch der übernommenen Firma.

Abschreckendes Beispiel Cognis
Und dann gibt es die anderen, abschreckenden Fälle, wie der der ehemaligen Henkel-Tochter Cognis, die gemäss einem Artikel des «Spiegel» von der Beteiligungsgesellschaft Permira und der Investmentbank Goldman & Sachs regelrecht ausgeplündert wurde. Dabei wurde der 2001 abgeschlossene Kauf mit neuen Schulden finanziert, die auf Kosten der damals noch gesunden Cognis gemacht wurden. Weitere Sonderdividenden für die Aktionäre, sprich die Investoren, sorgten dafür, dass Cognis heute hoch verschuldet dasteht.

Kritik auch aus den eigenen Reihen
Auch in der Branche selbst werden solche Entwicklungen zum Teil kritisch verfolgt, meist von Personen, die aus dem Geschäft ausgestiegen sind. So warnte der ehemalige Geschäftsführer von Carlyle Deutschland, Hans Albrecht, vor einer ungesunden Entwicklung. Übernahmen würden immer häufiger mit Bankkrediten getätigt, und die Schulden dann den übernommenen Unternehmen aufgebürdet.

Immer grösser und teurer
Da die Finanzinvestoren auch dank günstiger Zinsen momentan im Geld schwimmen, werden die Übernahmeobjekte immer grösser und teurer. Allein in den letzten Tagen wurden in den USA von Private-Equity Firmen wie Apollo Management und Texas Pacific Group zwei Transaktionen im Gesamtwert von 36 Mrd. Dollar getätigt. Kaufobjekte waren der Kasinobetreiber Harrah's und der Immobilienbroker Realogy. Interessierte Käufer aus der gleichen Branche hatten in beiden Fällen keine Chance.

Wall Street Journal    December 27, 2006

Buyout Bonanza
Compels Firms To Pile On Debt
Cash Flows Are Being Stretched To Cover Interest Payments,
Raising Risk if Times Turn Lean

Behind the terms of Harrah's Entertainment Inc.'s agreement to be acquired by two private-equity firms last week were some potentially important signals about where the current buyout boom is going.

Harrah's last Tuesday accepted a $17.1 billion buyout offer from Texas Pacific Group and Apollo Management that would involve the casino operator's taking on around $10 billion in new debt, nearly doubling down on $10.7 billion in existing obligations. Harrah's, which generates around $2.5 billion in cash flow each year, will end up with total debt that is more than eight times that amount, a ratio "that is high by any standard," says Adam Cohen, an analyst at debt-research firm CreditSights.

Analysts look closely at a company's ratio of debt to cash flow -- as measured by operating earnings before charges like interest, tax, depreciation and amortization -- for a sense of whether it is taking on more debt than it can handle.

A look at recent buyout deals shows not only that they are getting bigger in dollar terms, but also that larger companies are being pushed to pile on increasingly heavy loads of debt. Private-equity investors -- which make money by buying control of companies in the hopes of cashing out through a stock offering or outright sale -- have been emboldened by low interest rates and generous credit markets. They are pushing companies further out on a limb in the process. In some cases, this gives their newly private companies little breathing room to execute growth plans and stay afloat were economic and market conditions to turn sour.

In many cases, companies will need to devote at least half their yearly cash flow to meeting interest payments on their debt. Corporations that were acquired in leveraged buyouts in the fourth quarter have a ratio of debt to cash flow of 5.7 times on average, according to Standard & Poor's Leveraged Commentary & Data Group. That is up from an average of 5.3 times in 2005. In 2002, when lenders were less willing to finance risky deals, this ratio was close to four.

The last time leverage in buyout deals averaged 5.7 times cash flow was during the merger boom of the mid-to-late 1990s. In the years that followed, some debt-heavy companies, like barbecue-products maker Diamond Brands and animal-feed producer Purina Mills, defaulted on their debt when their bets went wrong.

This time around, analysts expect leverage to rise further before cracks show, and some of the buyouts this year already are stretching those limits. Hospital operator HCA Inc., which was taken private this fall, now has total debt of close to $28 billion, 6.5 times its current cash flow. Kinder Morgan Inc.'s buyout will boost its debt to around $14.5 billion, also more than six times its cash flow. Station Casinos Inc., which this month received a buyout offer, could end up with debt of more than nine times its cash flow.

The rising leverage in transactions means companies "have to make sure they hit all their targets and fire on all cylinders," says Gregory Peters, a credit strategist at Morgan Stanley. "They are putting more of their business model at risk, and there is no room for error," he adds.

As buyouts become more prevalent, shareholders are demanding higher prices for their shares before they will allow their companies to be taken private. To meet those demands, private-equity investors are borrowing more to finance their acquisitions, and banks and credit markets that are flush with cash are more than willing to lend money to them.

The question is whether many of these companies can handle larger debt burdens in the longer run, especially if interest rates rise or business conditions change and their revenue and cash flow decline. At some point, many firms that were bought out may seek to borrow more money to refinance their debt or cover their expenses, and there is no guarantee the credit markets will be as hospitable as they are now. "If a company isn't doing well and can't raise more capital at a reasonable cost to cover its shortfalls, it'll get hit from both sides," says John Lonski, chief economist at Moody's Investors Service.

To be sure, the debt behind deals today might not be as great as those that took place in the 1980s. Retailer R.H. Macy, for example, had its debt load rise more than tenfold in 1986 to $3.7 billion when it was acquired in a management buyout. In the following years, it ran into challenging operating conditions and couldn't generate enough cash to cover its debt payments. The company filed for bankruptcy protection in 1992.

It also is hard to draw a line between how much debt is manageable and how much is dangerously high for a particular company. Depending on which industry they are in, some firms will be more resilient to economic and cyclical changes than others. Private-equity buyers also have the option of selling assets to raise cash to pay down debt, or to trim costs and operating expenses to improve profit and cash flow.

Analysts also are paying close attention to how well companies are servicing their interest payments, as measured by how much their cash flow exceed the interest they pay to service the debt. This ratio has been slipping as corporations take on more debt, and was 2.1 times on average in the fourth quarter, versus 3.4 times in 2004, when it was at a 10-year peak, according to S&P. Still, it isn't as low as the 2.0 level reached in 1997.

Edward Marrinan, credit strategist at J.P. Morgan Chase & Co., says investors don't seem to be overly worried about rising financial risk in deals so far. "It may be unrealistic to expect that all of these deals will perform to expectations in the long run....Unfortunately, we may discover that the LBO cycle has reached its point of excess only after a proposed deal fails," he adds.

Write to Serena Ng at

Washington Post    December 27, 2006

Of Public Debt and Private Wealth
By Steven Pearlstein

With Democrats about to take charge on Capitol Hill, we're going to be hearing a lot about the widening income gap between rich and poor.

There are a variety of different measures for inequality and lots of factors that drive the data, ranging from winner-take-all labor market competition and the weakness of unions to the pace of immigration and the tendency of high-income people to marry each other.

Furthermore, during different periods, this widening of the gap has been most apparent at various rungs of the income ladder -- between the poor and the middle class in the '80s, between the middle class and the upper class in the early '90s, and, most recently, between the very rich and just about everyone else.

All of this is about to become grist for a great national debate on inequality, with everyone picking the income measures, gaps and causes that best support their economic views or their preferred solutions. As it plays out, it's important to remember that there isn't one correct analysis or any silver-bullet solution.

In that spirit, I'd like to toss out an idea borrowed from a reader in Canada with no particular training in economics but an intuitive sense about the connection between trade flows and income inequality. The idea goes something like this:

In terms of the global economy, the elephant in the room for much of the last 25 years has been the large and persistent U.S. current account deficit (loosely, the trade deficit), which this year is likely to exceed $800 billion. Roughly speaking, the richest country in the world spends 106 percent of its income.

If the United States were almost any other country, we wouldn't be able to sustain this huge imbalance for very long because the rest of the world would be unwilling to finance it. But, as it happens, developing nations suddenly have more savings than they know what to do with, much of it denominated in dollars as a result of selling us inexpensive clothing and electronics and very expensive oil.

These countries know that if they were to try to exchange all those dollars for their own currencies, it would drive down the value of the dollar -- and with it, demand by American consumers for all the things they sell. Rather than accept slower growth and higher unemployment, they have decided to keep their currencies loosely pegged to the dollar by investing those trade-surplus dollars in U.S. assets.

One obvious effect of this decision is to drive up demand for U.S. stocks, bonds and real estate, which foreigners have purchased either directly or through such intermediaries as hedge and private-equity funds. Their money was a significant factor in the tech and telecom bubbles of the 1990s, the current bubble in corporate takeovers and commercial real estate, and the just-ended bubble in residential real estate. Indirectly, it also helps explain why stock prices are at or near all-time records.

Moreover, because so much of the trade deficit is reinvested in debt instruments such as Treasury bonds, it has had the effect of lowering interest rates below where they would otherwise be. Low interest rates, in turn, encourage both foreign and American investors to use more borrowed money in their investment strategies, allowing them to buy more assets with the same amount of their own money.

So what does this have to do with income inequality? Quite a bit, actually.

We've known for a long time that increased trade with low-wage countries depresses wages of workers who produce goods and services now imported. A trade deficit equal to 7 percent of economic output obviously magnifies that effect.

But as the trade deficit is depressing wages at the bottom, it is now boosting incomes at the top by significantly inflating the value of stocks, bonds and real estate -- assets whose ownership is concentrated heavily in the hands of high-income people. By buying and selling these assets, and borrowing against them, these people have been transforming their paper wealth into spendable (and measurable) income at a record pace.

Finally, let's remember that all this buying, selling and monetizing of assets has created lots of fat fees for handling these transactions or serving as financial intermediaries. Those fees, in turn, translate into eye-popping bonuses for Wall Street investment bankers, hedge fund managers and partners in private-equity firms.

It would be an exaggeration, of course, to argue that our large and persistent trade deficit is the major factor in rising inequality. After all, inequality also is rising in countries with trade surpluses.

But I think the deficit does help explain why so much of the country's income gains have gone into the pockets of investment bankers, money managers, real estate developers, wealthy families and corporate executives loaded up with stock options. I'm sure these folks believe they are pulling away from the pack because they work harder and create more economic value than the rest of us. But in the coming debate, we need to remember that they are also the lucky beneficiaries of a runaway trade deficit and the bubble-prone economy it has created.

Steven Pearlstein can be reached at    31.Dezember 2006

Super-Gewerkschaft gegen Heuschrecken

mik    Die Drohung mit Standortverlagerungen ist ein wirksames Mittel multinationaler Konzerne, um Lohnforderungen ihrer Mitarbeiter zu begegnen. Doch die Gewerkschaften wollen sich nicht länger gegeneinander ausspielen lassen. Die IG Metall will mit den britischen und amerikanischen Kollegen künftig enger zusammenarbeiten.

Berlin - Die Gespräche stehen erst am Anfang, noch suchen die Beteiligten nicht die große Öffentlichkeit. Hinter den Kulissen aber sind die Verhandlungen bereits weit fortgeschritten. In der vergangenen Woche folgte die erste Vereinbarung: Einem Bericht der englischen Tageszeitung "Observer" zufolge wollen die IG Metall, die größte britische Gewerkschaft Amicus und die US-Gewerkschaften United Steelworkers und International Association of Machinists künftig enger zusammenarbeiten. Auf diese Weise wollten sie verhindern, von den multinationalen Konzernen weiterhin gegeneinander ausgespielt zu werden.

AP    Stahlarbeiter bei ThyssenKrupp: Viel Abstimmungsbedarf der Gewerkschaften

"Unser Ziel ist es, eine kraftvolle Bewegung ins Leben zu rufen, die über die Grenzen hinweg den Herausforderungen des weltweit agierenden Kapitals begegnet", sagte Amicus-Generalsekretär Derek Simpson der Zeitung.

Der Kampf richtet sich aber nicht allein gegen die Konzerne und deren Management. Speziell die großen Private Equity Fonds - hier zu Lande als Heuschrecken verschrieen - gelten als Treiber einer Entwicklung, die darauf hinaus läuft, die neidrigsten Sozialstandards zum allgemein gültigen Maßstab zu machen.

Amicus verhandelt zurzeit über den Zusammenschluss mit der Transportgewerkschaft Transport & General Workers' Union, die dann rund zwei Millionen Mitglieder hätte. Würde die Kooperation mit den Deutschen und den US-Kollegen gelingen, so wären rund 6,3 Millionen Arbeiter unter einem Dach vereint.

Der Weg dahin wird aber bestimmt nicht einfach, denn bislang laufen die - national ausgerichteten - Interessen der Arbeiter durchaus nicht immer in die gleiche Richtung. Englische Gewerkschaften etwa beklagten immer wieder, dass die Konzerne nicht selten zuerst in Großbritannien Arbeitsplätze abbauten, weil dort die Schutzbestimmungen am geringsten ausgeprägt seien, berichtet der "Observer". Im April zum Beispiel habe der französische Autohersteller Peugeot sein Werk in Ryton in der Nähe von Coventry geschlossen und in die Slowakei verlegt, wo die Arbeitskosten deutlich niedriger seien. 2300 Arbeitsplätze gingen in Ryton verloren.

Dass die Synchronisation der einzelnen Interessen noch viel Abstimmungsbedarf birgt, darüber ist sich Simpson durchaus im Klaren. "Ich erwarte, dass wir innerhalb der nächsten zehn Jahre eine schlagkräftige, föderal organisierte, Organisation zusammenbekommen werden". Bereits im Jahr 2000 hatten die Vorgänger von Simpson und IG-Metall-Chef Jürgen Peters erste Gespräche geführt - zunächst ohne Ergebnis.

DER SPIEGEL    31.Dezember 2006

Die Mär vom arbeitenden Geld
Nr. 51/2006, Titel: Die Gier des großen Geldes – Finanz-Investoren greifen nach deutschen Unternehmen

„Eine überfällige kritische Auseinandersetzung mit dem Kapitalismus. Es wird Zeit, dass die Politik die Nebenkriegsschauplätze verlässt, um sich um diese Missstände zu kümmern.“

Thomas Guder aus Wennigsen in Niedersachsen

 Jeder sollte dazu beitragen, dass aus der Marktwirtschaft nicht eine Marktgesellschaft wird, in der nur Zahlen zählen und Menschlichkeit immer geringer wird. Es müssen die vielen vorbildhaften Unternehmen und Unternehmer, die es gibt, stärker ins öffentliche Rampenlicht und Bewusstsein gebracht werden. Es gibt so viele, die ohne Gier auskommen, die Zukunftsinvestitionen machen, die Mitarbeiter nicht als Kosten – sondern als Erfolgsfaktoren sehen und sich nicht immer nur auf den globalen Markt ausreden, um unmoralische und auch langfristig-ökonomisch unvernünftige Normen und Verhaltensweisen

Klagenfurt (Österreich) Karl Brunner

 Wenn die Deutschen lieber ihre Spargroschen den Banken aufdrängen, als sich aktiv am Kapitalmarkt zu engagieren, genauso wie das andere Europäer, Asiaten oder Amerikaner tun, dürfen sie sich nicht beschweren, wenn andere die Geschäfte über sie hinweg machen.

Frankfurt am Main Helmut Nimsch

 In meinem Bekannten- und Kollegenkreis erzählen sehr viele, was für tolle Renditen ein jeder mit Fonds verschiedenster Provinienz „erwirtschaftet“. Alle vertrauen ihr Geld genau den Fonds an, die dann von der Erwartungshaltung ihrer Zeichner getrieben, diese sagenhaften Renditen erwirtschaften müssen. Möglicherweise bald um den Preis des Arbeitsplatzes meiner Bekannten, möglicherweise auch meines eigenen.
Ich stehe fern jeglichem sozialideologisch verbrämtem Weltbild von der Gleichheit. Allerdings muss ich zugeben, dass ich bisher noch nie habe Geld arbeiten sehen, sondern immer nur Menschen. Würde ich in meinem Bekanntenkreis zum Besten geben, dass ich nachhaltige vier bis fünf Prozent für vernünftig halte, so würde ich sofort zum Depp der Nation erklärt.

Pfaffenhofen (Bayern) Johannes Kalupar

 Es gibt keine andere menschliche Eigenschaft als die hemmungslose Gier, die uns so zwangsläufig zum Untergang führen wird.
Der wird langwierig und schmerzlich sein.

Buchs (Schweiz) H. P. Müller

Jahrestreffen der Private-Equity-Branche
Von der Erwartungshaltung getrieben

Die Finanzheuschrecken sind das zwangsläufige Resultat von zwei Grundfehlern unseres Geldsystems. Erstens die Mär, dass Geld arbeite, und zweitens, dass sich Geld vermehren könne. Das Zinseszinssystem stellt den Motor für die sich immer wiederholende Polarisierung zwischen denen dar, die ihr Geld nicht ausgeben, sondern verleihen, und mehr erhalten, als sie geben, und jenen, die am Ende nichts weiter haben als ihre Verbindlichkeiten. Da dieses Finanzsystem von kranken Mitgliedern aufrechterhalten wird, die aufgrund ihrer erworbenen Entzugs- und Belohnungssysteme unfähig sind, Änderungen vorzunehmen, wiederholen sich die Katastrophen.

Twistringen (Nieders.) Carsten Pötter

January 1, 2007

Folly’s Antidote

MANY signs point to a growing historical consciousness among the American people. I trust that this is so. It is useful to remember that history is to the nation as memory is to the individual. As persons deprived of memory become disoriented and lost, not knowing where they have been and where they are going, so a nation denied a conception of the past will be disabled in dealing with its present and its future. “The longer you look back,” said Winston Churchill, “the farther you can look forward.”

But all historians are prisoners of their own experience. We bring to history the preconceptions of our personalities and of our age. We cannot seize on ultimate and absolute truths. So the historian is committed to a doomed enterprise — the quest for an unattainable objectivity.

Conceptions of the past are far from stable. They are perennially revised by the urgencies of the present. When new urgencies arise in our own times and lives, the historian’s spotlight shifts, probing at last into the darkness, throwing into sharp relief things that were always there but that earlier historians had carelessly excised from the collective memory. New voices ring out of the historical dark and demand to be heard.

One has only to note how in the last half-century the movements for women’s rights and civil rights have reformulated and renewed American history. Thus the present incessantly reinvents the past. In this sense, all history, as Benedetto Croce said, is contemporary history. It is these permutations of consciousness that make history so endlessly fascinating an intellectual adventure. “The one duty we owe to history,” said Oscar Wilde, “is to rewrite it.”

We are the world’s dominant military power, and I believe a consciousness of history is a moral necessity for a nation possessed of overweening power. History verifies John F. Kennedy’s proposition, stated in the first year of his thousand days: “We must face the fact that the United States is neither omnipotent or omniscient — that we are only 6 percent of the world’s population; that we cannot impose our will upon the other 94 percent of mankind; that we cannot right every wrong or reverse each adversity; and therefore there cannot be an American solution to every world problem.”

History is the best antidote to delusions of omnipotence and omniscience. Self-knowledge is the indispensable prelude to self-control, for the nation as well as for the individual, and history should forever remind us of the limits of our passing perspectives. It should strengthen us to resist the pressure to convert momentary impulses into moral absolutes. It should lead us to acknowledge our profound and chastening frailty as human beings — to a recognition of the fact, so often and so sadly displayed, that the future outwits all our certitudes and that the possibilities of the future are more various than the human intellect is designed to conceive.

Sometimes, when I am particularly depressed, I ascribe our behavior to stupidity — the stupidity of our leadership, the stupidity of our culture. Three decades ago, we suffered defeat in an unwinnable war against tribalism, the most fanatic of political emotions, fighting against a country about which we knew nothing and in which we had no vital interests. Vietnam was hopeless enough, but to repeat the same arrogant folly 30 years later in Iraq is unforgivable. The Swedish statesman Axel Oxenstierna famously said, “Behold, my son, with how little wisdom the world is governed.”

A nation informed by a vivid understanding of the ironies of history is, I believe, best equipped to manage the tragic temptations of military power. Let us not bully our way through life, but let a growing sensitivity to history temper and civilize our use of power. In the meantime, let a thousand historical flowers bloom. History is never a closed book or a final verdict. It is forever in the making. Let historians never forsake the quest for knowledge in the interests of an ideology, a religion, a race, a nation.

The great strength of history in a free society is its capacity for self-correction. This is the endless excitement of historical writing — the search to reconstruct what went before, a quest illuminated by those ever-changing prisms that continually place old questions in a new light.

History is a doomed enterprise that we happily pursue because of the thrill of the hunt, because exploring the past is such fun, because of the intellectual challenges involved, because a nation needs to know its own history. Or so we historians insist. Because in the end, a nation’s history must be both the guide and the domain not so much of its historians as its citizens.

Arthur M. Schlesinger Jr., who has won Pulitzer Prizes for history and biography, is the author, most recently, of “War and the American Presidency.”

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Washington Post    January 4, 2007

The Right Minimum Wage
By George F. Will

A federal minimum wage is an idea whose time came in 1938, when public confidence in markets was at a nadir and the federal government's confidence in itself was at an apogee. This, in spite of the fact that with 19 percent unemployment and the economy contracting by 6.2 percent in 1938, the New Deal's frenetic attempts had failed to end, and perhaps had prolonged, the Depression.

Today, raising the federal minimum wage is a bad idea whose time has come, for two reasons, the first of which is that some Democrats have an evidently incurable disease -- New Deal Nostalgia. Witness Nancy Pelosi's "100 hours" agenda, a genuflection to FDR's 100 Days. Perhaps this nostalgia resonates with the 5 percent of Americans who remember the 1930s.

Second, President Bush has endorsed raising the hourly minimum from $5.15 to $7.25 by the spring of 2009. The Democratic Congress will favor that, and he may reason that vetoing this minor episode of moral grandstanding would not be worth the predictable uproar -- Washington uproar often is inversely proportional to the importance of the occasion for it. Besides, there would be something disproportionate about the president vetoing this feel-good bit of legislative fluff after not vetoing the absurdly expensive 2002 farm bill, or the 2005 highway bill larded with 6,371 earmarks or the anti-constitutional McCain-Feingold speech-rationing bill.

Democrats consider the minimum-wage increase a signature issue. So, consider what it says about them:

Most of the working poor earn more than the minimum wage, and most of the 0.6 percent (479,000 in 2005) of America's wage workers earning the minimum wage are not poor. Only one in five workers earning the federal minimum lives in families with earnings below the poverty line. Sixty percent work part time, and their average household income is well over $40,000. (The average and median household incomes are $63,344 and $46,326, respectively.)

Forty percent of American workers are salaried. Of the 75.6 million paid by the hour, 1.9 million earn the federal minimum or less, and of these, more than half are under 25 and more than a quarter are between ages 16 and 19. Many are students or other part-time workers. Sixty percent of those earning the federal minimum or less work in restaurants and bars and earn tips -- often untaxed, perhaps -- in addition to wages. Two-thirds of those earning the federal minimum today will, a year from now, have been promoted and be earning 10 percent more. Raising the minimum wage predictably makes work more attractive relative to school for some teenagers and raises the dropout rate. Two scholars report that in states that allow people to leave school before 18, a 10 percent increase in the state minimum wage caused teenage school enrollment to drop 2 percent.

The federal minimum wage has not been raised since 1997, so 29 states with 70 percent of the nation's workforce have set minimum wages between $6.15 and $7.93 an hour. Because aging liberals, clinging to the moral clarities of their youth, also have Sixties Nostalgia, they are suspicious of states' rights. But regarding minimum wages, many have become Brandeisians, invoking Justice Louis Brandeis's thought about states being laboratories of democracy.

But wait. Ronald Blackwell, the AFL-CIO's chief economist, tells the New York Times that state minimum-wage differences entice companies to shift jobs to lower-wage states. So: States' rights are bad, after all, at least concerning -- let's use liberalism's highest encomium -- diversity of economic policies.

The problem is that demand for almost everything is elastic: When the price of something goes up, demand for it goes down. Obviously were the minimum wage to jump to, say, $15 an hour, that would cause significant unemployment among persons just reaching for the bottom rung of the ladder of upward mobility. But suppose those scholars are correct who say that when the minimum wage is low and is increased slowly -- proposed legislation would take it to $7.25 in three steps -- the negative impact on employment is negligible. Still, because there are large differences among states' costs of living and the nature of their economies, Sen. Jim DeMint (R-S.C.) sensibly suggests that each state be allowed to set a lower minimum.

But the minimum wage should be the same everywhere: $0. Labor is a commodity; governments make messes when they decree commodities' prices. Washington, which has its hands full delivering the mail and defending the shores, should let the market do well what Washington does poorly. But that is a good idea whose time will never come again.
[NYT, Jan 5, 2006: "On Jan. 5, 1914, Henry Ford, head of the Ford Motor Company, introduced a minimum wage scale of $5 per day. "]

Washington Post    January 4, 2007

Seeing Red Over a Golden Parachute
Home Depot's CEO Resigns, And His Hefty Payout Raises Ire
By Ylan Q. Mui

Robert L. Nardelli has abruptly resigned as chairman and chief executive of Home Depot, pocketing a lavish severance package and leaving shareholders with a stock that has languished even as sales have nearly doubled during his six-year tenure.

In a statement released yesterday, Home Depot's board of directors and Nardelli said they "mutually agreed" to the resignation, which took effect Tuesday. Under the terms of a separation agreement negotiated when he joined the company in 2000, Nardelli, 58, is to receive about $210 million in cash and stock options, including a $20 million severance payment and retirement benefits of $32 million.

Frank Blake, 57, vice chairman and executive vice president, succeeds Nardelli as chairman and chief executive. Blake, like Nardelli, previously worked for General Electric and also was a former deputy secretary of the Energy Department.

Critics took aim yesterday at the size of Nardelli's payout, the latest in a string of extravagant executive bonuses and awards. Paul Hodgson, a senior research associate at the Corporate Library, an executive-compensation research firm, ranked the severance package among the largest he had ever seen, earning Nardelli a spot on his list of the 12 highest-paid chief executives of the worst-performing companies. Shareholder Evelyn Y. Davis called it "unbelievable." Incoming House Financial Services Committee Chairman Barney Frank (D-Mass.) criticized the package as a sign that executive pay had gotten "out of control."

"Mr. Nardelli's contribution to raising Home Depot's stock value consists of quitting and receiving hundreds of millions of dollars to do so," said Frank, who has vowed to study the issue of executive compensation this year.

The stock of the Atlanta home-improvement company closed yesterday at $41.07, up 91 cents, or 2.3 percent.

Nardelli has been subject to criticism since he took over the company in December 2000, promising to increase sales and profit and to centralize management in a chain once known for its freewheeling culture.

He has succeeded on many fronts, even as he fell short on others, and in recent years found himself defending his hefty salary. Revenue has nearly doubled, to $81.5 billion in 2005 from $45.7 billion in 2000, though that figure fell short of his goal of $100 billion. During that time, profit rose to $5.8 billion from $2.6 billion.

Nardelli replaced several top executives with former GE colleagues and implemented top-down management. At the same time, he expanded Home Depot's wholesale business to attract professional contractors. He also expanded the company outside the United States.

Yet Nardelli failed to have much effect on Home Depot's stock price, plagued by slowed store expansion, a cooling housing market and increased competition from rival Lowe's, several analysts said. On Dec. 4, 2000, the day before he was named chief executive, shares of the company closed at $40.75. On Friday, the last day of trading before Nardelli announced his resignation, the stock closed at $40.16. Last year, the stock's price ranged from a low of $32.85 to a high of $43.95, finishing down 0.8 percent.

"I think the financial results he delivered have been exceptional," said Stephanie Hoff, senior retail analyst at the investment firm Edward Jones. "The stock price just hasn't kept pace."

That has prompted some shareholders to question the size of Nardelli's compensation. Last year, he received more than $30 million in compensation and stock options. During his six years at the company, he earned about $125.57 million in annual salary, bonuses, stocks and other payments, according to Equilar, a compensation research firm in San Mateo, Calif.

At the company's annual shareholders meeting last spring, Nardelli was the only board member present. He did not give a speech and refused to answer questions, frustrating the 50 or so shareholders who showed up. Last month, activist shareholders Relational Investors sent a letter to Home Depot urging it reevaluate its strategy and the performance of the management team.

The company's board of directors at the time issued a statement saying it "unanimously supports" Nardelli. The about-face yesterday took many investors and industry experts by surprise.

"I think that there were numerous different public relations fiascos of 2006 that ultimately took its toll on Mr. Nardelli and the board," said Michael Cox, an analyst at the investment firm Piper Jaffray. "I think a fresh change is most likely good for the company right now."

Several analysts viewed Nardelli's replacement as an indication that Home Depot was not looking for a major overhaul, however. Hoff said she thought Blake would be more of a consensus-builder than Nardelli, who had a reputation for gruffness.

"This is not the board's response relative to the need for a strategic change in the company," Hoff said. "It's more about him."

Staff researcher Richard Drezen contributed to this report.

Washington Post    January 4, 2007

Don't Blame Nardelli
By Allan Sloan

When regular people lose their jobs -- often through no fault of their own -- they've got to fight tooth and nail for every penny. Yet here's Home Depot's chief executive, Bob Nardelli, leaving with $210 million despite not having done much of a job for anyone other than himself.

It's tempting to huff and puff about executive pay being out of control, which in many cases it clearly is. What's truly amazing here is that if you read Home Depot's documents, you discover that Nardelli did not negotiate any special exit package. Home Depot, as best I can tell, is paying him nothing more than called for by the contract that he signed in 2000 when the company "won" the bidding war to get him.

The problem isn't what Nardelli's getting to leave Home Depot. It's what he got to join the company when he signed his employment contract on Dec. 4, 2000. At the time, Nardelli was considered one of the two hottest CEO prospects in the country, along with Jim McNerney, who now runs Boeing. Nardelli and McNerney, both longtime General Electric executives, had just lost out to Jeff Immelt in the highly publicized battle to succeed Jack Welch as GE's chief.

Ken Langone, one of Home Depot's co-founders and a big fan of the "it's impossible to pay a good CEO too much" school of compensation, played a key role in signing Nardelli. Langone, you may recall, was also heavily involved in the controversial compensation package of Dick Grasso, the departed chief executive of the New York Stock Exchange. I wanted to talk to Langone about all this but, alas, he wouldn't take my call.

The size of Nardelli's package "isn't a surprise to me," said Paul Hodgson, senior research associate at the Corporate Library, which analyzes corporate governance. "The seeds of this debacle were sown in 2000," he said. "Everything was in his contract."

Though $210 million is a huge amount of money, there are corporate chieftains who've walked away with much more. Lee Raymond of Exxon Mobil got $400 million or so. Jack Welch left GE as a billionaire, and Roberto Goizueta left Coca-Cola in similar fashion. But Raymond, Welch and Goizueta were huge successes who spent essentially their whole careers working for one company. Nardelli, in contrast, is a latecomer leaving under a cloud because the performance of Home Depot's stock has lagged.

By Hodgson's math, Nardelli is actually walking away with less than another recently ousted CEO, Hank McKinnell of Pfizer. Hodgson puts McKinnell's package at $213 million, about $15 million more than the number Pfizer has used. Hodgson cautioned that his number for Nardelli may change when Home Depot (which wouldn't talk to me) releases more details.

It's not clear how much Home Depot is paying Nardelli to leave. The company said $210 million, but that includes stock he already owns and retirement benefits that have nothing to do with his departure. The split seems to be about 50-50.

Nardelli's cash severance is $20 million, which is about three years of his annual salary and bonus. He's also getting what the company described as "unvested deferred stock awards" worth about $77 million and unvested options worth $7 million. That adds up to about $104 million.

The rest of his package includes deferred stock in which Nardelli had vested, his various retirement packages and $18 million of miscellaneous benefits (whatever they are) that he stands to get over the next four years. I'm not trying to minimize Nardelli's swag, or to justify it. I'm just trying to show you how lush his contract was.

The world is full of people screaming about how unreasonable it is to lavish such riches on the likes of Nardelli. But as Hodgson says, the problem isn't Nardelli. It's the contract that Home Depot's board gave him. Under the agreement, he was paid mostly on the basis of how long he stayed, not on how well he or the company performed.

The other thing for which you can fault Home Depot's board is that it felt it had to go outside for a CEO six years ago, rather than feeling comfortable appointing someone from within. Hiring a CEO from the outside is expensive. Nardelli and McNerney, the two "losers" in the Jack Welch succession wars, got far more from their new employers to leave GE than Jeff Immelt got for staying.

Maybe someone will learn something from the Nardelli fiasco and companies will be more careful about what they agree to pay newly hired outsider CEOs. But I'll bet that when the cycle turns, companies will bid up the market for star CEOs again.

Repeat after me: The time to have the debate over CEO compensation isn't when the CEO is fired. It's when he's hired.

Sloan is Newsweek's Wall Street editor. His e-mail address is

January 4, 2007

A Warning Shot by Investors to Boards and Chiefs

Arrogance has never been attractive in a leader. Now, in corporate chief executives anyhow, it may be a career ender.

The surprising defenestration yesterday of Robert L. Nardelli, head of Home Depot and one of the nation’s most imperious and highly paid chief executives, was a victory for shareholders hoping to force corporate directors to be more accountable on the increasingly incendiary issue of executive pay.

Even though the board gave him $20 million that was not a part of his employment contract, perhaps smoothing his way out the door, the departure seemed to be a watershed. No longer can executives demand — and directors happily grant — contracts worth hundreds of millions of dollars without at least some shareholders uttering a peep.

Indeed, Mr. Nardelli’s resignation seems to indicate a rising fear among Home Depot’s directors that they would be subject to even more investor ire and personal embarrassment during the 2007 proxy season than they encountered in 2006, when Mr. Nardelli ran the annual shareholder meeting like a lord over his fief.

“The departure of Nardelli is good news for shareholders,” said Frederick E. Rowe Jr., a money manager in Dallas and president of Investors for Director Accountability. “To borrow from Winston Churchill, this is the end of the beginning in the war to make directors accountable to the shareholder owners they represent.” Mr. Nardelli’s fall from the executive firmament was fairly stunning. In just six years, he went from being one of the most sought-after chief executives, forged in the management crucible that is General Electric, to a top target of investors outraged by his $245 million in total pay over the last five years. That amount was seen as completely at odds with the dismal performance of Home Depot stock on his watch. Yesterday, the shares closed at $41.07, almost 6 percent lower than they were the day Mr. Nardelli arrived at Home Depot in December 2000.

“C.E.O.’s now will understand that they’ve got to put their conscience and shareholder wealth well above their personal gain,” said Jeffrey M. Cunningham, chairman and chief executive of Directorship, an online information service for board members. “Boards create termination packages when no one even contemplates there is going to be a termination and they are extraordinarily rich. You are going to see all those plans rethought and rationalized for the new environment.”

Shareholders of Home Depot have been smoldering for several years about the company’s executive pay practices. Back when Mr. Nardelli arrived, for example, shareholders raised eyebrows after the company granted him a $10 million loan that it subsequently forgave. He has earned $20 million to $37 million each year since he joined the company.

In 2004, the company quietly changed the measurement it used to calculate long-term incentive pay for executives, upsetting investors when they learned of it later. Previously, the performance measure was based on a peer-group comparison, but the new measure involved only the company’s growth in earnings per share. It was more easily reached because it was based solely on Home Depot’s performance not that of other companies.

To some shareholders, changing the performance target in the middle of a year seemed an attempt to ensure a payout despite a dismal performance.

“We had a problem with that change,” said Bess Joffe, manager for the Americas at Hermes Investment Management, a money management firm owned by the British Telecom Pension Scheme, the largest pension plan in Britain. “After all, shareholders don’t get to change the terms under which they bought their shares midstream.”

But it was not until last year that Home Depot’s shareholders began to express serious disenchantment with the company’s directors over Mr. Nardelli’s pay. Last March, about two months before Home Depot’s annual shareholder meeting, the board was named one of the 11 worst executive pay offenders by the Corporate Library, a corporate governance research firm. In the weeks leading up to the meeting, shareholder advisory firms recommended withholding votes from Home Depot directors to voice their dismay over the disconnect between performance and pay at the company.

But Mr. Nardelli’s biggest error, and the act that may have set his demise in motion, was his shocking decision to run the annual meeting last May alone, insisting that his directors stay away and limiting questions from the shareholders.

“I’ve never heard of anything like that happening before, where directors don’t show up,” Ms. Joffe said. “It’s the one time of year that shareholders have a right to be present and stand up and speak their mind and directors have to respond.”

William Thomas Cain/Getty Images
Demonstrators at the Home Depot annual meeting in May protested Robert L. Nardelli’s pay package.

Stockholders were outraged. At least 30 percent of shareholders voting at the meeting withheld support from 10 of the company’s directors. Some 32 percent withheld support from Mr. Nardelli. Almost 36 percent of those voting withheld support from Claudio X. Gonzalez, chairman and chief executive of Kimberly-Clark’s Mexico operations and the director who had headed the compensation committee when the company changed its performance goals midstream.

Many shareholders also favored a proposal urging the Home Depot board to allow its investors to vote on an advisory basis to approve the company’s compensation; 40 percent voted for the measure.

Shareholders also supported a measure that would have required the board to accept resignations from directors who failed to receive support from a majority of votes cast. After the meeting, Home Depot said it would require such a vote from shareholders for the election of its directors.

Even so, the company continued to tinker last year with its pay practices in a way that may have been intended to generate pay for Mr. Nardelli in periods of poor performance at the company. Last November, a Home Depot spokesman disclosed that the company’s huge stock buybacks, which have the effect of increasing earnings when measured per share, would be included in the calculation of long-term incentive targets. In previous years, the effects of the buybacks were excluded from the calculations.

John A. Hill, the chairman of Putnam Funds, was one investor whose organization voted against Home Depot management at last year’s meeting. He said he was optimistic that Mr. Nardelli’s resignation signaled a new responsiveness among corporate directors. But he is uncertain.

“I think if a lot more shareholders withhold their votes for this board in the upcoming proxy season over their agreement with Nardelli, then it will really start to have an impact,” Mr. Hill said. “But as long as it is a minority, it won’t.”

Mr. Hill personally experienced Mr. Nardelli’s disdain toward his shareholders. As chairman of Putnam Funds, he wrote a letter after the annual meeting to Mr. Nardelli explaining why he had not earned the funds’ support at the election. He did not get a reply until August, when a reporter asked Home Depot why the chief executive had not responded to one of its large shareholders.

“He had become a lightning rod with the stock down,” Mr. Hill said. “But his not replying to our letter showed an arrogance there that came in on him.”

It seems that “my way or the highway” — Mr. Nardelli’s message to Home Depot’s beleaguered shareholders in recent years — does not play that well anymore.

January 4, 2007

Pay-for-failure packages gets you what you paid for
An Ousted Chief’s Going-Away Pay
Is Seen by Many as Typically Excessive

Robert L. Nardelli’s rich compensation and poor performance at Home Depot have long been cited by shareholder activists as a prime example of what they view as excessive executive pay. Some union members dressed up in giant chicken outfits to protest the board’s reluctance to clip Mr. Nardelli’s wings.

What did all their outrage get them? Mr. Nardelli’s removal — and at least a $210 million bill for a golden handshake on his way out the door.

Yesterday, Home Depot’s board ousted Mr. Nardelli as chairman and chief executive in a surprising move that highlights the growing influence of investors pressuring boards to rein in executive pay. But it also illustrates another point: Even when their voices are heard, shareholders often wind up holding the bag.

At Home Depot, Mr. Nardelli is expected to receive an exit package worth more than $210 million on top of the nearly $64 million he was paid during his six years at the helm. That equals about $45 million a year; over that same period, Home Depot’s stock has fallen from over $50 a share early in his tenure to $41.16 just before Mr. Nardelli’s resignation was announced.

By contrast, Home Depot’s chief competitor, Lowe’s, has paid its chief executives about one-third of what Mr. Nardelli made during the same time, while investors have enjoyed a healthy increase in their holdings.

Mr. Nardelli’s compensation may have a prominent place in the pantheon of pay-for-failure, but his arrangement is by no means unique.

“The company is big, the underperformance is significant and the numbers are very large,” said Lucian Bebchuk, a Harvard Law School professor who is an outspoken critic of executive pay. “But each of the pieces that lead to the decoupling of pay from performance are very common to the executive compensation landscape.”

Across corporate America, chief executives have been walking away with lavish riches even when their companies fail to perform, according to an analysis by the Corporate Library.

At Pfizer, Henry A. McKinnell left with an exit package worth $213 million, including an $82 million pension, after the pharmaceutical giant he ran for six years lost over $137 billion in market value on his watch. Jay Sidhu, the former chairman and chief executive of Sovereign Bank, received $44 million last fall when he was removed after a bitter proxy fight.

Morgan Stanley’s board awarded Philip J. Purcell an exit package worth more than $95 million when he was forced out in July 2005. Tom Freston, who was ousted at Viacom in September, and Carleton S. Fiorina, who was forced out by Hewlett-Packard in February 2005, were handed tens of millions of dollars when they abruptly stepped down.

“You can call them pay-for-failure packages,” said Jesse M. Fried, a law professor at the University of California, Berkeley, who has been critical of excessive compensation packages. “You get what you pay for.”

The reason highlights the “Heads I win; tails I win” nature of executive pay — especially for chief executives hired to orchestrate a turnaround. Over the last decade, many boards and big investors bought into the belief that a celebrity C.E.O. or corporate savior was vital for success.

There have certainly been a number of examples of chief executives who delivered outsize gains to their shareholders, enjoying big rewards themselves.

As a result, most executives have been able to take advantage of the perception that they would deliver big rewards to negotiate employment contracts that guaranteed them bonuses when they arrived, paid them handsomely with stock options during their careers — and in many cases, ensured severance contracts providing millions more once they left.

“The justification that is given for these big executive pay packages is that we have to give them very strong incentives to create shareholder value,” Mr. Fried said. “But if you are allowing them to walk away with hundreds of millions of dollars even if they do extremely poorly, you are undermining that case.”

That appears to be what happened at Home Depot. When Mr. Nardelli was hired in December 2000, he was seen as a strong leader who could help restore Home Depot to the luster it enjoyed in its early years. Home Depot’s board offered him a contract that would pay him well if times were bad and even more if the company’s performance was better.

Mr. Nardelli received $63.5 million in salary, bonuses, and other compensation, including $21 million in forgiven loans and company-paid taxes during his career at Home Depot. In that time, however, he failed to turn the company around.

Yesterday, details of his $210 million exit package were released. As part of the negotiated arrangement, Mr. Nardelli is expected to take home a severance payment of $20 million, a $32 million pension, a $2 million 401(k) and $139 million in deferred equity awards and stock options that he now will be able to cash early. That amount could grow if Home Depot’s shares rebound under a new leader.

Mr. Nardelli also stands to receive another $18 million in “other entitlements,” which the company did not disclose, but will be paid over the next four years so long as he does not violate a noncompete contract.

Under his employment contract, Mr. Nardelli was eligible for benefits like life insurance, and dental and medical coverage for several years after his departure. It is unclear whether he will still receive them.

“When you guarantee income to an executive regardless of performance, you end up paying and you rarely get performance,” Mr. Hodgson said. “The board could have saved themselves hundreds of millions of dollars and still have their reputations intact.”

Representative Barney Frank, the Massachusetts Democrat who is the new chairman of the House Financial Services Committee, called Mr. Nardelli’s exit package “confirmation of the need to deal with a pattern of C.E.O. pay that appears to be out of control.”

Some investors were so happy to see Mr. Nardelli leave that they declared victory — no matter how hollow. They are holding out hope that his ignominious exit will serve as an example to others.

William C. Thompson Jr., New York City comptroller, said he hoped “all the attention that has been focused on him — with his excessive pay and his underperformance — will lead to change within this company and send a message to other companies.”

Still, he conceded that the $210 million exit package was something “we would have preferred not happen.”

The Guardian     January 8, 2007

Power, corruption and lies
Will Hutton

To the west, China is a waking economic giant, poised to dominate the world. But, argues Will Hutton in this extract from his new book, we have consistently exaggerated and misunderstood the threat - and the consequences could be grave

Consumers on Nanjing Road, Shanghai's major shopping street. Photograph: Getty Images/National Geographic

The emergence of China as a $2 trillion economy from such inauspicious beginnings only 25 years ago is such a giddy accomplishment that the temptation to see its success as proof positive of your own prejudices is overwhelming. And the west's broad prejudice is that China is growing so rapidly because it has abandoned communism and embraced capitalism. China's own claim - that it is building a very particular economic model around what it describes as a socialist market economy - is dismissed as hogwash, the necessary rhetoric the Communist party must use to disguise what is actually happening. China proves conclusively that liberalisation, privatisation, market freedoms and the embrace of globalisation are the only route to prosperity. China is on its way to capitalism but will not admit it.

But the closer you get to what is happening on the ground in China, its so-called capitalism looks nothing like any form of capitalism the west has known and the transition from communism remains fundamentally problematic. The alpha and omega of China's political economy is that the Communist party remains firmly in the driving seat not just of government, but of the economy - a control that goes into the very marrow of how ownership rights are conceived and business strategies devised. The western conception of the free exercise of property rights and business autonomy that goes with it, essential to any notion of capitalism, does not exist in China.
The truth is that China is not the socialist market economy the party describes, nor moving towards capitalism as the western consensus believes. Rather it is frozen in a structure that I describe as Leninist corporatism - and which is unstable, monumentally inefficient, dependent upon the expropriation of peasant savings on a grand scale, colossally unequal and ultimately unsustainable. It is Leninist in that the party still follows Lenin's dictum of being the vanguard, monopoly political driver and controller of the economy and society. And it is corporatist because the framework for all economic activity in China is one of central management and coordination from which no economic actor, however humble, can opt out.

In this environment genuine wholesale privatisation is impossible and liberalisation has well-defined limits, as President Hu Jintao himself brutally reminds us. The party, he says, "takes a dominant role and coordinates all sectors. Party members and party organisations in government departments should be brought into full play so as to realise the party's leadership over state affairs". It may be true that party organisations in the provinces (some with populations bigger than Britain's) and in the chief cities are jealous of their autonomous local political control, but all retain the discretionary power to do what they choose and override any challenge or complaint from any non-state actor - or, indeed, from state actors if they cross the will of the party.

Absolute power corrupts, and the Chinese Communist party has become one of the most corrupt organisations the world has ever witnessed. The combination of absolute power and an ideology that palpably no longer describes reality is a virus that is morally and psychologically undermining the regime. And if the regime wobbles, then its capacity to sustain the unsustainable economic structures will wobble and Leninist corporatism will unravel. Beijing's authority could fragment and China's provinces reassert their destructive independence as they did in the 1910s and 20s, or a new and fiercely repressive regime could try to hold the country together abandoning economic openness and market reforms - and even pick some international fights (such as invading Taiwan?) to rally the country to its side. It is because this prospect is so real that the task of peacefully moving to a sustainable capitalism, and building the necessary institutions to do it, is so vital for both China and the world.

Ever since the late 1990s the party leadership, then under Hu's predecessor Jiang Zemin, has rightly become more and more preoccupied with how corruption is corroding the party. "If we do not crack down on corruption, the flesh-and-blood ties between the party and the people will suffer a lot and the party will be in danger of losing its ruling position, or possibly heading for self-destruction," Jiang declared in 2002, in his last political report to the National Congress. High-level officials had been arrested and imprisoned for embezzlement and racketeering; they included the party secretary and mayor of Beijing, Chen Xitong, a member of the Politburo. Cheng Kejie, vice-chairman of the National People's Congress, was executed for taking pounds 2.5m in kickbacks for arranging land deals and contracts for private business. In the financial system the highest-profile casualties were three of prime minister Zhu Rongji's hand-picked "can-do commanders", selected to sort out the financial crisis of the late 1990s, and one of whom, Li Fuxiang, leaped to his death from the seventh floor of Beijing's Hospital 304 while under investigation. To put this in a British context, it is as if the Mayor of London, the speaker of the House of Commons, the chief executive of HSBC, along with a deputy governor of the Bank of England and the deputy chief executive of the Financial Services Authority had all been imprisoned for fraud with one committing suicide.

For all the strengthening of the anti-corruption and Orwellian sounding "Central Discipline Inspection Committee", corruption remains deeply embedded. The number of arrests of senior cadres members above the county level quadrupled between 1992 and 2001, and since then have included a ring of officials in Gansu, one of China's poorest provinces, caught embezzling pounds 500m. Four provincial governors and one provincial party secretary have been charged recently - the top posts in China outside Beijing. And in September 2006 came the arrest of Shanghai party secretary and member of the politburo Chen Liangyu for his involvement in the misappropriation of pounds 206m of social security funds.

The Chinese economist Hu Angang, in his trailblazing book Great Transformations in China: Challenges and Opportunities, calculates that over the late 90s the cumulative annual cost of corruption was between 13.3% and 16.9% of GDP and is still around that level today. Every incident of corruption - smuggling, embezzlement, theft, swindling, bribery - arises in the first place from the unchallengeable power of communist officials and the lack of any reliable, independent system of accountability and scrutiny. Corruption has become part of the system's DNA, now threatening the integrity of the state.

To see how, look no further than the combination of one-party control and corruption and how it deforms the legal system. The judicial apparatus is politicised from top to bottom. Every president and vice-president of a court is appointed by the party; and the courts are funded by provincial governments. The court bureaucracy works on the same basis as the rest of the government, with a party committee system superintending each rung of the court hierarchy. Judges often make decisions at the instruction of the committee or government independently of the legal merits of the case.

Many judges still have no formal legal training - the majority are retired army officers, only too ready to do the party's bidding. The scale of the corruption is stunning. In 2003, 794 judges were tried for corruption (out of a national total of 200,000). In 2003 and 2004, the presidents of the provincial high courts of Guangdong and Hunan were both found guilty of corruption. When the party does not or cannot influence the judgment in a case, it can use its influence over the police to decide whether to slow down or not enforce the judgment. Enforcement rates in China are lamentable; for example, only 40% of provincial high court decisions are enforced. The lack of a clear system of property rights, with the party-state claiming particular privileges, can make debt enforcement against state organisations close to impossible.

As a potential watchdog to correct any of this, the media is crippled. China now has more than 2,000 newspapers, 2,000 television channels, 9,000 magazines and 450 radio stations, but they are all under the watchful eye of the party in Beijing or provincial propaganda departments. These authorities issue daily instructions on what may and may not be reported; journalists who digress will be suspended from working or even imprisoned. China is estimated to have 42 journalists in prison, the highest number in the world. Editors know roughly how much slack they have; but recently, under Hu Jintao, there has been a tightening of the leash. The right to travel independently and report from a non-local city had allowed more aggressive reporting of corruption; but it has been rescinded. Some prominent editors have been fired. For instance, Yang Bin, editor of China's most forceful tabloid, the Beijing News, was dismissed in 2005 for reporting village protests against unfair confiscation of land. Other journalists have been prohibited from publishing. The Committee to Protect Journalists, in its 2005 report on repression of the media, quotes the government-run People's Daily: "[During 2004] censorship agencies permanently shut down 338 publications for printing 'internal' information, closed 202 branch offices of newspapers, and punished 73 organisations for illegally 'engaging in news activities'."

In February 2006, three of China's most distinguished elders - Li Rui, a former aide to Mao Zedong, Hu Jiwei, former editor of the People's Daily, and Zhu Houze, a former party propaganda chief - published a letter condemning the approach: "History demonstrates that only a totalitarian system needs news censorship, out of the delusion that it can keep the public locked in ignorance," they wrote. Far from ensuring stability, they continued, such media repression would "sow the seeds of disaster".

All this is obvious to western eyes; what is less obvious is the way the same system of control undermines the economy. Successful businesses have to be successful in business terms - with managers freely exploiting opportunities, developing products and brands and promoting on ability. No such autonomy is possible within Leninist corporatism; party needs come before those of business, enforced by a national system of party committees in every enterprise, finance from state-owned banks and a complex system of accounting and ownership rights that leaves majority ownership of most enterprises with the state. Private shareholders have very limited ownership rights; companies' fixed assets are separated out in company accounts and can still only be legally owned by state and public bodies. And as MIT economist Yasheng Huang argues, government shareholders interfere, especially if a firm is successful. Countless Chinese firms, he says, have been driven to bankruptcy or thwarted in their growth ambitions because the government has exercised its ownership privileges to meet party objectives.

In short, the party state is at the centre of a spiderweb of control of the economy, radiating out from the tight ownership and direction of the 57 sectors the party considers the economy's strategic heart like steel and energy to a more relaxed stance the less important the party considers an enterprise's activity - such as packaging or hairdressing. Even they can be controlled if need be. The general rule is that the more politicised and controlled a Chinese enterprise, the lower its productivity and performance. Thus the performance of China's State Owned Enterprises (SOEs), which control two-thirds of industrial assets, has hardly improved during 20 years of reform. One in three of their employees is estimated to be structurally idle. SOEs are on a financial edge and barely profitable. According to one influential estimate, even the tiniest upward movement in interest rates or the slightest decline in sales would mean that 40%-60% of their enormous bank debts would not be serviced, rendering the entire Chinese banking system bankrupt. They are commercial and business disaster areas.

Even large private companies, although better performing, are still affected. Davin Mackenzie, managing director of iVentures, which is based in Beijing, says that almost no private company, however well run, wants to leave the opaque, informal world of guanxi personal relationships in which the main aim is to hide revenue, cash, and profits from potential political direction. The vast majority, he says, run themselves out of the "cash box in the back of the Mercedes". Most private Chinese companies have three sets of accounts - one for the banks, one for the tax authorities, and one for management. Most do not last long; the average duration is three years. The law of the jungle prevails: you do what you can get away with. China is the counterfeiters' paradise, where intellectual property rights are neither respected nor enforced. Between 15% and 20% of all well-known brands in China are fake; two-thirds of the imports confiscated by US Customs as fakes were made in China. Counterfeiting is estimated to represent 8% of GDP - eloquent testimony to Chinese business strategies and the ineffectiveness of the legal system.

The cumulative result of all this is economic weakness, despite the eye-catching growth figures. Innovation is poor; half of China's patents come from foreign companies. Its growth depends on huge investment, representing an unsustainable 40% or more of GDP financed by peasant savings. But China now needs $5.4 of extra investment to produce an extra $1 of output, a proportion vastly higher than that in economies such as Britain or the US. But 20 years ago, China needed just $4 to deliver the same result. In other words, an already gravely inefficient economy has become even more inefficient. China's national accounts tell the same story. Hu Angang calculates that China is now back to the Mao years in term of the inefficiency with which it uses capital to generate growth.

Behind all these problems lie Leninist corporatism. Capitalism, I contend, is much more than the profit motive and the freedom to set prices which China's reforms have permitted. It is a system in which many different actors freely take different decisions according to their best judgment; some are right and some are wrong, but the system never has to bet on any one being right for everyone - as in an authoritarian system of centralised economic control. But this economic pluralism is closely intertwined and dependent upon the wider political capacity of different citizens to be able to be part of a public space in which they can debate options and choices. It is because democracies possess such public spaces that, over decades, even the weakest tend to manage themselves better than authoritarian states. There is less likelihood of group-think, conformism and top-down plans that militate against good decisions - or of the quick reversal of poor decisions.

This public sphere is a whole network of "soft" independent processes of scrutiny, justification, transparency and accountability that range from a free media to independent justice. Representative government in which the people regularly vote for their governors is but the coping stone of this structure. And the processes of scrutiny and deliberation do not stop just with the state - the same processes are extended to capitalism and the market economy, and through having to justify themselves, makes them more honest and better performing.

But none of this can happen if individuals are not free and capable of being involved - and having the capacity, through the independence that property ownership, education, trade union membership and citizenship confers, freely to challenge and change individual policies, whether they are those of the government or the company they work for. These social processes work best the less social distance there is between people. The more inequality and the more social distance, the less well these processes of pluralism, capabilities and accountability can function. And the less well capitalism then functions. So China leads to an unexpected insight. Capitalism works best the more inequality is capped - and the more and better developed its democratic institutions.

The west is unforgivably ignorant about China's shortcomings and weaknesses, which leads it vastly to exaggerate the extent of the Chinese "threat". China is certainly emerging as a leading exporter, but essentially it is a sub-contractor to the west. It has not bucked the way globalisation is heavily skewed in favour of the rich developed nations. Its productivity is poor; it lacks international champions; its innovation record is lamentable; it relies far too much on exports and investment to propel its economy. To characterise China as an unstoppable force whose economic model is unbeatable and set to swamp us - the stuff of almost every ministerial and business lobby speech - is to make a first-order mistake.

Rather, the west needs to understand the depth of China's problems and the possibility, if not probability, of an economic and political convulsion as China seeks their resolution. What the west must avoid is a position where it forces the Chinese leaders' hand and China retreats towards economic isolation and freezing the reform process. The challenge to the global trading and financial system would be profound; not only would an important source of global demand be scaled back, a key source of financing the US trade deficit would be removed. China's progress would be shaken to its core.

The interest of the west is to help China avoid this fate and encourage a peaceful transition to a pluralist China within a legitimate system of accountability; a country that is comfortable with liberal globalisation and the international rule of law. To describe the goal of policy in this way is demanding enough; more demanding still is to execute it. The simple extrapolations of China's growth, predicting that it will eventually become a one-party, economic colossus, lead to an alarmist climate in which it is easier to justify trade protection or, in the United States, potential military activism. Such responses are naive. We have to play it long, encourage and help to co-manage the change that must come. Only thus will the world be a safer and still prosperous place.

· Will Hutton's The Writing on the Wall is published on January 18 at pounds 20. To pre-order a copy for pounds 18 with free uk p&p go to or call 0870 836 0875

Op-Ed Contributors

January 13, 2007

Banks Gone Wild
By JOE LEE and THOMAS PARRISH, Lexington, Ky.

I OWE about $12,000 in unsecured debt, and my payments just keep going up,” a troubled citizen signing himself T. P. recently informed a personal-finance columnist. He always paid more than the minimum amount due on his credit card bill, but “still the balance never goes down,” T .P. wrote. “Is there any way to get the interest rate down?”

The interest rate that so oppressed T. P.? A towering 29.99 percent. At this rate, the columnist said, if T. P. continued to pay little more than the monthly minimum, it could take him more than 30 years to pay off his balance — even if he never went shopping again.

Trying to fight off a collection agency while paying little or nothing on his credit card debt, another desperate borrower, R. Z., appealed to this same columnist. How could he prevent interest charges and late fees from mounting? He couldn’t, replied the columnist, as long as he legally owed the money.

Consumers like T. P. and R. Z. find themselves caught in the complexities of today’s bankruptcy laws. And their predicament is increasingly common.

Thirty years ago, the unlucky R. Z. would probably have struck many of his acquaintances as something of a deadbeat: Hadn’t he voluntarily run up a debt and then tried to slip out of the deal? T. P., on the other hand, would have received sympathy as the victim of a heartless usurer (if interest rates equal to one-third of the principal had been legal in those days).

But in today’s strange alternative universe of credit card banks, the term “deadbeat” refers not to the improvident borrower but to the solid citizen who prides himself on paying off his balance every month. As anybody with a mailbox knows, credit card issuers make unrelenting efforts to lure accounts from one another as well as to establish new accounts. And what these lenders seek are “revolvers,” people like R. Z. and T. P., who are likely to pay little more than the monthly minimum — and who eventually find themselves in thrall to mushrooming interest payments, abundantly garnished with late fees.

As for the morality involved in lending money at exorbitant rates, the word “usury” itself has taken on a quaint, archaic sound, like “jousting” or “necromancy.” What happened?

In 1978, the United States Supreme Court delivered a landmark decision that freed banks to charge the interest rates allowed in their home states to customers across the country. This decision, at a time of high inflation, unleashed a national credit storm: states scrambled to relax usury laws in order to attract banks, while banks rushed to establish affiliates in states that weakened or abolished such laws. R. Z. and T. P. are the natural products of this unhappy change. One obvious recourse for people like them is to file for bankruptcy. There’s the stigma to consider, of course. But making such a move would allow R. Z. to end the harassment by the collection agency and both men to make fresh starts free of unsecured debts.

Unsurprisingly, in the 25 years since the credit explosion began, personal bankruptcy filings have risen sharply. Bank advocates have argued that this reflected debtors’ increasing abuse of the protections granted by the Bankruptcy Reform Act of 1978. Personal bankruptcies, said the industry, were costing every household a hidden tax of $400 a year, in the form of rising prices and higher interest rates. It mounted a campaign against what banks called an “epidemic” of defaults by debtors.

In 2005, these suffering financial institutions succeeded in securing the adoption of new federal legislation, the marvelously named Bankruptcy Abuse Prevention and Consumer Protection Act. Nobody who favored this bill chose to see that the bankruptcy epidemic had been produced in large measure by the banks, or that the real hidden costs were the usurious interest rates these banks charged borrowers.

Two simple comparisons demonstrate the point: From 1980 to 2004, personal bankruptcy filings increased 443.45 percent, which is certainly impressive. But over the same time, consumer credit debt rose a bit more, by 501.29 percent. In 1980, less than one personal bankruptcy case was filed for each $1 million in consumer credit outstanding; the figure was slightly smaller in 2004.

Bankruptcies tend to rise as amounts of credit rise. No mystery there, and certainly no epidemic. It all suggests that the bankruptcy code was performing remarkably well.

But the banks got what they wanted from Washington. Since the law has been on the books, people like R. Z. and T. P. have continued to receive all kinds of credit offers (no limits there), but they may have a much harder time now fending off disaster through bankruptcy protection.

A group of credit-counseling firms that provide bankruptcy screening — a step the new law requires — report that 97 percent of the clients could not repay any debts at all, and 79 percent sought relief for reasons beyond their control, like job loss and large medical expenses and, notably, rising credit card fees and predatory lending practices.

A boomerang effect has appeared, too. The new law contains a provision forcing many debtors into Chapter 13 compulsory repayment plans. The bill’s backers expected this fresh squeeze on debtors to produce more cash for the banks, but the trend appears to be downward.

In adopting the provision, Congress disregarded the advice of every disinterested group that has looked at the question, including three presidential commissions, the Congressional Budget Office and the Government Accountability Office. It also ignored a past House Judiciary Committee report, which declared that such compulsion might well amount to the imposition of involuntary servitude.

So the lending goes on. People classed as the “working poor,” now beginning to be tapped by the credit card vendors, no doubt constitute a rich supply of coveted potential revolvers — fresh customers for the banks to draw into the credit maze, with its minimums and its unending late fees. In signing the 2005 act, President Bush declared that it would make more credit available to poor people. Unquestionably so. And 30 percent interest was just what they needed, wasn’t it?

Joe Lee is a federal bankruptcy judge. Thomas Parrish is the author of “Roosevelt and Marshall.”

CASH    11 Januar 2007

Ein Sohn der Bronx im Dollarregen
Unscheinbar und «ein Paranoiker»:Wer hinter dem Top-Boni-Banker der Wall Street steckt.
Goldman Sachs überschüttet seinen Chef Lloyd Blankfein mit einem Rekordbonus von 53 Millionen Dollar.
Dabei entspricht er keineswegs dem klassischen Image eines Wall-Street-Titanen.

In der Bronx geboren, aufgewachsen in einer Sozialsiedlung in Brooklyn und bei der ersten Bewerbung von Goldman Sachs noch abgelehnt: Doch Lloyd Blankfein hat sich nach oben gekämpft, der Pöstlersohn wurde auch in der Bank notorisch unterschätzt. Nun kassierte er den Rekordbonus von über 53 Millionen Dollar.

    Eine kalte Nacht am Weltwirtschaftsforum in Davos, dem Stelldichein der mächtigen Wirtschaftsleute dieser Welt. Lloyd Blankfein, damals noch Geschäftsführer von Goldman Sachs, hält mit einer Dinner-Party Hof. Doch statt als Gastgeber mit den Reichen und Guten zu palavern, verzieht er sich in eine Ecke und hantiert am Blackberry herum, um seine E-Mails zu checken.
    Ein Beispiel, wie Blankfein, seit letztem Juni nun Chef von Goldman Sachs, in der Nadelstreifen-Welt der Hochfinanz verloren wirkt. Er ist klein, kahl und noch immer etwas übergewichtig, obwohl er jüngst 25 Kilo abgespeckt hat. Bringen die Geldjongleure meist riesige Egos mit an die Wall Street, steht er offen zu Hemmungen. «Wenn ich nicht Angst hätte, überzeugt etwas festhalten zu können, würde ich sagen, ich sei die unsicherste Person der Welt», sagt er umständlich – und bezeichnet sich als «Paranoiker». Er pflegt sein Hobby nicht auf dem Golfplatz, sondern er bekämpft mit einer Stiftung Armut in New York City. Üben sich andere Banker bei der Bekanntgabe ihrer jährlichen Boni in Unmässigkeit, rief Blankfein, 52, Mitte Dezember zu Demut auf. Es fiel ihm leicht. Mit 53,4 Millionen Dollar kriegte er den bis anhin üppigsten Wall-Street-Bonus. Goldman-Aktien im Wert von 500 Millionen Dollar liegen in seinem Portfolio.

Schon im ersten Jahr lieferte er ein Rekordergebnis ab
    Nicht schlecht für den Sohn eines Pöstlers, der in der Bronx zur Welt kam und in einer Sozialsiedlung in Brooklyn aufwuchs. Lloyd war smart und zielstrebig genug, ein Stipendium fürs College an der Harvard University zu kriegen. Durch die Hintertür kam er zu Goldman Sachs. Eine erste Bewerbung schlug fehl. Blankfein heuerte bei J. Aron an, einem Goldhandelshaus, das Goldman Sachs 1982 übernahm. Blankfein war, wo er hinwollte – und wurde als Händler von den arroganten Investmentbankern jahrelang gering geschätzt.
    Das beeindruckte ihn nicht. Mit Vehemenz baute er das vermeintlich renditeschwache Handelsgeschäft mit Obligationen, Währungen und Rohstoffen aus – eine Abteilung, die bei Goldman mittlerweile rund 75 Prozent des Gewinns einfährt und die renommiertere Investmentbank in den Schatten stellt. «Trading ist das grösste Geschäft der Welt», sagt der Finanzanalyst Richard Bové vom Handelshaus Punk, Ziegel. «Goldman Sachs ist dabei die beste Firma» – dank Lloyd Blankfein, der schon in den letzen Jahren des Öfteren höhere Boni nach Hause trug als sein Konzernchef.
    Folgerichtig erklomm er den Chefsessel als Nachfolger des legendären Hank Paulson, den US-Präsident George W. Bush zu seinem Finanzminister kürte (siehe Text unten). Blankfein lieferte schon im ersten Jahr ein Rekordergebnis ab, der Gewinn stieg um 70 Prozent auf 9,5 Milliarden Dollar. Als Grund werteten Analysten die von Blankfein entwickelte risikoreiche Strategie, nicht nur Gelder der Kunden, sondern vermehrt auch Goldman-Geld lukrativ zu investieren.

Hochkarätige Bankerverlassen die Bank
    Dieser Paradigmenwechsel hat ihm nicht nur Freunde geschaffen. Galt Goldman Sachs unter Paulson als verschworene Gemeinschaft, sondert sich Blankfein schon mal von Auserlesenen ab. Das vertrieb jüngst Starbanker Scott Kapnick, einen der drei Direktoren der Investmentbank. Kurz darauf quittierte mit der Investmentbankerin Suzanne Nora Johnson die höchste Frau im Haus ihren Dienst. Analysten legten die Abgänge als Zwist zwischen der Investmentabteilung und Blankfein aus. Bereits im Jahr 2003 hatte er John Thain als Präsident und leitenden Geschäftsführer verdrängt. Dieser, ein Hüne mit kräftigem Kinn und tiefer Stimme, galt als logischer Erbe von Paulson. Nun führt er die Börse, die New York Stock Exchange. Thain wie Blankfein verneinen, Feinde zu sein. Keiner sagt aber, sie seien Freunde.
    Ob der Pöstlersohn den Finanzkoloss zu neuen Höhenflügen treiben kann, hängt nicht zuletzt vom Asien-Geschäft ab. Sein Vorgänger war in den letzten 16 Jahren siebzigmal nach China gereist, im Wissen, wie wichtig persönliche Kontakte sind. Blankfein hingegen ist international unerfahren und geht mit dem Blackberry sicherer um als mit Menschen. Doch es wäre nicht erstaunlich, wenn er auch in dieser Beziehung überraschen würde.

Von 38 Millionen zu 183000 Dollar
Kein anderes US-Finanzinstitut bildet mehr Beamte aus als Goldman Sachs. Es gehört zur Geschäftskultur,
dass reich gewordene Partner den Konzern verlassen, um dem Staat zu dienen – für ein Butterbrot.
In bester Goldman-Sachs-Tradition: Konzernchef Hank Paulson ging als Finanzminister nach Washington.

    Der amerikanische Präsident rief an, der Konzernchef sagte Ja. Ohne mit den Wimpern zu zucken, wechselte Henry M., genannt Hank Paulson, 60, letzten Mai vom schicken New Yorker Chefbüro in die muffige Beamtenstube nach Washington. Hatte er als Chef von Goldman Sachs einen Jahreslohn von 38 Millionen Dollar garniert, kriegt er nun als Finanzminister 183000 Dollar. «Paulson hat mehr Geld, als er je ausgeben kann, jetzt will er seinem Leben einen anderen Sinn geben», erklärt der bekannte Harvard-Ökonomieprofessor Robert Kaplan den unökonomischen Jobwechsel.
    Paulson führt fort, was bei Goldman Sachs zum guten Ton gehört. Keine andere Firma an der Wall Street stellt derart viele Topleute, die im öffentlichen Dienst arbeiten und zuweilen auf ihre alljährlichen Millionenboni und Sonderzulagen verzichten.
Die Liste ist lang und renommiert. Robert Rubin, unter Bill Clinton Finanzminister, kam von Goldman Sachs, ebenso der Stabschef von George Bush, Joshua Bolton, oder dessen einstiger Wirtschaftsberater Stephen Friedman. Partner bei Goldman Sachs war auch Jon Corzine, der den Staat New Jersey zuerst als Senator vertrat und nun als dessen Gouverneur amtet.
    «Jene, die viel erhalten, müssen viel geben», sagte der Ex-Goldman-Sachs-Partner John Whitehead, der unter Präsident Reagan Vizeaussenminister war. Nach den Terroranschlägen vom 11. September 2001 übernahm Whitehead die undankbare Aufgabe, den Wiederaufbau von Lower Manhattan zu koordinieren. Diese Tradition des Finanzhauses reicht zurück in die Zeit des Zweiten Weltkriegs. Damals nahm der Senior Partner Sidney Weinberg eine Auszeit. Statt Geld zu vermehren, führte er das War Production Board, ein Amt, das die Produktion und Rationierung von strategisch wichtigen Produkten wie Erdöl, Metall oder Gummi koordinierte.
    Diese Erfahrung trieb Weinberg zu einer Einsicht, die noch heute prominent auf der Firmen-Website verbreitet wird. «Es ist die Pflicht von Geschäftsleuten, ihre Zeit und ihr Talent dem öffentlichen Dienst zur Verfügung zu stellen, vor wie nach der Pensionierung.» Das gilt nicht nur für das Top-Management. Seit zwei Jahren ermutigt Goldman weltweit das gesamte Personal, auf Zeit in den Staatsdienst zu wechseln.
    Dies erlaubt der enorme Reichtum, den die Bank für ihre Partner generiert. Jon Corzine baute ein Vermögen von 233 Millionen auf – und gab 1999 hundert Millionen davon aus, um den Wahlkampf für einen Sitz im US-Senat zu finanzieren. Als Senator verdiente er noch 150000 Dollar pro Jahr. PH

"Treasury's Got Bill Gross on Speed Dial" by Devin Leonard
"Capitalism's Beast of Burden" by Paul McCulley, January 2001
"The Financial Instability Hypothesis" by Hyman P. Minsky, May 1992
    Lombard Street, A Description of the Money Market, Walter Bagehot, 1873
Hyman Minsky, Wikipedia    March 2007

Global Central Bank Focus
The Plankton Theory Meets Minsky

by Paul McCulley  -

Watching the on-going meltdown in the sub-prime mortgage market, which is triggering a sharp tightening of underwriting standards to these dicey credits, I was reminded of prescient writings by two serious thinkers: Bill Gross and Hyman Minsky. Both narratives go back a long ways, with something that Bill wrote in August 1980(1) – 27 years ago! – particularly poignant:

   “The Plankton Theory, like life itself, begins and ends in the ocean. Plankton, of course, are almost microscopic organisms that serve as food for higher life forms. Without plankton almost every fish and mammal in the sea could not survive, since most species depend upon other fish for their existence and plankton are the initial building blocks of the entire process. Logic would suggest, therefore, that in attempting to forecast the well being of the Great White Whale, Jaws, or even Jaws II, that one of the factors to consider would be the status and future outlook of the plankton. That, in one hundred words or less, is the Plankton Theory.
    Now, what possible significance could this have for the investment world? Plenty. Take for example, the area of real estate, especially that of single family housing. We’re all familiar with the rapid escalation of home prices over the last 10 years. For most Americans, their homes have been the best and in many cases the only investment that they have made in their entire lives. Some have gone so far as to invest in several homes and have endured ‘negative carry’ on the cash flow in anticipation of leveraged capital gains a few years down the road. But where does it stop? Can housing continue to increase at twice the Consumer Price Index for the next 10 years?
    One way to measure might be via the Plankton Theory. In the case of real estate, the plankton would be the first-time buyer (perhaps a young married couple) with a desire to own their own home but with very little capital to carry it off. When the time comes that they can’t pull it off – either through an inability to come up with a down payment, or to service the monthly mortgage – then the ‘plankton’ would disappear and the rapid escalation in housing prices would ease as well. For, unless the current homeowner has someone to sell his house to, he’ll be unable to afford the house with the view or that extra bedroom, and the process would continue into the echelons of Beverly Hills and Shaker Heights. In the end, the entire market would wither on the investment vine and home prices would stop increasing at the same rapid rate. So to gauge the health of the housing market, look first at the plankton. Without their presence and financial vitality, the market’s not going to repeat the experience of the past 10 years.”
Bill’s call was a good one, as displayed in Chart 1: home price appreciation tumbled in the first half of the 1980s, as the homeownership rate fell: the Plankton Theory at work! Draconian Fed tightening at the beginning of the 1980s had something to do with it, too, of course, as the Plankton were priced out of the market by high interest rates, independent of the availability – or underwriting standards – for home mortgage loans.

But the theory held: it’s the first-time buyer, stretching to buy, that is the life’s blood of vibrant property markets. And intrinsically, there is nothing wrong with a young family stretching to buy that first house; most all of us did, as did our parents (many with the aid of the GI Bill). Optimism about rising incomes and making lives better for our children is the cornerstone of the American Dream.

But the human condition is inherently given to the Mae West Doctrine that if a little of something is good, more is better, and way too much is just about right. Such is the case in capitalist finance, as brilliantly diagnosed by both John Maynard Keynes and his disciple, Hyman Minsky. I first introduced Minsky to these pages way back in January 2001(2), just as the corporate sector was sinking into recession, taking the aggregate economy with it, and the Fed was initiating a massive easing cycle.

Minsky, who passed away in 1996, was the father of the Financial Instability Hypothesis, providing a framework for distinguishing between stabilizing and destabilizing capitalist debt structures. He first articulated the Hypothesis in 1974, and summarized it beautifully in his own hand in 1992:

   “Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on ‘income account’ on their liabilities, even as they cannot repay the principal out of income cash flows. Such units need to ‘roll over’ their liabilities – issue new debt to meet commitments on maturing debt. For Ponzi units, the cash flows from operations are not sufficient to fill either the repayment of principal or the interest on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stocks lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes.
   It can be shown that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation-amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.
    In particular, over a protracted period of good times, capitalist economies tend to move to a financial structure in which there is a large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make positions by selling out positions. This is likely to lead to a collapse of asset values.”
Clearly, the explosion of exotic mortgages – sub-prime; interest only; pay-option, with negative amortization, et al – in recent years, as shown in Chart 2, have been textbook examples of Minsky’s speculative and Ponzi units(3).

And as Bill Gross explained long ago, such mortgages have been the food of the Plankton, the first-time homeowner, driving the homeownership rate to record highs, as displayed back in Chart 1, while also fueling accelerating home price appreciation. But as Minsky had forewarned, eventually this game must come to an end, as Ponzi borrowers are forced to “make positions by selling out of positions,” frequently by stopping (or not even beginning!) monthly mortgage payments, the prelude to eventually default or dropping off the keys on the lenders’ doorstep.

That is happening. And true to form, Ponzi lenders are now recognizing their sins of irrational exuberance, repenting and promising to sin no more, dramatically tightening underwriting standards, at least back to Minsky’s Speculative Units – loans that may not be self-amortizing, but at least are underwritten on evidence that borrowers can pay the required interest, not just the teaser rate, but the fully-indexed rate on ARMs. From a microeconomic point of view, such a tightening of underwriting standards is a good thing, albeit belated. But from a macroeconomic point of view, it is a deflationary turn of events, as serial refinancers, riding the back of presumed perpetual home price appreciation, are trapped long and wrong.

And in this cycle, it’s not just the first-time homebuyer – God bless him and her! – that is trapped, but also the speculative Ponzi long: borrowers who weren’t covering a natural short – remember, you are born short a roof over your head, and must cover, either by renting or buying – but rather betting on a bigger fool to take them out (“make book”, in Minsky’s words). Thus, the supply of plankton is twice drained.

Which means that the bigger fish in the domestic and global economic sea are going to be living on leaner diets. It also means that any given level of central-bank enforced short-term policy rates will become ever more restrictive with the passage of time. That is nowhere more the case than in the United States, where mortgage originators’ orgy of Ponzi finance stifled the Fed’s ability to temper irrational exuberance in housing with hikes in the Fed funds rate.

More specifically, as long as lenders made loans available on virtually non-existent terms, the price didn’t really matter all that much to borrowers; after all, housing prices were going up so fast that a point or two either way on the mortgage rate didn’t really matter. The availability of credit trumped the price of credit. Such is always the case in manias.

It is also the case that once a speculative bubble bursts, reduced availability of credit will dominate the price of credit, even if markets and policy makers cut the price. The supply side of Ponzi credit is what matters, not the interest elasticity of demand.

Bottom Line

The ongoing meltdown in the sub-prime mortgage market would not matter, except for those directly involved, except that it marks the unraveling of Ponzi finance units that, on the margin, were the plankton of the bubbling property sea of recent years. As the bubble was forming, riding on first-time homebuyers with first-time access to credit on un-creditworthy terms, and first-time speculators riding the same with visions of bigger first-time fools to take them out, all looked well. But as Minsky warned, stability is ultimately destabilizing, as those who require perpetual asset price appreciation to make book are forced to sell to make book. Such is reality presently in the U.S. residential property market, which has flipped from a sellers’ market on the wings of buyers with exotic mortgages to a buyers’ market of only the creditworthy.

This state of affairs need not produce a U.S. recession. But it does unambiguously render any given stance of Fed policy more restrictive: a tightening of credit supply based on underwriting terms means that any given policy rate will elicit reduced effective demand for credit. And that’s the stuff of seriously easier monetary policy to come. Just as mortgage demand seemed inelastic to rising short rates when availability was riding relaxed terms, so too will demand seem inelastic to falling short rates when availability faces the headwind of restrictive terms.

It may be a while before the Fed accepts and recognizes this, waiting for these Minsky style debt-deflation dynamics to become evident in broader measures of the economy’s health, notably job creation. But make no mistake: A Minsky Meltdown in the most important asset in most Americans’ asset portfolio is not a minor matter. Bill Gross’ Plankton Theory ain’t just a theory, but a reality. Once the Fed begins easing, it will be a long journey down for short rates.

1     “The Plankton Theory,” Investment Outlook, August 1980.
2     “Capitalism’s Beast of Burden,” Fed Focus, January 2001.
3     For the record, let it be noted that the pay-option mortgage, with negative amortization, which has witnessed explosive growth in recent years is actually a rather old product, just not one that was widely used in the first two decades of its creation. To the best of my knowledge, the inventor of the product was Golden West Financial right here in California in 1981. Here’s the description of the loan from Golden West’s 10-K filing of December 2005:
   “After bank regulators authorized ARMs in 1981 to help mortgage lenders better manage interest rate risk, we and other major residential portfolio lenders in California and elsewhere evaluated various ARM products to find solutions that would benefit borrowers and also allow us to manage interest rate risk without assuming undue credit risk. The product selected by most major residential portfolio lenders on the West Coast, and various others throughout the country, was a product often described as an “option ARM” because of the payment options available to borrowers. For the past 25 years, we have continued to originate our version of the option ARM because we believe that borrowers benefit from its structural features and because we have developed pricing, underwriting, appraisal, and other processes over the years to help us manage potential credit risks. Although we have originated some other types of ARMs, almost all of our ARMs are option ARMs.”

ats, Le Matin bleu    22 mars 2007

Le président de l'UBS gagne 72852 francs par jour!

Marcel Ospel a gagné l'an dernier plus encore qu'en 2005. Sa remuneration s'est élevée à 26,591 millions de francs, soit une augmentation de 10,9%. Son salaire de base est resté le même (2 millions de francs) et la somme versée à sa caisse de pension également (98949 francs). La progression s'explique en fait par l'octroi d'actions UBS à hauteur de 10,55 millions et d'options pour 3,12 millions de francs. Avec les 72 852 francs par jour, week-end compris, empochés, Marcel Ospel dépasse le dirigeant d'entreprise le mieux payé jusqu'ici: le patron de Novartis, Daniel Vasella. Ce dernier a perçcu 21,068 millions de francs, contre 21,3 millions en 2005. Marcel Ospel a profité de la performance record d'UBS dans ses activités financieres. ats

Le patron de FIAT bientôt à l'UBS
Sergio Marchionne, 55 ans, artisan du redressement de Fiat et de la SGS, devrait entrer au conseil d'administration de I'UBS le 18 avril prochain.

Neue Zürcher Zeitung    22.März 2007

Grosser Zahltag für die UBS-Führungsriege
Dosierte Erhöhung der Jahressaläre nach einem Spitzenjahr

Die Grossbank UBS hat 13 Spitzenmanagern und Verwallungsräten für das Geschäftsjahr 2006 Entschädigungen von insgesamt rund 247 Mio. Fr. zugesprochen. Für seine Dienste wurde Verwaltungsralspräsidenl Marcel Ospel mit 26,6 Mio. Fr. bedacht.
ti. Die Grossbank UBS hat, wie bereits vor einiger Zeit vermeldet, im Geschäftsjahr 2006 im Finanzdienstleistungsgeschäft einen um 19% höheren Jahresgewinn von 11,2 Mrd. Fr. erzielt und damit das beste Ergebnis ihrer Firmengeschichle ausgewiesen. Dieser über den Markterwartungen ausgefallene Abschluss schlägt sich in der Entschädigung der obersten Führungsmannschaft nieder. Wie aus dem am Mittwoch veröffentlichten Jahresbericht hervorgeht, stieg die Vergütung der obersten Führungsriege um rund 11% - und damit unterproportional zur Gewinnexpansion - auf insgesamt 246,8 Mio. Fr. Dies kommt einer durchschnittlichen Entschädigung von 19 Mio. Fr. für jeden der drei vollamthchen Verwaltungsräte und zehn Konzernleitungsmitglieder gleich.

Suche nach den besten Talenten
Spitzenverdiener ist Verwaltungsratspräsident Marcel Ospel, der in den Genuss einer Gesamtentschädigung von 26,6 (i.V.: 24) Mio. Fr. kommt. Wohl um einem Überborden der Kritik entgegenzuwirken, haben die Autoren des Geschäftsberichts viel Energie darauf verwendet, Kriterien und Prozesse darzulegen, die als Basis für die Festlegung der Managersaläre dienen - Transparenz ist das Motto. Oberstes Ziel der Bank ist es, weltweil die besten Talente zu gewinnen, zu motivieren und an das Unternehmen zu binden. Um dies zu erreichen, hat sie ein Entschädigungsmodell entwickelt, das sich an zwei Fixsternen orientiert - am Interesse der Aktionäre und an der persönlichen Leistung. Um die Interessen der Führungskräfte mit jenen der Aktionäre zu synchronisieren, werden mindestens die Hälfte der leistungsabhängigen Vergütungen in Form von Aktien entrichtet, die zudem einer fünfjährigen Sperrfrist unterliegen. Neben dieser langen Sperrfrist, die ein auf die Zukunft gerichtetes Denken und Handeln fördern soll, sind die Spitzenmanager gehalten, in den Jahren nach ihrem Amtsantritt einen Bestand an UBS-Aktien aufzubauen und zu halten, der dem Fünffachen ihrer Barvergütung gleichkommt. Derzeit stellen sich diese aufzubauenden Aktienbeteiligungen auf 19 Mio. Fr. bis 71 Mio. Fr. je Führungskraft und stellen damit einen wesentlichen Anteil des privaten Vermögens der Manager dar.

Ein Kranz von Zielen und Kennzahlen
In die gleiche Richtung wirkt die Zuteilung von Aktienoptionen; diese werden nicht als Teil der leistungsabhängigen Vergütung verstanden, sondern als individuell festgelegte Auszeichnung für den Gesamterfolg der Bank. Damit ihr Gedeihen stets im Blickfeld bleibt, liegt der Ausübungspreis der Optionen bei 110% des UBS-Aktienkurses zum Zeitpunkt der Zuteilung - bevor die Optionen ausgeübt und versilbert werden können, müssen die Aktiennotierungen um 10% steigen. Tritt ein Manager aus dem Unternehmen aus, verfallen die ihm zugeteilten Optionen. Es werden ihm auch keine Abgangsentschädigungen, spezielle Pensionskassenbeiträge oder lebenslange Nebenleistungen ausbezahlt.
Die leistuugsabhängige Entschädigung, die zweite Säule des Vergütungsmodells, knüpft an individuell festgelegte Ziele und Kennzahlen an. Nur überdurchschnittliche Leistungen sollen auch überdurchschnittlich entschädigt werden. Ins Gewicht
fallen vor allem Kriterien wie persönliches Verhalten, Führungsqualitäten, strategisches Wirken oder der persönliche Beitrag zum Gesamterfolg. Bei der Festlegung des Salärs von Ospel hat der Kompensationsausschuss, wie schon in den vergangenen Jahren, vor allem den Beitrag gewürdigt, den dieser zum Ausbau der UBS zu einer führenden, global ausgerichteten Finanzdienstleistungsgruppe geleistet hat. Aber auch die Zusammenführung eines starken Führungsteams, einer der entscheidenden Erfolgsfaktoren der Bank, wurde ihm hoch angerechnet.

Verkäufe eigener Aktien
Dass Ospels Gesamtpaket nicht aus dem Rahmen fällt, zeigt ein internationaler Quervergleich. Seine Salarierung fügt sich durchaus in die Entschädigungspraxis der gewichtigsten Konkurrenten ein. Die Spitzenleute von neun führenden Banken erhielten Jahresentschädigungen zwischen 18 Mio. und 48 Mio. Fr. Die vergleichsweise tiefen Basissaläre der UBS - unverändert 2 Mio. Fr. für Ospel - erwecken den etwas irreführenden Eindruck, als ob der weitaus grösste Teil der Vergütungen leistungsabhängiger Natur und damit volatil wäre. Die Zahlen der letzten Jahre zeigen eine erstaunlich stabile, lineare Aufwärtsentwicklung der Saläre.
So attraktiv die Aktien und Optionen der UBS sein mögen - sie werden bei Gelegenheit auch von den eigenen Spitzenmanagern wieder verkauft. Im letzten Jahr veräusserten zehn Verwaltungsräte und Konzernleitungsmitglieder Aktien und Optionen im Gegenwert von 100,6 Mio. Fr. Im selben Zeitraum beliefen sich die Zukäufe auf lediglich l Mio. Fr. Per Ende 2006 waren zu dem Hypotheken im Betrag von 17,5 Mio. Fr. ausstehend, die sechs Führungskräften und ihren Angehörigen gewährt wurden. Ein Spitzenmanager stand bei seiner Bank gar mit einem Kredit von 6,5 Mio. Fr. für eine private Immobilienfirma in der Schuld - offenbar suchen UBS-Manager auch ausserhalb der Grossbank nach beruflicher Erfüllung.

April 8, 2007

Executive Pay: A Special Report
More Pieces. Still a Puzzle.

“SUNLIGHT,” remarked the Supreme Court justice Louis D. Brandeis, “is said to be the best of disinfectants.” One problem with too much sunlight, however, can be the blinding glare.

That, in many ways, captures what compensation experts say are positive and negative developments in the newest round of executive pay disclosures [200 executives pay chart]. In response to a barrage of criticism that regulators have not kept up with the complexities of swelling pay packages, the Securities and Exchange Commission now requires corporate America to disclose details of executive compensation more fully. As this year’s proxies pour in, they are packed with fresh information aimed at making pay more transparent.

Inclusion of new data, like the value of retirement benefits and potential severance payouts, was supposed to paint a fuller picture of everything that an executive could make. Disclosure of such things as the performance criteria used to award lucrative bonuses was supposed to make the pay-setting process clearer. And the addition of a single headline number that tallied up all the elements of annual compensation was supposed to make different executive pay packages easier to compare. But while all the new disclosure rules have resulted in far more information, analysts say they still do not necessarily offer greater insight.

“It’s like reading through Tolstoy’s ‘War and Peace,’ ” said Lynn E. Turner, a former S.E.C. chief accountant and now a managing director of research at Glass, Lewis & Company, a proxy research firm in San Francisco. “What is missing is a clear, succinct story about how the compensation committee came to the amount they were going to pay.”

Many shareholders say the new proxies require more work, not less, to decipher. Pay consultants say some of the new data is so dizzying that they are not sure how to sift through it; some charts even require another set of charts to interpret them. And a new section in proxies, meant to explain clearly how executives are compensated, is overrun with mind-numbing corporate-speak and legalese.

Even the simplest of questions becomes mired in the disclosure swamp. For example, just how big was the average chief executive’s pay increase in 2006? At most companies, it seems, fuller disclosure has made answering that question a tricky endeavor.

This year, for the first time, corporate filings disclose a single, handy executive compensation figure. But how that figure was calculated differs markedly from how investors arrived at similar ones in previous years — making apples-to-apples comparisons difficult. Despite that problem, it is still clear that bosses enjoyed healthy raises in 2006. The typical chief executive at a big company was paid about $10.1 million, up 9.8 percent from 2005, according to a survey by Equilar Inc., an executive compensation research firm based in San Mateo, Calif. Equilar’s analysis is based on the compensation awarded to chief executives at 150 of the biggest companies, as ranked by revenue. The analysis includes only companies that had filed proxies by the end of March using the new disclosure rules.

Of course, that payday is freighted with lavish exit packages and deferred compensation plans, forms of pay that have never been fully disclosed until this year. Nearly one-third of the executives whose pay was examined for this article can count on pension benefits worth more than $10 million down the road, according to Equilar.

Tighter reporting requirements for perquisites reveal even more extra benefits for being the boss — including “personal health coaching” for Motorola’s top executives; free beer, haircuts and club memberships at Anheuser-Busch; and, at more than 70 percent of the companies examined, personal use of the corporate jet. Facing greater scrutiny, at least a dozen boards, including those at Lockheed Martin and Washington Mutual, eliminated all or some executive perks last year. In many cases, boards then replaced those benefits with cash.

The shape of pay packages is changing, too. With new rules highlighting performance measures, more companies are awarding equity linked to meeting certain goals rather than bestowing stock options or restricted stock, which often pays executives for simply having a pulse. About 40 percent of the typical chief executive’s pay package this year was linked to hitting specific corporate targets.

Even so, some things remain essentially the same. Chief executives in the financial services, oil and health care industries generally landed outsized paydays in 2006, just as they have for years. Ray R. Irani, Occidental Petroleum’s chief executive, had a $52.1 million payday, the largest of anyone on the list of 150 companies that filed under the new rules. But even that amount was overshadowed by what Lloyd C. Blankfein, Goldman Sachs’s chief executive, was paid under the old disclosure system. His $54.3 million pay package made him Wall Street’s highest-paid boss, though he held the top job for less than half the year. Not far behind Mr. Blankfein were the heads of Wall Street’s other big investment banks, where the typical pay package crossed the $40 million mark.

(Of course, those sums are probably a pittance compared with some paydays in the buyout and hedge fund worlds, where compensation remains a private matter.)

Home builders also continued to reap big rewards, even as the American housing market soured. The typical chief executive in the home-building business received total compensation of $22.4 million in 2006, up 2.7 percent from the previous year. Shareholders in those home-building companies, meanwhile, saw their returns decline by 1.3 percent, on average.

Disclosures also show for the first time just how big several executives’ paydays will be even when they stop working. On top of a 2006 pay package worth $31.5 million, Edward E. Whitacre Jr., 65, the chief executive of AT&T, can look forward to about $73.8 million in deferred pay and the largest pension on the list, at $84.7 million in retirement benefits. Mr. Irani of Occidental Petroleum has more money socked away in his deferred compensation account than any other executive Equilar examined. In fact, Mr. Irani’s deferred pay of $124 million yielded at least $679,396 in interest last year — interest that amounted to more than 14 times the average salary of an oil industry worker.

The new rules “may have increased the visibility of pay packages,” said Mark M. Reilly, a partner at 3C, Compensation Consulting Consortium, in Chicago. “But there are still a lot of problems out there.”

OVER the last year, outsized pay has been at the core of some of the biggest corporate controversies and national debates. Even President Bush has weighed in on the matter. Ordinary American workers are also complaining about the huge salaries and golden goodbyes handed to their chief executives at a time when their own wages and benefits are being cut.

Pay-for-failure has also fueled the compensation debate, highlighted by the nearly $200 million exit package that Henry A. McKinnell secured at Pfizer and the $210 million parachute tied to Robert L. Nardelli’s back at Home Depot. Both left after investor uproar over their companies’ poor performance.

Federal investigations into options backdating at more than 140 companies, meanwhile, have kept executive compensation on the national agenda. On Capitol Hill, lawmakers are considering a say-on-pay rule — which would give shareholders the right to a nonbinding, up-or-down vote on their top executives’ pay packages — even though a similar bill failed to gain traction last year. While that idea is unlikely to become law, investor groups have lobbied to put similar proposals on the shareholder ballots of at least 70 companies, according to Glass, Lewis. Only seven were on corporate ballots last year.

Amid all this attention, the Securities and Exchange Commission made its first attempt to overhaul pay disclosure in 15 years. Ever since the agency began the process in late 2004, its goal was to tighten reporting loopholes that allowed large chunks of an executive’s pay to go unnoticed. Regulators also wanted to provide investors with a clearer understanding of how corporate boards make compensation decisions.

Yet greater disclosure has also made it more challenging to peruse proxies, which have grown exceedingly long. Pfizer’s compensation report runs over 17,000 words. I.B.M. needed 47 pages to explain how its chief executive, Samuel J. Palmisano, and other senior managers were paid last year. Its proxy included a lengthy preamble that bills itself as a helpful “guide to executive pay at I.B.M.,” as well as a reference table just to make sense of its five different bonus programs and three types of retirement plans. The only thing missing was a simple way for the average investor to tally executive pay at the company in less than an afternoon.

(According to Equilar’s analysis, Mr. Palmisano was paid about $18.8 million in total compensation last year, and can expect an additional $34.9 million in deferred pay and $33.1 million in retirement benefits.)

An I.B.M. spokesman, John Bukovinsky, attributed the proxy’s length and any difficulties to the S.E.C.’s new, more detailed reporting requirements. “I am grading our own papers, but I think we do a very good job of explaining I.B.M.’s compensation philosophy,” he said.

Still, even professionals have found most compensation reports to be heavy lifting. “We are very quickly moving to a situation where every proxy comes with its own hand truck — it might be readable, but page after page after page you blur out,” said Brian T. Foley, an independent compensation consultant in White Plains. “For sophisticated shareholders, it is probably useful. For the ordinary guy, it becomes a doorstop.”

And those are just the ones in which the writing is clear. Clarity Communications, an investment relations firm, analyzed the new compensation discussion sections of 40 big companies that filed their proxies before March, to measure their readability. The company used three standard tests that gauge sentence length and word complexity. From Clarity’s perspective, all 40 companies fell short. Even state insurance contracts were easier to read.

“The numbers have added a great deal to investors’ understanding, but we have a way to go on the English prose that accompanies the numbers,” said Christopher Cox, the S.E.C. chairman, in an interview. “If the real purpose was to get a message across to the retail audience, no company would do this,” he added. “A retail products company would never let the legal department write its sales copy.”

Companies, for their part, say they are struggling just to gather all the detailed data just to comply with the new rules, let alone tell the story behind it. (The S.E.C. did, after all, provide 372 pages of detailed rules for a “principles based” analysis.) Boilerplate reports have been a result.

“Plain English has been subsumed by the need to be legally precise,” said Michael S. Kesner, an executive compensation consultant at Deloitte & Touche. “People have agonized over describing whether something is a perk or not.”

Compensation committees have also agonized, pay advisers say, over how much information to release about performance measures they use to help determine short- and long-term bonuses. In this case, proxy watchers say they erred on the side of less disclosure, not more. At stake is the credibility of the S.E.C.’s push to make companies clearly describe the link between pay and performance.

Pay consultants estimate that between half and two-thirds of all companies laid out precise performance metrics last year, such as numbers for revenue growth goals or profit targets, as the new S.E.C. rules require. Only some, like Allstate and the MDU Resources, took the additional step of providing the company’s actual results. And even then, most offered only a few words about how boards determined bonuses. But a surprisingly large number of companies — as many as 40 percent, according to pay consultants — are still speaking about performance in glaring generalities. Dow Chemical and PepsiCo are two examples.

A PepsiCo spokesman said the company had chosen not to reveal the targets because the information was competitive. Dow Chemical did not return calls.

Pay consultants say that many companies, like PepsiCo, are taking advantage of a clause in the new S.E.C. rules that allows them to withhold information about financial targets for competitive reasons. Some of these concerns are legitimate, but many boards are taking a more cautious stance than necessary, several pay advisers said. After all, much of the performance data they are keeping under wraps tends to be for the previous year, they added. In many cases, “I don’t think that the data is confidential to the point where it was competitive harm,” Mr. Kesner said. “The problem is the lawyers said you could take the position that it was confidential.”

Still, some companies are providing useful information. General Electric, which earned high marks from analysts for its concise, 10-page compensation report, also provided investors with a scorecard for how it calculates bonuses.

G.E.’s discussion provides clear insight into the factors that helped directors assess the performance of the C.E.O., Jeffrey R. Immelt, even if his $5 million bonus was not determined by a numerical formula. It stacked up a short list of his nonfinancial accomplishments against G.E.’s strategic objectives and assembled a handy chart that compared several financial targets with the company’s actual performance.

Navigating the summary compensation table in new proxies also presents challenges. In the new category of “total compensation,” the S.E.C. said it intended to provide investors a single figure that offered an easy way to compare pay packages. But there is not just one way to tabulate annual pay. There are at least three. And the results are based largely on how companies record stock options and incentive payouts.

While most people consider “total pay” as the amount an executive takes home for the year — the figure that appears on his or her tax return — the S.E.C.’s new requirements produce a very different figure: what the company books as the executives’ compensation expense, which is an accounting number.

And compensation committees look at pay packages a different way: the total amount that executives receive if the company performs as they expect — what they call “the pay opportunity.” Depending on what method is chosen, an executive’s total pay package can be cast in at least three different lights.

Consider Richard D. Fairbank, the chief executive of Capital One. By the S.E.C’s calculations, Mr. Fairbank received total compensation worth $37.4 million. If you consider his pay opportunity, it was about $18.2 million. And if you look at the amount he actually took home, he made just $151,484 in 2006. (Of course, his take-home pay was bolstered by more than $249.3 million in option profits the year before.)

At a handful of companies, total compensation figures can be mind-boggling. The C.E.O. of Brookfield Homes, Ian G. Cockwell, reported making a negative $2.3 million. What he really took home last year, however, was closer to a positive $8 million. A Christmas Eve change to the S.E.C. rules that govern how companies value options produced these strange accounting numbers.

All of that makes calculating a meaningful “total compensation” figure difficult. Corporations, consultants and investors are not putting much stock in the headline compensation number on the S.E.C.’s table. In fact, a handful of companies, including Bank of America and Goodrich, are plucking from other parts of the proxy to construct their own “alternative summary compensation” charts.

Calculating the change in total pay is similarly tricky. Not only is the S.E.C.’s headline figure confusing, but the agency did not require companies to update their previous-year data to reflect new disclosure rules. Equilar’s “estimated change in pay” analysis relies on several standard assumptions to make comparisons possible. Determining how much money an executive can expect if he or she is fired or forced out is also harder than many investors and pay consultants expected. Even so, the new rules are still unearthing some gravity-defying figures.

In a break from the past, companies must now report what some pay consultants call the “Nardelli Number,” after the former Home Depot chief — the value of any potential severance and change-in-control payouts as of a certain date.

For example, William R. Klesse, the chief executive of Valero Energy, will get more than $24 million if he is ousted. Merrill Lynch’s chief executive, E. Stanley O’Neal, could walk away with $251.4 million if a merger sets off a change-in-control payout.

But how well companies display Nardelli Numbers is all over the map. Some companies, like Boeing and MBIA, have easy-to-read tables. Cigna, by contrast, offers a sprawling, five-page explanation that rivals a credit card application for the sheer amount of fine print. It takes a shovel, meanwhile, just to dig out the payout that Cigna would give H. Edward Hanway its chief executive, if he voluntarily stepped down after any sale of the company. (It is between $72.8 million and $80.5 million, according to company estimates.)

DESPITE a lack of clarity, the new disclosure rules are having a significant impact in some areas. Compensation committee members are spending more time discussing how they reward top executives. Bogus peer-group comparisons are harder to generate. With huge retirement packages being exposed, boards are tallying up how much money was awarded to executives over their careers — some for the very first time.

Under scrutiny, many boards are also pushing back on executive compensation, pay advisers say. Besides cutting down on perks, a few compensation committees are asking questions they might not have asked a few years ago: How much wealth is enough? Why is the chief executive paid significantly more than the next layer of management?

Executive benefits lawyers contend that hardball negotiations over severance are becoming more common. Boards are also inserting “claw back” provisions in new employment contracts, which will allow companies to recoup ill-gotten bonuses.

“The old way of looking at things is being seriously challenged right now,” said John C. Wilcox, in charge of corporate governance matters at TIAA-CREF, the big pension fund. “It’s going to be a learning year for boards, so they won’t make mistakes again in the future.”

Or as Mr. Cox at the S.E.C. suggested in a recent interview: “A company that is required to undress in public will pay more attention to its figures.”

The Trader Monthly April/May 2007

The Top 10

Estimated Income: $1.5 billion – $2 billion
John Arnold
City: Houston     Firm: Centaurus Energy     Age: 33
    In a clash of the titans that is likely to be remembered for years to come,John Arnold took on Amaranth’s Brian Hunter last year in a battle over the direction of natural-gas prices. Hunter, the bull, got the horns when prices — along with his ability to trade out of the supremely dark corner into which he had painted himself — weakened in the summer. Arnold, formerly of Enron, squeezed his foe like a laundress wringing out a wet tube sock.
    In the end,Arnold and his team of 10 traders — including right- hand man Michael Maggi and natural-gas guru Bill Perkins — walked away from the dustpile with a mountain of cash. Amaranth was wiped off the map.
    Arnold claimed the bulk of the profits. He guided Centaurus to gaudy returns (on an estimated $2billion in assets) of 317 percent before fees. Apart from one “lousy”year (only 178 per- cent in 2005), the fund has always finished above 200 per- centsince inception in 2002.
    Centaurus’s fee structure is 3-and-30. About half the fund is Arnold’s own money. He is the sole owner of the firm. And — good gosh almighty, what a year — he even got hitched to a beautiful Houston lawyer.
    “Last year, it all came down to natural gas,” says one trader familiar with Arnold’s bonanza. “Some people had one idea about what it would do; others backed a different scenario. The bottom line is that a whole lot of money changed hands. When you start hearing from other traders that people are selling bonds just to meet margin, that’s when you know that some positions are too big and it’s all over.”
    Arnold declined to comment on our income estimates, as did Centaurus’s Perkins, though Perkins shared his views on why a trading bounty is such a beautiful thing. “You ask a big CEO what he makes, and it’s a huge number, but it’s all tied up in stock and options. Traders get paid in cash. It’s liquid. It’s real. You can go, ‘Here, look,’ and slap someone across the face with it.”
    Given Arnold’s record 2006 — the largest sum, we believe, anyone has ever earned in one year — a slap like that just might land someone in intensive care.

James Simons
City: East Setauket, New York     Firm: Renaissance Technologies Corp.     Age: 68
    Simons is out of control. In 2006, the Long Islander’s $5.7 billion Medallion fund — perhaps the most successful black-box strategy in history and certainly, at 5-and-44, among the priciest — returned a heady 40 percent. Meanwhile, his Renaissance Institutional Equities Fund, already among the largest in the world since launching in August 2005, produced a 15 percent return.
    He and his 200 or so employees — many of them Ph.D’s who in another era would have worked for NASA — are rocketing to the industry stratosphere. Simons, himself an MIT grad who began his career as a mathematician and Defense Department codebreaker during the Vietnam War, is now using his fortune to support autism research and to stand up for inner-city math teachers. When we did the math on Simons’s earnings, meanwhile, we nearly fell over.

Estimated Income: $1 billion–$1.5 billion
Eddie Lampert
City: Greenwich, Connecticut     Firm: ESL Investments     Age: 44
    Lampert has put himself firmly in the pantheon of great buyout-fund managers thanks to his proclivity for making correct bets on unloved companies. His bargain-bin pickup of Kmart a few years ago, followed by a smart Sears parlay, continued to play out (on paper, at least) in 2006.
    Lampert appears to be turning Sears Holdings Corp. (SHLD) into a Berkshire Hathaway clone, and the market is loving it, pushing the stock up more than 40 percent last year. Lampert’s portfolio is brimming with SHLD, generating more than $2 billion in paper gains.
    We’ve struggled with the question of whether Lampert is actually a trader; his lines of enterprise — retail, real estate, private equity, long-term investment — are blurry. But what’s clear is that this former Goldman Sachs intern is making money hand over fist.

T. Boone Pickens
City: Dallas     Firm: BP Capital     Age: 78
    The world’s biggest oil bull may have gotten gored in late 2006 and early 2007 as crude prices slipped, but that slide didn’t last long. Besides, his prudent bearish play on natural gas in the fall of ’06 was more than enough to fuel his energy-futures and derivatives fund to a startling 98 percent return.
    “Most of our money came from shorting natural-gas futures,” says Dick Grant, BP’s CFO. The firm’s total assets, across two main funds, are around $3.6 billion, 45 percent of it Pickens’s own money. Grant wouldn’t confirm Pickens’s take, but if our estimate isn’t pretty close, we’ll build Oklahoma State a new football stadium.

Estimated Income: $1 billion+
Stevie Cohen
City: Stamford, Connecticut     Firm: SAC Capital Advisors     Age: 50
    Despite some fairly sinister media coverage of allegations stemming from a lawsuit brought by Biovail, Cohen remains one of the most powerful forces in equity trading and is still the man every sell-side sales guy on the planet wants to serve; his Death Star of a hedge-fund operation flirted with $11 billion in assets at the end of last year.
    We first heard that Cohen banked around $800 million in 2006 — a plenty good year as is. But as we dug for further information, we discovered that his fee-revenue pool, based on calculations and some reasonable assumptions, easily surpassed $2 billion and might even have edged up near $3 billion, with all his big funds up more than 30 percent.
    Of course, we don’t know for certain that his monster kitty came in at more than $2 billion. And we can’t automatically assume that he took half for himself. But it’s a good hunch.

Estimated Income: $800–$900 million
Stephen Feinberg
City: New York     Firm: Cerberus Capital Management     Age: 47
    Feinbergs’s Cerberus assets under management, a mix of hedge and buyout funds, exceed a staggering $22 billion. Without splitting hairs, we’ll simply say Feinberg more than holds his own among trading icons. Besides, who doesn’t straddle the line between private equity and trading these days?
    The Cerberus International fund, with around $5 billion, scorched in 2006, returning around 21 percent. Feinberg’s victory over KKR in the GMAC deal was the stuff of financing legend, while his BAWAG bailout was another cool-handed move by this Drexel alum.

Estimated Income: $700–$800 million
Paul Tudor Jones
City: Greenwich, Connecticut     Firm: Tudor Investment Corp.     Age: 53
    From his humble beginnings as a cotton-futures trader, Jones has grown his hedge-fund empire to more than $15 billion. Meanwhile, his annual Robin Hood Foundation charity event (which last year raised $48 million in a single night) has become so large it’s now held at the Javits Center.
    Jones still personally manages his global fund, which has around $5 billion. That fund (with an off-the-top fee of 4 percent of assets and a 23 percent cut of profits) had a rather pedestrian 11 percent return last year.
    But take into account that as majority owner of the firm he gets a healthy portion of the revenues from the other funds and that he has a substantial amount of his own money invested, then factor in a prop-trading vehicle that reportedly generates hundreds of millions more, and . . . well, vertigo ensues.

Bruce Kovner
City: New York     Firm: Caxton Associates     Age: 62
    A Macro trader’s macro trader, Kovner returned to form in 2006 following three consecutive years of single-digit returns. The Caxton Global Investments fund, with more than $7 billion, returned around 12 percent.
    This well-known music lover (and neoconservative), who last year gave the Juilliard School his vast collection of original sheet music from the likes of Beethoven and Mozart, conducts a multi-strategy symphony of portfolio stewardship incorporating stocks, currencies and commodities.

Estimated Income: $600–$700 million
Israel Englander
City: New York     Firm: Millennium Management     Age: 58
    The man known as “Izzy” has a hand in the positions taken on at Millennium, which has $9 billion in assets. The Millennium Capital fund brought home a 17 percent gain in 2006, besting most of its peers. Commanding a 20 percent cut of profits, the Brooklyn-reared Englander — who dropped out of the MBA program at New York University, got his start on the floor of the American Stock Exchange, became tangled up in the Ivan Boesky scandal and started Millennium in 1989 with $35 million — truly cleaned up last year.
    His performance, in other words, made a rounding error of his roughly $30 million payment tied to the December 2005 settlement of mutual-fund market-timing charges brought against him by the SEC.

David Shaw
City: New York     Firm: D.E. Shaw & Co.     Age: 55
    Lording over one of the biggest quantitative hedge funds ever created, Shaw is a trading legend who casts an equally substantial shadow in private equity. A former computer-science professor at Columbia, Shaw relies upon computer-generated investment strategies aiming to capitalize on market anomalies.
    These methods remain a mystery, but with $29 billion under management, a 3-and-30 fee structure and impressive returns, Shaw’s earning power, it’s safe to say, is seldom rivaled.

The Independent    April 15, 2007

Have you got a friend if private equity is on patrol?
Danny Fortson

The City's new breed of wheeler-dealers, it is claimed, demoralise and devastate every company they buy - the AA among them. Danny Fortson spent a day on the road with the 'fourth emergency service' to see if that reputation can be rescued
As on most mornings, Vincent Rodriguez, a patrolman for the AA, was assigned last Tuesday to the London "posh patrol" starting out in Victoria. When the day's first call lit up his on-board computer at 6.58am, he had already been scouring the streets for an hour, on call for members of the UK's biggest auto club.

The dashboard console gives the vitals: Lots Road. Green Nissan. Won't Start.

As he wends his way through the deserted streets of Chelsea - with The Independent on Sunday in tow (thankfully, not literally) - it is rather less dramatic than the auto club's commercials, where patrol men and women appear from hillsides and glens to come together in an impromptu chorus singing "You've got a friend".

In a few minutes, he comes upon the stricken Figaro coupé parked at the roadside and its young female driver. The problem is, after a few cursory checks, quickly apparent: she forgot to put the automatic car in "park".

Vincent gently informs her of the problem. She chuckles meekly, signs a few papers, and just like that the job is done - another satisfied customer of the UK's so-called fourth emergency service.

Before she has even turned the corner, Vincent is punching a code into the computer to request the next job. By that time, the AA has already answered 3,315 roadside-assistance calls throughout the UK - well on the way towards the daily average of around 10,000.

But on this morning after the Easter bank holiday, there is no response to Vincent's request. So it's off to Starbucks.

As we sip coffees in the yellow van, the streets are eerily still. Watching the occasional jogger or dog-walker pass by amid the beeps and bleeps of the onboard computer, a couple of minutes turn into an hour, and Vincent reveals a few insights that he has gleaned on the job.

On dead batteries: "The husband blames the wife, the wife blames the kids."

On differences between the sexes - especially where stricken vehicles are being pulled on a towpole and the motorist has to steer in the same direction as the rescue van: "Women are the best to tow as they read the instructions. Men assume they know what they are doing and end up making the most mistakes."

On motors: "You buy a German car if you want something flashy. Get a Honda if you want something reliable."

It is a bubble of early-morning serenity, and it could not feel further removed from the firestorm that has raged over the AA in the past two and a half years. In 2004, private equity firms CVC and Permira bought the company for £1.75bn from its previous owner, Centrica.

Since then, it has been held up by unions as Exhibit A for everything that is wrong with private equity. These firms, claim trade unions, buy companies and then strip the assets with little regard for workers or customers. And then they sell them on for huge profits.

Long before the public furore over private equity erupted in the wake of the failed takeover of J Sainsbury earlier this year, the AA was the unions' cause célèbre. Nowhere is the clash between the two sides more emotionally charged.

It is not hard to understand why. Soon after the 2004 takeover, new management led by chief executive Tim Parker instituted a restructuring. As a result of redundancies and the disposal or closure of AA businesses such as garages and tyre-replacement services, 3,400 jobs were eliminated. The GMB union, which had represented the company's workers since the 1980s, was marginalised. In its place came the AADU, the group's newly recognised union which was set up by former GMB officers and took most of that union's members with it.

The GMB claims the AADU was welcomed by its private equity owners because it was weaker, making it easier for them to "bully and harangue" employees into longer hours and worse conditions.

Meanwhile, CVC and Permira loaded the company with debt and paid themselves a £500m special dividend.

However, some three years on, profits have nearly doubled and turnover has increased. An aggressive marketing campaign, including the "You've got a friend" commercials, has succeeded in increasing membership.

But the AA did recently lose its position as preferred breakdown service to rival RAC, as ranked by researcher JD Power. The GMB says this is further evidence of the company's decline.

Indeed, since the takeover, a very public and vicious debate has raged about the AA, with both sides rolling out wildly diverging numbers to back their arguments. At times, it is as if they are speaking of different companies. The GMB, for example, says that 1,400 patrols have been eliminated; the AA says there are only 600 less than before the takeover. The GMB says waiting times have increased; the AA says they are slightly less. The GMB claims it represents around a third of the company's 7,200 workers; the AADU says it only has a handful on its rolls and thus its claims, motivated by bitterness at losing hundreds of thousands of pounds in union fees, should be summarily dismissed as "complete rubbish".

Rumours bubble up regularly about CVC and Permira looking to float the company or sell it for as much as £3.5bn. Finance director Paul Woolf said, however, that the company does not plan to look at such options until next year. But what will the next owner, or the stock market get - a hollowed-out husk of its former self, or a leaner, more efficient group thanks to a much- needed dose of tough love from its private equity backers?

The AA earnt £251m on £794m in turnover last year. Those numbers are up on the £129m profit and £742m in turnover delivered before the 2004 takeover.

The view of the GMB is decidedly different. Paul Maloney, the GMB national secretary who has led the union's campaign against private equity, says: "They have got 1,400 patrols less than when they bought it, but they have a bigger customer base. Members are having to wait longer and pay more for services. The AA is a failing company. Despite the best efforts of its staff, that's what it is."

In an effort to tell its side of the story, the company invited The Independent on Sunday to ride with a typical patrol to get a better sense of how things truly are at the company. To avoid accusations that the AA had hand-picked a patrolman to represent the firm, it was agreed that the AADU should select the driver.

The early-morning Starbucks reverie is interrupted by the next call: Brompton Road, Seat Ibiza, Black. Won't start. Vincent Rod- riguez puts his now-empty latte in the cup holder and is off to help another of the group's 15 million members. This time it's a dead battery. He attaches jumper cables from a suitcase-sized charger, and waits as the contraption breathes life back into the battery.

He has been at the AA for five years. A former GMB member and current AADU member, Vincent is an earnest employee who clearly loves his job. He paints the changes that have swept through the company as a necessary house-cleaning. "Hand on heart, I think that most of the [workers made redundant] couldn't be bothered. You have two types of people, the 'can't dos' and the 'won't dos'. The patrols that moan are the ones that preferred the old ways, where they could sit in the caff all day drinking tea. I don't understand all the screaming and crying. Now people are having to earn their wage, and that's what I tell the lads," he says.

On this day, Vincent has a light load. But he admits that generally he works harder.

"Those old eight-hour shifts used to take for ever. But in the last 18 months we have been so busy. Now it is job after job after job. I just get on with it. It is more financially rewarding now. There is more opportunity for bonuses."

One way to hit bonuses is to try to recruit new members to the rescue service. Patrolmen are encouraged to spend down-time between jobs in petrol station forecourts or supermarket car parks pitching memberships to passers-by.

Vincent says cold-selling isn't his strong point, but he has caught on. "I picked up on it pretty fast."

It is little surprise that the AADU chose him to represent the company: he is extremely dedicated. A trainer of fellow patrolmen, he tells his team of 55 workers that they can call him any day, holiday or not, from 6 am to midnight on the mobile if they ever have any questions.

Paul Maloney at the GMB describes Vincent as a "stooge" and alleges that inviting along a journalist to shadow a member of the AADU on a traditionally slow day is part of an elaborate ruse to craft a falsely positive image of the AA.

"They set you up with an AADU stooge patrol on a cushy day to show that everything was relaxed. We don't believe in fiction," he comments.

Whatever the truth may be, CVC and Permira are in line to trouser what will surely be a massive profit when they decide to unload the business. That is based purely on the willingness of a buyer, or the public markets, to value the company at more than what it was worth before.

For now, that is exactly what seems likely will happen.

Washington Times    April 18, 2007

Sayonara to world finance sisters?
By Richard W. Rahn

Do you think the International Monetary Fund (IMF) and the World Bank (WB) should be abolished? These sister organizations had their annual spring meetings in Washington this past weekend. It is obvious to everyone that both organizations are in deep trouble.
    The two organizations were conceived at a Bretton Woods, N.H., conference in July 1944. The IMF was given primary responsibility for ensuring the stability of the international monetary and financial system and, specifically, to manage gold-denominated fixed-exchange rate system set up then (but abolished in 1973).
    The World Bank is actually a group of five international organizations whose principal mission is to provide development finance and advice in order to eliminate global poverty. For several decades, responsible critics of the World Bank (including a number of its former senior professionals, such as former chief economist and Nobel Laureate Joseph Stiglitz and distinguished economist William Easterly) have presented considerable evidence that the institution has created many more problems than it has solved.
    The primary mission of the WB was misperceived at the beginning, and hence it was doomed to failure. Back in 1944, there was the widespread belief that if governments in poor countries were provided funds for infrastructure and other development they could quickly become more prosperous. As we now know, government officials spending other peoples' money on politically determined projects usually results in overspending and poor performance, even in wealthy democracies. In poor countries, the results are almost always worse. So all too much of the money the WB acquired from middle-class taxpayers in wealthy countries went merely to enrich government officials and corrupt leaders in poor countries.
    The WB, because of lack of accounting controls and proper oversight and transparency, fueled corruption and oppression in Africa and elsewhere. In addition, the poor people who did not benefit from WB spending ended up saddled with the debt they were obligated to repay to the WB.
    In 1990, I was the co-chairman of the Bulgarian economic transition team, sponsored by the National Chamber Foundation and the Bulgarian government. As part of our effort, we were trying to privatize most state-owned companies, including the state telephone company. Behind our backs, the WB provided a loan to the state telephone monopoly with a provision the government could not allow private competition. When I confronted the responsible WB official, he said it was more important that the WB be paid back than that the people of Bulgaria have private competing telecoms (i.e., lower prices and better service). Even today, this is still too much of the mentality at the WB. There has been some improvement in oversight and transparency in recent years, but far too many WB projects are still poorly thought out, incompetent in administration, and, of course, corrupt.
    When Paul Wolfowitz took over as World Bank president in June 2005, he made anti-corruption among the WB borrowers, contractors, and even bank employees a central priority. Of course, the corrupt governments and their supporters, the corrupt contractors, and even some bank employees complained. Mr. Wolfowitz then made the foolish mistake of giving several of the folks he brought with him and his girl friend (a WB official) big salary increases, thus undermining his anti-corruption campaign and setting himself up for slaughter by his enemies.
    The WB is so inherently flawed it can neither be fixed nor justified on a reasonable cost-benefit basis. As the late development economist Peter Bauer explained, if the institutions and policies are right in a country, it can obtain all of the investment funds it needs from domestic and foreign private sources without foreign aid, and if the institutions and policies are not right, no amount of foreign aid can succeed. Knowing what we do now, the World Bank would never have been established in first place, and thus it should be abolished before it does any more damage.
    The case of the IMF is more complex in that it has made major mistakes, e.g., forcing poor countries to increase taxes, and by being the lender of last resort to irresponsible countries adding to global systemic risk. But it has also had some successes, e.g., helping to establish the banking, financial and monetary systems in some of the former communist countries.
    Its current problems stem from the fact the IMF obtains its operating funds from the loans it makes to governments in distress, and now that most of its big debtors have repaid their loans, the IMF income is hundreds of millions of dollars below its costs. During its fat days, the IMF engaged in almost endless and unnecessary mission creep and general bureaucratic bloat with far too many highly paid people.
    If the IMF radically downsized and restricted itself to data collection, promoting orderly international payments and the expansion of trade, and some limited technical assistance (all which it could do with a tenth of its current staff and budget), it might be able to justify its continued existence.
    Saying goodbye to the WB and much of the IMF is likely to have the same beneficial results that welfare reform had in the U.S. When governments, like individuals, have no choice but to take more responsibility for their own actions, most will.

    Richard W. Rahn is chairman of the Institute for Global Economic Growth

UBS Generalversammlung     18.April 2007, Hallenstadium Zürich

Wortmeldung von Anton Keller, Traktandum Geschäftsbericht

Herr Präsident, verehrte Anwesende,

Meine Vorredner bringen mich in Versuchung ebenfalls in die Zitatenkiste zu greifen, um z.B. mit den Worten eines andern weisen Vordenkers meinem Dilemma Ausdruck zu geben, nämlich mit Goethes "Zwei Seelen wohnen ach in meiner Brust." Wobei auch ich mich zu jenen Querdenkern zähle, die meistens, und manchmal sogar mit Gusto, gegen den Strom schwimmen. Im Falle der UBS heisst das gegen die Fusion gewesen zu sein. Inzwischen hat sich aber herausgestellt, dass ich mich dabei vielleicht in der Analyse, zumindest vorderhand aber in den Schlussfolgerungen getäuscht habe. Das können wesentlich Sie, Herr Ospel, und Ihre Mitarbeiter auf die eigene Kappe nehmen, und dafür möchte ich Ihnen meine Anerkennung bezeugen. Ob es dabei gerecht war und ist, Sie mit den Millionen zu belasten, welche Ihnen Nationalrat Spuhler und dessen Kollegen im Verwaltungsrat zugemutet haben, ist eine Frage, die eher von einem Philosophen oder Theologen beantwortet werden mag. Ich stelle fest, dass wir ohnehin zuwenig Mæcenas haben und dass die UBS sicher nicht falsch liegt, wenn Sie hier nachhaltig für Nachschub sorgt. Das heisst aber nicht, dass auch ich die angeblich schönen Kleider des nackten Kaisers beklatsche!

Herr Ospel, die UBS hat sich unter Ihrer Führung weltweit in manchen Bereichen zur Nr.1 gemausert. Nach meinen Handberechnungen die ich durch zusätzliche Abklärungen überprüft habe, sind von den Personalgesamtausgaben der UBS von rund 23.5 Milliarden 53%, also rund 12,5 Milliarden Franken, als Boni ausgerichtet worden. Beim gestrigen Kurs von 1.2132 CHF/US$ ergibt dies 10,25 Milliarden Dollar, womit gestützt auf Angaben der Wirtschaftsagentur Bloomberg die UBS auch sämtliche amerikanischen Konkurrenten hinter sich gelassen hat.

In Sachen Lohngefälle komme ich im Falle der UBS zudem auf einen sogenannten Sprengfaktor von 188. Dieser gibt das Verhältnis wieder zwischen dem maximalen und dem mittleren Salär. Und ich komme auf einen Multiplikator von 554, wenn der höchste und der niedrigste Lohn verglichen wird.

Von der Mæcenas-Frage abgesehen mache ich mir seit einiger Zeit Gedanken insbesonders über die makroökonomische Bedeutung dieser Kennziffern, sowie über die soziale Sprengwirkung dieser Faktoren. Dabei bin ich natürlich nicht alleine. Schon der damalige Nationalrat Christoph Blocher hat sich frühzeitig, nachdrücklich und oft gegen den Strom um solche Zusammenhänge gekümmert – mit dem Ergebnis, das wir alle kennen. Der Theologe Hans Küng sieht eine gesellschaftlich verkraftbare Obergrenze bei einem Maximalverhältnis von 1:100. Und die New York Times hat vor 10 Tagen mit einer aufsehenerregenden Spezialreportage Alarm geschlagen. In der dort veröffentlichten Graphik wird eine Zeitlinie von 1940 bis 2003 abgedeckt. Bis zum Fall der Berliner Mauer erhielten die Hälfte der Manager stets weniger als das 56-Fache des mittleren Lohnes. Diese Graphik und die Bloomberg-Daten können Sie an folgender Internet-Adresse einsehen: Wie bei der Laffer-Kurve gibt es wohl auch bei der Lohnschere ein Optimum. Und wie beim Wasser besteht die Gefahr von system-schädigenden Erosionen, wenn das Gefälloptimum überschritten wird.

Ich bin daher besorgt über die Signalwirkung dieser Entwicklungen, und über ihre Bedeutung für die kreativen und produktiven Kräfte, sowie für unseren Nachwuchs. Ich anerkenne einerseits die titanischen Geschäftsresultate, die für UBS-Aktionäre so wundersam Wirklichkeit gewordenen Eigenkapitalrenditen von weit über 20%. Anderseits muss ich zu bedenken geben, dass titanisch auch eine Ableitung von Titanic ist.  Und dass die Schweiz als reale Finanzgrossmacht mit ihren 1985 eingeführten Neuerungen im Pensionskassenbereich unbedacht und ungewollt die derzeitige Entwicklung zumindest mitausgelöst hat. Das eröffnet ihr aber auch eigenständige Möglichkeiten für entsprechende Korrekturmassnahmen. Könnte dies für die UBS nicht eine würdige weitere Führungsrolle werden? []    20 Apr 2007

Alpha Profiles the Top 25 Moneymakers:
James Simons, Kenneth Griffin, and Edward Lampert

Renaissance Technologies Corp.

EVEN THE MOST SUCCESSFUL hedge fund managers have to shake their heads in wonderment at the extraordinary continued success of Renaissance Technologies Corp. founder James Simons. Last year his $6 billion Medallion fund posted a 44 percent return after fees, easily exceeding its roughly 36 percent average annualized net return since he launched the quant-based fund in 1988. What makes his performance all the more impressive is that the 69-year-old Simons, who has a Ph.D. in mathematics from the University of California, Berkeley, and once worked as a code breaker for the U.S. Department of Defense, charges a hefty 5 percent management fee and 44 percent performance fee. (The gross return was an astonishing 79 percent.) With $1.7 billion in estimated earnings, Simons tops our list of the best-paid managers for the second straight year.

Medallion, which is closed to outside investors, uses sophisticated computer programs to identify price anomalies, trading everything from equities and commodities to futures and options. An acclaimed mathematician, Simons has hired about 80 Ph.D.s at Renaissance's offices in Manhattan and East Setauket, New York, to find ways to enhance his firm's existing strategies and discover new ones. In August 2005 he launched the Renaissance Institutional Equity Fund, a long-short product that invests exclusively in equities and has a longer holding period for its securities than does frenetic Medallion. By maintaining a net exposure to the market of 100 percent, RIEF has been popular among institutional investors looking for higher returns from their traditional equity allocation. The fund has quickly grown to $20 billion, or one fifth of its stated $100 billion capacity; it was up about 20 percent last year.

Simons, who has said publicly that most of the researchers Renaissance has hired in the past seven years were educated outside the U.S., is a major proponent of boosting math skills. He was named to the National Mathematics Advisory Panel by President George W. Bush's administration to suggest ways to advance the teaching of math and is the founder and chairman of Math for America, a nonprofit organization whose mission is to improve math education in U.S. public schools.

In February, Simons received an award from software and IT solutions company SunGard and the International Association of Financial Engineers as their 2006 financial engineer of the year. At the award dinner, which was held at the United Nations, in New York, Simons told the crowd that although he was flattered to receive the prize, before getting it he never really thought of himself as a financial engineer. "At Renaissance we have lots of smart, imaginative people making lots of money," he said. "If that's financial engineering, I'm all for it."

Citadel Investment Group

KENNETH GRIFFIN HAS COME A long way since he began trading convertible bonds from his dorm room in Cabot House at Harvard College. Griffin, who founded Chicago-based Citadel Investment Group in 1990, when he was just 22, is building an empire that has more in common with the business of another famous Harvard student -- Microsoft Corp. chairman Bill Gates -- than it does with most hedge funds. Nearly half of Citadel's more than 1,000 employees work in technology, developing and maintaining not only the firm's proprietary investment models but also its state-of-the-art hedge fund administration and electronic trading platforms. Citadel Execution Services, which trades an average of 150 million shares a day, has been offering market making to investors, including other hedge funds, since 2005. Citadel Solutions, which provides middle- and back-office administration services using the same technology developed for Citadel's own funds, opened for business just this spring.

The buildout of Citadel's non-hedge-fund businesses has fueled speculation that Griffin, now 38, is preparing to take his company public. The timing would be propitious. In 2006, Griffin enjoyed his best returns since 2002. Each of his two main funds -- Kensington Global Strategies and Wellington -- was up about 30 percent, net of Citadel's 20 percent performance fee. (The firm does not assess a management fee; instead, it charges all expenses to the fund.) The gains were spread across a variety of strategies, including long-short equities, quantitative, credit and energy. At least 5 percentage points of the firm's returns were directly attributable to the decision by Citadel to team up with JPMorgan Chase & Co. to buy, at a discount, the bulk of the energy portfolio of collapsed hedge fund Amaranth Advisors. At the end of 2006, Citadel had $12 billion in assets under management.

Griffin and his wife, Anne, who has her own hedge fund firm, Aragon Global Management, are among the world's biggest art collectors. Last year they paid $80 million for False Start, a 1959 work by Jasper Johns. In October the couple gave $19 million to the Art Institute of Chicago, which in turn will name the central court of its new Modern Wing, currently under construction, the "Kenneth and Anne Griffin Court."

ESL Investments

THE FORTUNE OF EDWARD Lampert rises and falls largely with the stock price of one company -- Sears Holdings Corp. At year-end his firm, Greenwich, Connecticut­based ESL Investments, owned 42.5 percent of the U.S.'s third-biggest retailer, accounting for nearly $11 billion of ESL's $14.6 billion stock portfolio. Lampert, who is chairman of Sears, acquired the stake in March 2005, when he merged Chicago-based department store chain Sears, Roebuck & Co. with discount retailer Kmart Holding Corp., which he had taken control of in bankruptcy two years earlier.

Although some critics have complained that Lampert is destroying Sears' iconic brand by cutting costs and not reinvesting in its core retail business, investors have applauded his focus on boosting profits rather than sales. The shares of Sears surged 45 percent last year, helping to power the former Goldman, Sachs & Co. arbitrageur back above $1 billion in earnings, after a falloff in 2005. (Lampert was the first hedge fund manager to breach the $1 billion barrier, in 2004.) Apart from ESL, two of Sears' ten biggest shareholders are hedge funds, New York­based Atticus Capital and Perry Partners. Richard Perry, the co-founder of Perry Capital and a friend of Lampert's since they worked together in the merger arbitrage group at Goldman during the 1980s, sits on Sears' board of directors.

ESL's other two reported equity holdings were retailers AutoZone, whose shares rose more than 26 percent last year, and AutoNation, which finished the year roughly unchanged. ESL's nearly $18 billion hedge fund, however, rose 24.5 percent, net of fees, held down a bit by a multibillion-dollar cash position, say investors. Last fall Lampert announced that he would not seek reelection to the board of directors of AutoZone so he could devote more time to ESL and Sears. Last month he said he wouldn't seek reelection to AutoNation's board, for similar reasons.

    April 29, 2007

Don't cotton to China fears
By Richard W. Rahn

If scary headlines and newspapers, and know-nothing politicians have caused you anxiety about the U.S. trade deficit and foreign ownership, relax and stop worrying. Here is why. A little know fact: China imports about 40 percent of the world's traded cotton, and the United States exports an almost identical 40 percent of the world's traded cotton. Thus, when you go to a Wal-Mart and buy a pair of cotton slacks with a "made in China" label, there is a good probability the cotton in those slacks was grown in the United States.
    If you paid Wal-Mart $15 for the slacks, some of that money may have ended up with a Texas cotton farmer, a U.S. cotton broker, a U.S. cotton exporter, a Norwegian shipping company, and a Chinese textile firm.
    If Wal-Mart buys directly from the Chinese firm, it must pay an international shipping company to bring the slacks to the U.S., pay its own distributors and truck drivers in the U.S. to get the slacks to its stores, and then pay the store personnel for displaying and selling the merchandise; in addition, pay for the warehouse and store structures, the office overheads, the trucks, etc. But that is not all; the Chinese tax authorities and the U.S. federal, state and local tax authorities will each take a piece of that $15 you paid for the slacks. As a result, the Chinese textile firm may have not received more than $5 out of the $15 for obtaining the cotton, preparing the cloth and cutting and sewing the slacks.
    Assume Wal-Mart pays the Chinese firm $5 for the pair of slacks, while the Chinese firm needs to pay the U.S. cotton supplier $2 for the cotton. The Chinese firm then takes the remaining $3 to the bank in China to obtain local Chinese currency to pay its workers and local expenses.
    The Chinese bank then has $3 U.S. One dollar may go to buy U.S. government securities (U.S. debt). Another $1 may be part of a loan to a Chinese airline to help it buy a 737 airliner from Boeing. And the last $1 may be part of a loan to a Chinese hotel company to help it buy and refurbish an American hotel in Miami Beach. The U.S. dollars are ultimately only useful to buy U.S. goods and services, or for investing in the U.S.
    The Chinese banks use U.S. government securities (bonds and notes) to back up or serve as the reserves for their own currency. The Chinese now own about $420 billion or 8 percent of the public debt of the U.S. government. The Japanese hold about 12 percent. All other countries combined hold another 20 percent. U.S. individuals and institutions hold the other 60 percent of the U.S. debt.
    Many U.S. companies, institutions and individuals have large holdings of other countries' debt, and, in fact, many countries have far higher foreign ownership of their own debt than does the U.S.
    Contrary to some scaremongers, the Chinese won't suddenly sell all their U.S. government bonds, since those bonds provide much of their bank reserves. If they engaged in massive sales, they would drive down the price of the bonds, thus destroying their own banking system -- and they know better than to do that. When the Chinese buy U.S. bonds, U.S. investors can put more of their capital into higher rate of return productive investments in the U.S. because there will be less U.S. government debt they need to finance. Thus, the Chinese holding U.S. government bonds benefits both China and the U.S.
    The Chinese are also very big customers of U.S. businesses, and when they buy products, such as Boeing jets, they create many high-paying jobs for Americans (that tend to be higher-paying than the lost textile worker jobs). The Chinese are also big direct investors in the U.S. And when they do something like update an old Miami hotel, they create many more jobs for Americans in the construction and hotel industries, and give America a better hotel stock, which benefits everyone from the customers to the taxman.
    Despite the political demagoguery, tens of millions of Americans -- whether they be Texas cotton farmers, Boeing airplane workers, Miami hotel and construction workers, or American homebuyers who can get lower cost mortgages -- are all better off due to the hard-working people in China. Yes, a few American textile workers have lost their jobs, but when Americans spend $15 for a pair of slacks that would have cost them $25, they have another $10 to spend in restaurants and on other goods and services that create many more jobs than were lost.
    America now has close to full employment, and real wages are rapidly rising -- proving what good economists have known for more than 200 years that freer trade and investment create more and higher-paying jobs, while reducing the costs of goods and services. China wins, American wins, the world wins -- so stop worrying.

Richard W. Rahn is the chairman of the Institute for Global Economic Growth

May 11, 2007

Panel to Look at Conflicts in Consulting

Members of Congress are looking into the potential conflicts among executive compensation consulting firms that do other lucrative work for the companies whose pay they help devise.

The chairman of the House Committee on Oversight and Government Reform has asked the largest companies in the industry for details on their client relationships and the revenues these ties have generated over the last five years.

The companies — Hewitt Associates; Mercer Consulting, which is a unit of Marsh & McLennan; Towers Perrin and Watson Wyatt Worldwide — confirmed yesterday that they had received a letter dated May 8 from Henry A. Waxman, the California Democrat who is chairman of the oversight committee.

Mr. Waxman asked the consulting firms to identify which companies among the nation’s 250 largest they had provided both executive pay consulting and other services for and to disclose total revenues received for each type of service. Mr. Waxman asked that the companies supply the information by May 29.

“Almost everyone agrees the extravagant increases in executive compensation make no sense,” Mr. Waxman said in a statement last evening. “The question I’m looking at is whether potential conflicts of interest among compensation consultants and their corporate clients might play a role in some of the irrational compensation decisions.”

As executive compensation has grown in size and complexity in recent years, pay consultants have become increasingly influential at corporations. And as critics decried rising levels of executive pay, compensation committees of boards justified the outlays as a result of work done by outside consultants.

But the consultants charged with advising on pay were often employed by large companies providing other services — like actuarial work on company pensions and the outsourcing of employee benefit programs — to those same corporations. Contracts for these services often generated significantly more revenue than those involving advice on executive pay.

In 2006, for example, Hewitt generated almost $2 billion in its outsourcing unit while the consulting segment, which includes executive-pay advice, generated about $850 million.

In his letter, Mr. Waxman noted that little is known about compensation consultants’ other business relationships with a company “because the Securities and Exchange Commission does not require companies to disclose whether executive compensation consultants perform other services for management.”

The potential for conflicts among pay consultants is reminiscent of those in the late 1990s among accounting firms that performed lucrative consulting services related to information technology and tax issues for the same companies whose financial results they were charged with certifying. After the S.E.C. required companies to disclose what they were paying in consulting as well as audit fees, the industry moved to separate the two businesses.

But in overhauling its disclosure rules on executive pay last year, the S.E.C. did not require companies to disclose details that would signal potential conflicts among consultants, like the type of other work done by these consultants or the revenues earned under those arrangements. The commission did require public companies to identify the consulting firm or firms hired to help devise executive pay standards, however.

Because companies do not need to disclose these details, investors are in the dark about potential conflicts among consultants that wear two hats at major companies.

Some institutional investors have begun asking companies to volunteer this information. Shareholders at the annual meeting of Verizon Communications last week voted on a proposal that would have required the company to disclose professional relationships with its current or previous compensation consultants that might impair their independence. While the proposal did not pass, it received support from 47 percent of the shares voted, the company said.

When discussing its pay practices in its proxy filings in recent years, Verizon routinely said that they were devised by an “independent outside consultant” that reported to the board. Although the consultant was not identified, it was Hewitt Associates, a company that did extensive work for the company in other areas, generating significant revenues.

Officials at Hewitt and Towers Perrin said their firms were preparing responses to Mr. Waxman’s request. Watson Wyatt’s spokesman declined to comment.

Christine Walton, vice president for public relations at Marsh & McLennan, said, “We can confirm that we have received Chairman Waxman’s letter and that we plan to cooperate with his request for information.”

Washington Post    May 17, 2007

Parties Split Over Public Inequities of Private Equity
By Dale Russakoff

As attention intensifies on the growing role of private equity in the U.S. economy, a House committee yesterday raised the question of whether the government should intervene to protect the interests of affected workers and communities.

The hearing, "Private Equity's Effects on Workers and Firms," was planned weeks ago, and the discussion of exactly what, if anything, the government should do was tentative. But the session took on heightened significance after Monday's announcement that private-equity firms were moving into the top ranks of the automobile industry, with the pending buyout of Chrysler by Cerberus Capital Management.

Both critics and supporters of private-equity firms -- which use pools of investment capital to buy and run companies with growth potential and later sell them for a large profit -- acknowledged that there are no reliable data on the industry's overall impact on wages, benefits or jobs.

Democrats focused on multimillion-dollar profits for investors and executives in contrast to the fate of workers who gained nothing or lost jobs in many of the deals. Republicans and some witnesses cited companies that became healthier and added jobs as a result of buyouts -- as well as pension funds and foundations that became wealthier as private-equity investors.

But members of both parties expressed concern about the impact of recent buyouts of major companies in their states. Rep. Michael N. Castle (R-Del.) said he worried about the fate of Chrysler workers in a local plant, and Rep. Deborah Pryce (R-Ohio) said she is closely watching a deal announced this week in which Golden Gate Capital plans to buy a controlling interest in the Express apparel chain from Limited Brands, which is based in Columbus, Ohio.

"When a small number of individuals benefit in the tens and sometimes hundreds of millions of dollars, and concurrently workers are laid off, we have a situation which seems to me wrong," said Barney Frank (D-Mass.), chairman of the House Financial Services Committee. "What are we going to do about it? It's not clear."

Frank mentioned possible changes in federal tax policy as well as policies to help workers organize unions.

"When you see a purchase like Cerberus [acquiring Chrysler], you're glad the union is at the table because you wonder what would happen if they weren't," he said.

Rep. Spencer Bachus (R-Ala.) and other Republicans said they feared regulation would hurt the economy and competitiveness. "It's not clear to me that privately managed companies act any different with respect to workers than public companies," he said. "Our policy should be to insure that American public and private companies can survive."

Andy Stern, president of the Service Employees International Union, which has called on private-equity firms to commit to improving the lot of workers and communities as well as investors, said, "If they will not self-regulate, we think it is necessary that Congress should legislate."

Douglas Lowenstein, president of the Private Equity Council, said it is not up to his industry to redress rising income disparities, which he blamed on global economic forces. "That requires national will, and we're prepared to be part of it," he said.


May 18, 2007

Private Equity Goes Prime Time

Ready or not, it’s time for private equity’s close-up. The announcement earlier this week that Cerberus Capital Management was taking control of Chrysler has made the clubby, backroom industry the center of attention like never before.

A private equity firm raises lots of money, typically from pension funds and wealthy individuals, and uses it to buy up the public stock in a company, removing it from the exchanges or “taking it private.” This is in no way a new form of business, but recently both the pace and the scale of deals have stepped up.

Earlier this year, the Blackstone Group acquired Equity Office Properties for $39 billion and investors led by Kohlberg Kravis Roberts and the Texas Pacific Group offered a record $45 billion for Texas energy giant TXU. While Chrysler was far from the biggest deal to take a company private — Cerberus agreed to pay only $7.4 billion to take control of the company — America has always had an outsized fascination with its Big Three automakers.

Thomson Financial reported that private equity firms raised more than $174 billion for 205 funds last year. Since deals are often leveraged with significant debt, much bigger purchases are now possible, including the prospect of several firms cooperating to pull off the first $100 billion buyout.

The rap on private-equity firms is that they buy companies, slim them down with big layoffs, then load the companies up with debt to pay their high management fees and dividends. Once they’ve taken their cut, they quickly flip the business back onto the stock market. Industry representatives say they turn around underperforming companies, maneuvering more freely outside the constant scrutiny and short-term demands on publicly traded companies. The fact is, both happen.

Representative Barney Frank, the chairman of the powerful House Financial Services Committee, held a hearing this week on the impact of these buyouts on workers. It’s important to keep a close watch on their practices, guarding the line between streamlining and looting. But it is worth remembering that it is difficult to constrain firing without discouraging companies from hiring in the first place. Congress would be better served by moving ahead with proposals to end the favorable treatment that allows staggering private equity performance fees often in the millions to be taxed at a lower rate than the earnings of a Chrysler assembly-line worker.

May 25, 2007

More Than Ever, It Pays to Be the Top Executive

Like most companies, Office Depot has long made sure that its chief executive was the highest-paid employee. Ten years ago, the $2.2 million pay package of its chief was more than double that of his No. 2. The fifth-ranked executive received less than one-third.

But the incentive for reaching the very top of the company is now far greater. Steve Odland, who runs Office Depot today, made almost $12 million last year, more than four times the compensation of the second-highest-paid executive and over six times that of the fifth-ranking executive in the current hierarchy.

As executive pay has surged in most American companies, attention has focused on the growing gap between the earnings of top executives and the average wage of workers in cubicles or on the shop floor. Little noticed, though, is how much the gap has also widened between the summit and the next few echelons down.

“It’s executive pay chasing executive pay,” said Mark Van Clieaf, managing director of MVC Associates International, a consulting firm that develops compensation plans. “But nobody looked at the issue of internal pay equity, so the disparity just kept getting bigger.”

Few are deprived in corporate suites, of course. But the widening disparities in business, which show up in a variety of other ways, reflect a dynamic that is taking hold across the economy: the growing concentration of wealth and income among a select group at the pinnacle of success, leaving many others with similar talents and experience well behind.

In the 1960s and ’70s, chief executives running the nation’s biggest companies earned 80 percent more, on average, than the third-highest-paid executives, according to a recent study by Carola Frydman of the Massachusetts Institute of Technology and Raven E. Saks at the Federal Reserve. By the early part of this decade, the gap in the executive suite between No. 1 and No. 3 had swollen to 260 percent.

Many experts argue that chief executives have a particular ability to drive their own pay upward, in part by manipulating directors they work closely with and encouraging the use of consulting firms that have a built-in incentive to increase pay packages for those who hire them.

“There’s a sense that the C.E.O.’s pay is not determined by supply and demand,” said Robert J. Gordon, a professor of economics at Northwestern University.

There is some truth to that, but economists who have recently studied the issue contend that basic economic forces still play a big role in determining pay at the very top of the corporate ladder. It just happens to be working to the advantage of an increasingly narrow slice of business leaders.

The pay of chief executives, analysts say, is being driven by superstar dynamics similar to those that determine the inordinate rewards for pop stars and athletes — a phenomenon first explained by Sherwin Rosen of the University of Chicago in 1981 and underlined more than a decade ago by the economists Robert H. Frank and Philip J. Cook in their book “The Winner-Take-All Society” (Free Press, 1995).

As American companies, American hedge funds — and even American lawsuits — have grown in size, it has become ever more valuable to get the “best” chief executive or fund manager or litigator. This has fueled a fierce competition for talent at the top, which has pushed economic rewards farther up the ladder of success, concentrating the richest pay levels even more.

“There is an interaction between technology and scale which is true in all these businesses,” said Steven N. Kaplan, a finance professor at the Graduate School of Business of the University of Chicago. “One person can oversee more assets, and this translates into more money.”

The gap in executive pay is widening even at companies that once had more even-handed practices. At Wal-Mart, for instance, the top executive 10 years ago made some 40 percent more than his second in command. Last year, H. Lee Scott, the chief executive, received more than twice as much as his chief administrative officer, John B. Menzer.

“Wal-Mart was under the influence of its founder for so long, and he had a different set of values than the current managers,” said Graef S. Crystal, a leading expert on executive pay. “He was much more egalitarian. These are professional managers.”

The changing rewards for corporate executives are not unlike the acute concentration of wealth among entertainment industry superstars, with television, the globalization of movie audiences and the spread of digital technologies having allowed those at the very top to generate enormous incomes at the expense of those that might be slightly less popular.

Alan B. Krueger, a Princeton economist, found that the share of concert ticket revenue taken by the top 1 percent of pop stars — measured by sales per concert — rose to 56 percent in 2003 from 26 percent in 1982.

Similarly, the best-paid baseball player 20 years ago, Gary Carter, earned $2.4 million from the New York Mets, 41 percent more than the 25th-ranked, Tim Raines of the Montreal Expos. This season, the $28 million, pro rated, that the Yankees will pay Roger Clemens is more than double the paycheck of David Ortiz of the Boston Red Sox, who is 24 rungs down.

This even more skewed pattern at and near the top of the income ladder has become a sort of national standard. From 1985 to 2005, the incomes of taxpayers in the top 10th of earnings rose about 54 percent after inflation, to an average of $207,200, according to Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley.

But among the top 1 percent of taxpayers it increased 128 percent, to $812,500. And among the top 0.01 percent it nearly quadrupled, to $14 million on average.

Corporate executives, for all the attention they have drawn, are far from a majority of the superwealthy. Mr. Gordon and Ian Dew-Becker at the National Bureau of Economic Research estimated that executives accounted for 20 percent of the income in the top 0.01 percent of the scale. Others put their share lower — around 8.5 percent.

As for the gap between C.E.O. pay and that of executives working under them, one reason may be that the larger share of stock options in top executives’ compensation packages these days makes the gap widen when the market is rising, as it was in the late 1990s and generally these days. By contrast, it narrowed somewhat in the first years of the decade, when equity prices fell.

Still, that does not fully explain the current situation, fueling the debate over runaway executive pay. Standard views tend to splinter between corporate apologists, who say that top executives have tougher jobs and are more deserving than in the past, and critics who accuse many of them, in essence, of doing little more than larding their pay at the expense of stockholders.

At Office Depot, a spokesman, Brian Levine, said, “We usually don’t comment on our executive compensation other than to say all our programs are linked directly to performance.”

Mr. Scott of Wal-Mart, at a recent lunch with reporters, argued that his pay had shot up in relation to the rest of the executive pack in part because today’s chief has a much more demanding job than a decade ago.

“As we enter a world that is more complex, the company places value on things that go beyond the running of the business,” Mr. Scott said. “There are aspects of interfacing with the external world that are more like running a presidential campaign than running a business.”

But a number of economists argue that the steep growth of executive pay has less to do with the complexities of the job and more with the competition for talent among American companies.

Kevin J. Murphy, a professor of finance at the University of Southern California, said that in the 1970s, fewer than 10 percent of chief executives were hired from outside and most of those were brought in to save a company in distress.

Since then, he argued, generalist executive skills have become more valuable to companies than expertise in whatever the company does, leading to fewer businesses’ promoting executives from within. By 2000, more than a third of all new chiefs were brought in from outside.

As a result, more C.E.O.’s find themselves in the enviable position of being pursued by competing suitors. And this type of market does not exist to the same extent for executives one or two notches down.

“A really successful C.E.O. can have a significant impact on the stock price,” said Joseph E. Bachelder, a tax lawyer who advises firms on executive pay, “and I’m not sure I can say the same is true generally about the C.F.O. or a general counsel.”

As companies grow and expand globally, the value of the top executive can grow exponentially. In a study last year, two economists, Xavier Gabaix of the Massachusetts Institute of Technology and Augustin Landier of New York University, argued that the fast rise in pay of corporate C.E.O.’s mostly reflected the growing size of American corporations.

Processing reams of data, the economists estimated that hiring the most effective chief executive in the country would, statistically, increase the stock value of a company by only 0.016 percent, compared with hiring the 250th chief executive. But at a company like General Electric, which is worth about $380 billion, that tiny difference would amount to $60 million.

This, the economists argued, helps explain why that top chief executive earned five times as much as the 250th. “Substantial firm size leads to the economics of superstars, translating small differences in ability to very large deviations in pay,” the economists wrote.

But all the attention on chief executives as business superstars raises new questions. In a report published last year, Moody’s Investors Service said it would start taking into account the difference in pay within an executive team in its bond ratings.

“It raises issues of key-person risk and of whether the C.E.O. has too much authority,” said Mark Watson, managing director of the corporate governance group at Moody’s. “We are rating the company, not the person. A bus might come by and knock the person over.”

Financial Times    June 19 2007
"In Rome everything is for sale."
Prince Jugurtha in Sallust's Bdlum Jugurthinum

"Yes to market economy, no to market society."
Lionel Jospin, French Socialist ex-prime minister

The new capitalism
How unfettered finance is fast reshaping the global economy
There has been a big income shift from labour to capital
managers can earn vast multiples of employees' wages
Martin Wolf
How much of the vast growth in the financial System is short-term and how much is structural will become known once current easy conditions end, writes Martin Wolf
    It is capitalism, not communism, that generates what the communist Leon Trotsky once called "permanent revolution". It is the only economic system of which that is true. Joseph Schumpeter called it "creative destruction".  Now, alter the fall of its adversary, has come another revolutionary period. Capitalism is mutating once again.
    Much of the institutional scenery of two decades ago - distinct national business elites, stable managerial oontrol over companies and long-term relationships with financial institutions - is disappearing into economic history. We have, instead the triumph of the global over the local, of the speculator over the manager and of the financier over the producer. We are witnessing the transformation  of mid-20th century managerial capitalism into global financial capitalism.
    Above all, the financial sector, which was placed in chains after the Depression of the 1930s, is once again unbound. Many of the new developments ernanated from the US. But they are ever rnore global. With them come not just new economic activities and new wealth but also a new social and political landscape.
    First, finance has exploded. According to the McKinsey Global Institute, the ratio of global financial assets to annual world output has soared from 10!) per cent üi 1880 to 316 per cent in 2005. In 2005, the global stock of core financial assets had reached $140,000bn (£70,660bn, €104,490bn: see chart).
    This increase in financial depth has been particularly marked in the eurozone: the ratio of financial assets to gross domestic product there jumped from 180 per cent in 1995 to 303 per cent in 2005. Over the same period it grew from 271 per cent to 359 per cent in the UK and from 303 per cent to 405 per cent in the US.
    Second, finance has become far more transactions-oriented. In 1980, bank deposits made up 42 per cent of all financial securities. By 2005, this had fallen to 27 per cent. The capital markets increasingly perform the intermediation functions of the banking system. The latter, in turn, has shifted from commercial banking, with its long-term lending to clients and durable relations with customers, towards investment banking.
    Third, a host of complex new financial  products have been derived from traditional bonds, equities, commodities and foreign exchange. Thus were born "derivatives", of which options, futures and swaps are the best known. According to the International Swaps and Derivatives Association, by the end of 2006 the outstanding value of interest rate swaps, currency swaps and interest rate options had reached $286,000bn (about six times global gross product), up from a mere $3,450bn in  1990.  These derivatives have transformed the opportunities for managing risk.
    Fourth, new players have emerged, notably the hedge funds and private equity funds. The number of hedge funds is estimated to have grown from a mere 610 in 1990 to 9,575 in the first quarter of 2007, with a value of about $1,600bn under management. Hedge funds perform the classic functions of speculators and arbitrageurs in contrast to traditional "long-only"  funds, such as mutual funds, which are invested in equities or bonds. Private etiuity fundraising reached record levels in 2006: data from Private Equity Intelligence show that 684 funds raised an aggregate $432bn in cornmitments.
    Fifth, the new capitalism is ever more global. The sum of the international financial assets and liabilities owned (and owed) by residents of high-income countries jumped from 50 per cent of aggregate GDP in 1970 to 100 per cent in the mid-1980s and about 330 per cent in 2004.
    The globalisation of finaiicial capitalism is seen in the players as well as in the nature of the holdings. The big banks operate globally.  So increasingly do hedge funds and private equity funds. In 2005, for exarnple, North America accounted for 40 per cent of global private equity investments (down from 68 per cent in 2000) and 52 per cent of funds raised (down from 69 per cent).  Meanwhile, between 2000 and 2005, Europe increased its share of investments from 17 per cent to 43 per cent and funds raised from 17 per cent to 38 per cent. The Asia-Pacific region's share of private equity investment rose from 6 per cent to 11 per cent during this period.
    What explains the growth in financial intermediation and the activity of the financial sector? The answers are much the same as for the globalisation of economic activity: liberalisation and technological advance.
    By the mid-20th century the financial sector was highly regulated everywhere. In the US, the Glass-Steagall Act separated commercial banking from investment banking. Almost all countries operated tight controls on the ownership of foreign exchange by their residents and so, automatically, ownership of foreign assets. Ceilings on interest rates that lenders could charge were comrnon. The inost famous of these, "Regulation Q" in the US, which forbade the payment of interest on demand deposits,  promoted the development of the first signlficant posl-war offshore financial market: the eurodollar market in London.
    Over the past quarter-century, however, almost all of these regulations have been swept away. Barriers between commercial and investment banking have vanished. Foreign exchange controls have disappeared from tlie high-income countries and have been substantially, or sometimes even completely, liberalised in many emerging market economies as well. The creation of the euro in 1990 acceleraled the integration of financial markets in the eurozone, the world's second largest economy. Today, much of the global financial sector is as liberalised as it was a century ago, just before the first world war.
    No less important has been the revolution in computing and communications. This has perrnitted the generation and pricing of a host of complex transactions, particularly derivatives. It has also permitted 24-h our trading of vast volumes of financial assets. New computer-based risk management models have been employed across the financial sector. Today's financial sector is a particularly vigorous child of the computer revolution.
    Two further long-term developments help explain what has happened. The first is the revolution in financial economics, notably the discovery of options pricing by Myron Scholes and Fischer Black in the early 1970s, which provided the technical underpinning of today's vast options markets. The second is the success of central banks in creatiug a stable monetary background for the world economy and so also for the global financial system. "Fiat" (or government-created) money has now worked well for a quarter of a century, providing the monetary stability on which complex financial systems have always depended.
    Yet there is also a shorter-term explanation for the explosive recent growth in finance: today's global savings and liquidity gluts. Low interest rates and the accumulation of liquid assets, not least by central banks around the world, has fuelled financial engineering and leverage. How much of the recent growth of the financial system is due to these relatively short-term developments and how much to longer-term structural features will be known only when the easy conditions end, as they will.
    What then have been the consequences of this vast expansion in financial activity, much of it across international borders?
Among the results are that households can hold a wider array of assets and also borrow more easily, so smoothing out their consumption over lifetimes.
    Between 1994 and 2005, for example, the liabilities of UK households jumped from 108 per cent of GDP to 159 per cent. In the US, they soared from 92 per cent to 135 per cent. Even in conservative Italy, liabilities rose from 32 per cent to 59 per cent of GDP.
    Similarly, it is ever easier for companies to be taken over by, or merge with, other companies.  The total value of global mergers and acquisitions in 2006 was $3,861bn, the highest figure on record, with 33,141 individual transactions. As recently as 1995, in contrast, the value of mergers and  acquisitions was a mere $850bn, with just 9,251 deals.
    With the vast size of the new private equity funds and the scale of the bond financing arranged by the big banks, even the largest and most established companies are potentially for sale and break-up, unless they enjoy special protection. The market in control of companies, to which private equity is an active contributor, has greatly increased the power of owners (shareholders) over that of incumbent management.
    The new financial capitalism represents the triumph of the traders in assets over the long-term producer. Hedge funds are perfect examples of the speculative trader and arbitrageur. Private equity funds are conglomerates that trade in companies, with a view to financial gain.
    In the same way, the new banking system is dominated by institutions that trade in assets rather than hold them for long
periods on their own books.
    With the orientation towards trading come explicit, rather than implicit, contracts and arms-length dealing rather than long-term relationships. So-called "relational contracts" are no longer worth the paper they are not written on. They are subject to the solvent of new opportunities for profit. It is no surprise, therefore, that the cross-holdings of postwar capitalism in Japan and the bank-dominated equity ownership of postwar Germany have both evaporated.
    Moreover, the presence on share registers of large numbers of foreigners, who are fully prepared to exercise their rights of ownership and are unconstrained by national social and political bonds, has transformed the way companies operate:  the successful shareholder revolt against the plans of Deutsche Börse's management for a takeover of the London Stock Exchange  is an excellent example. Thus is global financial capital eroding the autonomy of national capital.
    Another consequence has been the emergence of two dominant international financial centres: London and New York. It is no accident that these are located in English-speaking countries with a long history of financial capitalism. It is no accident either that Hong Kong, not Tokyo, is generally viewed as the leading international financial centre in Asia, even though Japan is the world's biggest creditor country. Hong Kong's legacy is British. The legal tradition and attitudes of English-speaking countries appear to be big assets in tlie development of financial centres. How then should one evaluate this latest transformation of capitalism? Is it a "good thing"?
    Powerful arguments can be made in its favour: active financial investors swiftly identify and attack pockets of inefficiency; in doing so, they improve the efficiency of capital everywhere; they impose the disciplines of the market on incumbent management; they finance new activities and put inefficient old activities into the hands of those who can exploit them better; they create a better global ability to cope with risk; they put tlieir capital where it will work best anywhere in the world; and, in the process, they give quite ordinary people the ability to manage their finances more successfully.
    Yet it is equally obvious that the emergence of the new financial capitalism creates vast new regulatory, social and political challenges.
    Optimists would argue that the new  financial system combines efficiency with stability to an unprecedented degree.  Publicly insured banks not only take fewer risks than before but manage the ones they do take far better. Optimists can (and do) also point to the ease with which the global financial system coped with the collapse of the global stock market bubble in 2000 and the terrorist attacks of 2001 - in particular, the absence of any large bank failures at that time. They would point, too, to a diminution in the frequency of global financial crises this decade.
    Pessimists would argue that monetary conditions have been so benign for so long that huge risks are being built up, unidentified and uncontrolled, within the system. They would also argue that the new global financial capitalism remains untested.
    Regulating a system that is this complex and global is a novel task for what are still predominantly national regulators. Co-operation has improved. Reports, such as the International Monetary Fund's Global Financial Stability Report and its national equivalents, provide useful assessments of the risks. New groups, notably the Financial Stability Forum founded in 1999, bring regulators together. But only severe pressures can give a good test of the system.
    The regulatory challenges are big enough. But they are far from the only ones. Lionel Jospin's hostility to what he called a "market society" is widely shared. Powerful political coalitions are forming to curb the impact of the new players and new markets: trade unions, incumbent managers, national politicians and hundreds of millions of ordinary people feel threatened by a profit-seeking machine viewed as remote and inhuman, if not inhumane.
    Last but not least are the challenges to politics itself. Across the globe there has been a sizeable shift in income frorn labour to capital. Newly "incentivised" managers, free from inhibitions, feel entitled to earn vast multiples of their employees' wages. Financial speculators earn billions of dollars, not over a life-time but in a single year. Such outcomes raise political questions in most societies. In the US they seem to be tolerable. Elsewhere, however, they are less so. Democratic politics, which gives power to the majority, is sure to react against the new concentrations of wealth and income.
    Many countries will continue to resist the free play of financial capitalism. Others will allow it to operate only in dose conjunction with powerful domestic interests. Most countries will look for ways to tame its consequences. All will remain concerned about the possibility for serious instability.
    Our brave new capitalist world has many similarities to that of the early 1900s. But, in many ways, it has gone far beyond it. It brings exciting opportunities. But it is also largely untested. It is creating new elites. This modern mutation of capitalism has loyal friends and fierce foes. But both can agree that its emergence is among the most significant events or our time.    Jul 1st 2007

Wider spreads and a stronger yen signal worry
Two-thirds of a problem

IN RECENT weeks your correspondent has recommended three indicators that might help determine whether the latest market wobble was turning into something more serious. At least two of them are now flashing amber.

First, some much-needed background, given the rather confusing trends in recent markets. The early-June sell-off was concentrated in the government bond market, particularly in the 10-year Treasury bond.  The sudden rise in bond yields did not seem to be triggered by a change in inflation expectations, but by a new belief that the American economy was not heading for recession and that the Federal Reserve would have no need to cut interest rates. The yield on the 10-year bond briefly hit 5.3%.

The current brouhaha in the markets seems to be related to a sudden rise in risk aversion. The trigger seems to have been the publicity attached to the problems faced by two Bear Stearns hedge funds in the subprime-mortgage market. Although the subprime crisis broke in February, it seems to have taken time for the full effect to be felt, given that many of the mortgages had been repackaged in the form of illiquid derivatives known as CDOs, or collateralised debt obligations.

Whatever the cause, whenever problems are felt in the financial markets investors tend to look for the weak spots in their own portfolios. In addition, the rise in Treasury bond yields means that investors can earn more without taking any risks. Hence they are now shying away from some of the riskiest loans, those that offer very little security (so-called covenant-lite loans) or allow the borrower to repay with something other than cash (payment-in-kind notes).

So that has triggered one of the three warning signs. Credit spreads (the premium rates paid by riskier borrowers) have risen on American high-yield bonds by around 80 basis points within a few weeks, according to Jim Reid of Deutsche Bank. But spreads are still pretty low compared with the historical average; this light is flashing amber, not red.

The second warning indicator has been the yen. The yen is one of two big currencies (along with the Swiss franc) used as the basis for the “carry trade”—borrowing low-yielding currencies to invest in higher-yielding assets. The carry trade tends to push the yen down, as speculative investors are selling it. So a rise in the yen would be a sign of waning speculative appetite. (One can look at this from another direction. A rising yen would imply a falling dollar, indicating America was having a problem persuading foreign investors to fund its current account deficit.)

The yen did rise for three trading days from June 25th to 27th, before falling again on June 28th. The rise in yen was accompanied by a fall in high-yield currencies (such as the New Zealand dollar), a rise in stockmarket volatility (as measured by the Vix, or volatility index) and a widening of emerging-market bond spreads. All point to a modest rise in risk aversion. Indeed, Treasury bond yields have headed back down again, falling as low as 5.04% during trading on June 27th. None of these moves is dramatic yet, so this is an amber, not a red signal.

The third factor to watch is inflation. Central banks have been tightening monetary policy in response to a rising headline rate, driven by oil and food prices. But the core rate (the one that is watched by the Fed) has been drifting lower, suggesting commodity prices are not yet feeding through to the rest of the economy. Any sign that inflation is seriously picking up would require a much tougher monetary response and would be very bad news for the markets. As yet, inflation fears are still only moderate; this sign is hovering between amber and green.

So investors should not yet be pressing the panic button. But they ought to be more alert than they were a month ago.    Jul 8th 2007

The year has treated equity investors well
Easy money

SO FAR, it has been pretty hard for equity investors to lose money in 2007. The FTSE World index rose 8.7% in dollar terms over the first six months of the year. The leading markets (America, Britain, Europe and Japan) all produced returns within three percentage points of this figure. Those investors who tilted their portfolios towards Europe (excluding Britain) and Asia (excluding Japan) would have achieved outperformance, but these were not make-or-break decisions.

The same was true of sector bets. One sector, household goods, suffered a small loss (it contains the housebuilding sector). Otherwise, it was positive returns all round. But the range was rather wider than was apparent in the regional numbers. As Andrew Lapthorne of Dresdner Kleinwort, an investment bank, points out: “People have been buying industrial strength rather than consumer weakness.” Rising interest rates, weak housing markets and high oil prices are making investors shy away from consumer sectors, with the trend becoming noteworthy in June.

 Another, related trend that has been evident over the past month has been the weakness of property stocks. Japan was one of the hardest-hit markets with its J-REIT (real estate investment trust) index falling by 12% in June alone. Rising interest rates and bond yields mean that, in some markets, such as Britain, property yields no longer exceed financing costs. Indeed, financial stocks (the group in which property belongs) in general have underperformed so far this year. Investors have clearly become worried about the possibility of bad loans in the banking sector.

The big money has been made in the commodity and basic materials sectors—in the stocks dismissed as “old economy” during the dotcom era. Metals stocks were up by one-third in the first half of the year, and by nearly 60% since June 2006, according to Dresdner Kleinwort. Contrast that with two sectors from the old triumvirate of technology, media and telecommunications: media and software stocks were both up just 5% in the first half of the year.

The broadly-based strength of equities makes this look like a liquidity-driven market. Government bonds have been under pressure; the easy money in corporate bonds has already been made; and property is starting to struggle. That makes equities look the best home for investors’ money.

However, this belief depends crucially on two assumptions. The first is that corporate profits do not revert to the mean, at least in the short term. Valuations look fine when judged on a prospective price-earnings ratio, or even a trailing multiple (today’s prices divided by reported earnings). But that may simply be because profits are at a cyclical high. Use a smoothed p/e ratio over the past ten years and profits look very pricey indeed. The theory is that companies have benefited from an expansion in the global labour supply, prompted by the integration of India and China into the global economy, and that this has kept the lid on wage claims.

Eventually, however, you would expect demand to suffer from such a scenario. After all, this was the classic Marxist vision of capitalism’s collapse, with monopoly producers making goods workers could not afford to buy. So far, consumers have managed to keep financing their lifestyles by borrowing. Perhaps higher interest rates are making this tactic too expensive; that’s what the relative weakness of consumer stocks is suggesting.

The second support for equity prices is the “great moderation”, the relative stability of inflation and unemployment over the past 15 years. Some believe this is due to a combination of globalisation and smart central banking. Others believe the central banks have allowed monetary policy to become too loose, building up problems for the future in the form of a credit bubble.

This is where inflation, the third of the potential warning signals mentioned in last week’s column, is so crucial. Central banks simply cannot afford to let this get out of control, for fear of losing much of the gains accumulated so painfully over the past 15 years. Expectations are vitally important: because workers expect central banks to keep inflation under control, they will tolerate (in the short term) higher food and energy prices. But if they adjust their behaviour, it could take much higher interest rates to get inflation back down again. And that will drain the liquidity that provided such a benign backdrop for markets in the first half of the year.    Jul 15th 2007

It’s going to be a bumpy summer
Buckle your seatbelts

IT IS certainly shaping up to be a volatile summer. First the yield on the ten-year Treasury bond moved sharply higher, seemingly on the realisation that the Federal Reserve would not cut rates after all. Then the yield fell back below 5% on safe-haven buying of Treasury bonds, in the wake of the problems suffered by Bear Stearns over two of its hedge funds.

Just as the market seemed to be recovering from that fright, the downgrading of some mortgage-related bonds on July 10th saw the ten-year yield dip almost 11 basis points in one session on another bout of risk aversion. But by Friday the yield had moved higher again, as investors seemed to recover their nerve and the Dow Jones Industrial Average jumped to a record peak.

 While it is hard to spot the trend in government bond yields, the direction of the market has been clearer elsewhere. Credit spreads have been widening sharply in response to all the bad news about sub-prime mortgages and a realisation that investors were not being adequately compensated for the risks they were taking. The spread on European high-yield debt has widened by around a full percentage point since mid-June. And in currencies the dollar has taken a pounding, dropping to a lifetime low against the euro and a 26-year low against sterling. The yen has not performed much better, hitting a record low against the euro on July 12th.

Is it possible to make sense of all this movement? Volatility tends to occur when investors are uncertain about the future of economies or government policy. The benign days of 2003-2006 are over. During that period central banks may have raised interest rates, but monetary policy could not be described as tight. Investors saw the process as the return of rates to normal levels after the crisis lows of 2002.

When the Fed paused its monetary tightening in June last year, most investors thought rates would be falling by now. But this is where the uncertainty has crept in. The bears have been right about America’s housing market: prices are probably falling and a lot of homeowners are in trouble. But the wilder predictions of the economic Armageddon that would follow a housing bust have yet to come true. Meanwhile inflationary pressure has been sufficient to make Fed cuts look less likely; oil has been reaching $77 a barrel and food prices have been surging.

So some of the volatility has been caused by the bipolar nature of these uncertainties—should investors be worried about inflation or an economic slowdown?

While economists have been nervous, those who focus on the corporate sector have been enjoying boom conditions. Corporate profits have been strong, cashflows in the form of buy-backs and dividends have been bountiful and, as the cherry on the ice-cream sundae, there has always been the prospect of a bid or two from the private-equity sector.

Recent weeks have seen a few signs that this rosy picture might change. The private-equity model relies on replacing equity with debt. Rising credit spreads and record share prices make that trick more difficult to pull off. There will be no immediate end to bid activity—the private-equity groups have a lot of firepower from already-established funds. But it is just possible that one of the big deals could fall through, something that would deal a big blow to market confidence.

There was an air of fin de siècle about the markets earlier in the summer, with billion-dollar deals being unveiled almost every day. Ian Harnett of Absolute Strategy Research says that European stockmarket performance had become increasingly concentrated, with just one-third of sectors outperforming the average. Such concentrated performance preceded sell-offs in 2000, 2002 and 2006. If he is right, we could be due for a lot more volatility over the markets’ traditional vacation period.

arte    16 juillet 2007
(emmission: 23 juillet, 23.05)

La génération 1000 euros

Le roman d’Alessandro Rimassa et d’Antonio Incorvaia, publié sur Internet en 2005, n’est pas seulement devenu le livre culte des jeunes qui vont sur leurs trente ans, il a également donné son nom à un phénomène européen.

En Italie, ils font partie de la "Generazione 1000 Euro". En France, on parle de "génération précaire" et en Espagne de "mileuristas" pour qualifier ces jeunes qui se retrouvent en quête d’un emploi. Très rares sont les hommes politiques qui veulent s’engager sur ce dossier, et portant la situation est alarmante : le taux de chômage des jeunes âgés de 15 à 24 ans s’établit à 18 %, soit deux fois la moyenne toutes tranches d’âge confondues. Ce taux atteint même 20 à 30 % en Pologne, en Grèce, en Italie et en France.
Par le passé, les jeunes diplômés mettaient environ deux ans avant de décrocher un emploi, alors qu’aujourd’hui, il faut compter cinq à dix ans.

En dépit d’une formation de qualité, la plupart des jeunes de la "génération précaire" ne trouvent pas d’emploi stable à la fin de leurs études mais uniquement des stages. Nombreuses sont les entreprises qui exploitent impudemment les stagiaires, théoriquement là pour apprendre mais trop souvent considérés comme de la main d’œuvre ordinaire, à un détail près : elle n’est pas rémunérée. Puis les contrats à durée déterminée (CDD) se succèdent, entraînant un manque chronique d’argent, une absence de perspectives d’avenir et une inévitable frustration. Même un concept comme le temps libre n’a plus de sens car ceux qui veulent avoir une chance sur le marché du travail actuel doivent être flexibles et disponibles 24 heure sur 24.

Dans presque tous les secteurs, on retrouve des intérimaires qui pendant des années enchaînent les CDD. Alessandro Rimassa et Antonio Incorvaia, les auteurs de "Generazione 1000 Euro", ont eux-mêmes fait partie du lot une fois leurs études achevées. De cette recherche d’emploi de plusieurs années, ils ont tiré un livre qui reflète bien l’état d’esprit des jeunes Italiens et qui a été par la suite traduit en néerlandais, en anglais et en allemand.

Le succès du livre n’est pas une surprise car la situation en Italie est particulièrement préoccupante. Dans la plupart des pays européens, ce sont surtout les jeunes les moins qualifiés qui rencontrent des difficultés. Mais en Italie et en Grèce, les plus touchés sont les diplômés de l’enseignement supérieur (d’après les Statistiques 2004 de la Population Active de l’OCDE). Les sociologues estiment à 3,5 millions le nombre de jeunes appartenant à la génération précaire. Pour le Professeur Emilio Reyneri, sociologue du travail à l’Université de Milan, cette situation est due à un marché du travail peu porté vers les hautes technologies : "L’Italie investit deux fois moins que les autres pays industrialisés dans la recherche et le développement. Notre économie est majoritairement composée de petites entreprises, ce qui l’a sauvée dans les années 1970 et 1980. Mais la demande de ces entreprises en main d’œuvre qualifiée est beaucoup trop faible." Et contrairement aux autres pays, il n’existe en Italie aucun soutien financier destiné à venir en aide aux salariés mal rémunérés en situation de précarité.

Quelles que soient les raisons invoquées dans les différents pays - la crise économique, les défaillances du système éducatif, le manque de qualifications décisives, l’incapacité générale à réformer le système, les problèmes de répartition entre les générations – l’Europe tout entière refuse à ses jeunes une place dans la société, et très peu de responsables politiques sont prêts à défendre leur cause.
Une conséquence de cette situation est d’ores et déjà prévisible. En effet, avec le vieillissement croissant de la population, la sécurité sociale est portée par de moins en moins de personnes. Des impôts – qui profiteraient à l’ensemble de la population –, les jeunes "smicards" n’en payent presque pas, car leur revenu est trop faible. Et alors que cette génération attend de pouvoir enfin trouver un emploi, son poids dans la population se réduit : l’Italie a l’un des taux de natalité les plus faibles d’Europe et les enfants y sont un luxe que de moins en moins de personnes peuvent se permettre.

En fin de compte, les auteurs de "Generazione 1000 Euro" sont devenus les porte paroles d’un état d’esprit, mais ils se projettent dans l’avenir avec une pointe d’optimisme italien. Alessandro Rimassa pense que la prochaine génération s’accommodera mieux de ces incertitudes : "De cet état d’urgence, on tirera une vertu, celle de l’adaptabilité. De fait, la plupart des individus n’en ressentiront plus de frustration."

July 15, 2007

The richest of the rich, proud of a new gilded age

NEW YORK — The tributes to Sanford I. Weill line the walls of the carpeted hallway that leads to his skyscraper office, with its panoramic view of Central Park. A dozen framed magazine covers, their colors as vivid as an Andy Warhol painting, are the most arresting. Each heralds Weill's genius in assembling Citigroup into the most powerful financial institution since the House of Morgan a century ago.

His achievement required political clout, and that, too, is on display. Soon after he formed Citigroup, Congress repealed a Depression-era law that prohibited goliaths like the one Weill had just put together anyway, combining commercial and investment banking, insurance and stock brokerage operations. A trophy from the victory — a pen that President Bill Clinton used to sign the repeal — hangs, framed, near the covers.

These days, Weill and many of the nation's very wealthy chief executives, entrepreneurs and financiers echo an earlier era — the Gilded Age before World War I — when powerful enterprises, dominated by men who grew immensely rich, ushered in the industrialization of the United States. The new titans often see themselves as pillars of a similarly prosperous and expansive age, one in which their successes and their philanthropy have made government less important than it once was.

"People can look at the last 25 years and say this is an incredibly unique period of time," Weill said. "We didn't rely on somebody else to build what we built, and we shouldn't rely on somebody else to provide all the services our society needs."

Those earlier barons disappeared by the 1920s and, constrained by the Depression and by the greater government oversight and high income tax rates that followed, no one really took their place. Then, starting in the late 1970s, as the constraints receded, new tycoons gradually emerged, and now their concentrated wealth has made the early years of the 21st century truly another Gilded Age.

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics.

Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash. Now it is back, and Weill is prominent among the new titans. His net worth exceeds $1 billion, not counting the $500 million he says he has already given away, in the open-handed style of Andrew Carnegie and the other great philanthropists of the earlier age.

At 74, just over a year into retirement as Citigroup chairman, Weill sees in Carnegie's life aspects of his own. Andrew Carnegie, an impoverished Scottish immigrant, built a steel empire in Pittsburgh, taking risks that others shunned, just as the demand for steel was skyrocketing. He then gave away his fortune, reasoning that he was lucky to have been in the right spot at the right moment and he owed the community for his good luck — not in higher wages for his workers, but in philanthropic distribution of his wealth.

Weill's beginnings were similarly inauspicious. A son of Polish immigrants, raised in Brooklyn, a so-so college student, he landed on Wall Street in a low-level job in the 1950s. Harnessing entrepreneurial energy, deftness as a deal-maker and an appetite for risk, with a rising stock market pulling him along, he built a financial empire that, in his view, successfully broke through the stultifying constraints that flowed from the New Deal. They were constraints not just on what business could or could not do, but on every high earner's take-home pay.

"I once thought how lucky the Carnegies and the Rockefellers were because they made their money before there was an income tax," Weill said, never believing in his younger days that deregulation and tax cuts, starting in the late 1970s, would bring back many of the easier conditions of the Gilded Age. "I felt that everything of any great consequence was really all made in the past," he said. "That turned out not to be true and it is not true today."

Other very wealthy men in the new Gilded Age talk of themselves as having a flair for business not unlike Derek Jeter's "unique talent" for baseball, as Leo J. Hindery Jr. put it. "I think there are people, including myself at certain times in my career," Hindery said, "who because of their uniqueness warrant whatever the market will bear."

He counts himself as a talented entrepreneur, having assembled from scratch a cable television sports network, the YES Network, that he sold in 1999 for $200 million. "Jeter makes an unbelievable amount of money," said Hindery, who now manages a private equity fund, "but you look at him and you say, 'Wow, I cannot find another ballplayer with that same set of skills."'

A handful of critics among the new elite, or close to it, are scornful of such self-appraisal. "I don't see a relationship between the extremes of income now and the performance of the economy," Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.

The great fortunes today are largely a result of the long bull market in stocks, Volcker said. Without rising stock prices, stock options would not have become a major source of riches for financiers and chief executives. Stock prices rise for a lot of reasons, Volcker said, including ones that have nothing to do with the actions of these people.

"The market did not go up because businessmen got so much smarter," he said, adding that the 1950s and 1960s, which the new tycoons denigrate as bureaucratic and uninspiring, "were very good economic times and no one was making what they are making now."

James D. Sinegal, chief executive of Costco, the discount retailer, echoes that sentiment. "Obscene salaries send the wrong message through a company," he said. "The message is that all brilliance emanates from the top; that the worker on the floor of the store or the factory is insignificant."

A legendary chief executive from an earlier era is similarly critical. He is Robert L. Crandall, 71, who as president and then chairman and chief executive, led American Airlines through the early years of deregulation and pioneered the development of the hub-and-spoke system for managing airline routes. He retired in 1997, never having made more than $5 million a year, in the days before upper-end incomes really took off.

He is speaking out now, he said, because he no longer has to worry that his "radical views" might damage the reputation of American or that of the companies he served until recently as a director. The nation's corporate chiefs would be living far less affluent lives, Crandall said, if fate had put them in, say, Uzbekistan instead of the United States, "where they are the beneficiaries of a market system that rewards a few people in extraordinary ways and leaves others behind."

"The way our society equalizes incomes," he argued, "is through much higher taxes than we have today. There is no other way."


The new Gilded Age has created only one fortune as large as those of the Rockefellers, the Carnegies and the Vanderbilts — that of Bill Gates, according to various compilations. His net worth, measured as a share of the economy's output, ranks him fifth among the 30 all-time wealthiest American families, just ahead of Carnegie. Only one other living billionaire makes the cut: Warren E. Buffett, in 16th place.

Individual fortunes nearly a century ago were so large that just 30 tycoons — Rockefeller was by far the wealthiest — had accumulated net worth equal to 5 percent of the national income. Their wealth flowed mainly from the empires they built in manufacturing, railroads, oil, coal, urban transit and mass retailing as the United States grew into the world's largest industrial economy.

Today the fortunes of the very wealthiest are spread more widely. In addition to stock and stock options, low-interest credit has brought wealth to more families — by, for example, facilitating the sale of individual businesses for much greater sums than in the past. The fortunes amassed in hedge funds and in private equity often stem from deals involving huge amounts of easy credit and vast pools of capital available for investment.

The high-technology boom and the Internet unfolded against this backdrop. The rising stock market multiplied the wealth of Bill Gates as his software became the industry standard. It did the same for numerous others who financed startups on a shoestring and then went public at enormous gain.

Over a longer period, the market lifted the value of Buffett's judicious investments and timely acquisitions, and he emerged as the extraordinarily wealthy Sage of Omaha, in effect, a baron of the new Gilded Age whose views are strikingly similar to those of Carnegie and Weill.

Like them, Buffett, 78, sees himself as lucky, having had the good fortune, as he put it, to have been born in America, white and male, and "wired for asset allocation" just when all four really paid off. He dwelt on his good fortune in a recent appearance at a fundraiser for Hillary Rodham Clinton, who is vying for Buffett's support of her presidential candidacy.

"This is a significantly richer country than 10, 20, 30, 40, 50 years ago," he declared, backing his assertion with a favorite statistic. The national income, divided by the population, is a very abundant $45,000 per capita, he said, a number that reflects an affluent nation but also obscures the lopsided income distribution intertwined with the prosperity.

"Society should place an initial emphasis on abundance," Buffett argued, but "then should continuously strive" to redistribute the abundance more equitably.

No income tax existed in Carnegie's day to do this, and neither Buffett nor Weill push for sharply higher income tax rates now, although Buffett criticizes the present tax code as unfairly skewed in his favor. Like Carnegie, philanthropy is their preference. "I want to give away my money rather than have somebody take it away," Weill said.

Buffett is already well down that path. Most of his wealth is in the stock of his company, Berkshire Hathaway, and he is transferring the majority of that stock to the Bill and Melinda Gates Foundation so the Gateses can "materially expand" their giving.

"In my will," he has written, echoing Carnegie's last wishes, "I've stipulated that the proceeds from all Berkshire shares I still own at death are to be used for philanthropic purposes."


The new tycoons describe a history that gives them a heroic role. The American economy, they acknowledge, did grow more rapidly on average in the decades immediately after World War II than it is growing today. Incomes rose faster than inflation for most Americans and the spread between rich and poor was much less. But the United States was far and away the dominant economy, and government played a strong supporting role. In such a world, the new tycoons argue, business leaders needed only to be good managers.

Then, with globalization, with America competing once again for first place as strenuously as it had in the first Gilded Age, the need grew for a different type of business leader — one more entrepreneurial, more daring, more willing to take risks, more like the rough and tumble tycoons of the first Gilded Age. Lew Frankfort, chairman and chief executive of Coach, the manufacturer and retailer of trendy upscale handbags, who was among the nation's highest paid chief executives last year, recaps the argument.

"The professional class that developed in business in the '50s and '60s," he said, "was able as America grew at very steady rates to become industry leaders and move their organizations forward in most categories: steel, autos, housing, roads."

That changed with the arrival of "the technological age," in Frankfort's view. Innovation became a requirement, in addition to good management skills — and innovation has played a role in Coach's marketing success. "To be successful," Frankfort said, "you now needed vision, lateral thinking, courage and an ability to see things, not the way they were but how they might be."

Weill's vision was to create a financial institution in the style of those that flourished in the last Gilded Age. Although insurance is gone, Citigroup still houses commercial and investment banking and stock brokerage.

The Glass-Steagall Act of 1933 outlawed the mix, blaming conflicts of interest inherent in such a combination for helping to bring on the 1929 crash and the Depression. The pen displayed in Weill's hallway is one of those Clinton used to revoke Glass-Steagall in 1999. He did so partly to accommodate the newly formed Citigroup, whose heft was necessary, Weill said, if the United States was to be a powerhouse in global financial markets.

"The whole world is moving to the American model of free enterprise and capital markets," Weill said, arguing that Wall Street cannot be a big player in China or India without giants like Citigroup. "Not having American financial institutions that really are at the fulcrum of how these countries are converting to a free-enterprise system," he said, "would really be a shame."

Such talk alarms Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, who started on Wall Street years ago as a partner with Weill in a stock brokerage firm. Levitt has publicly lamented the end of Glass-Steagall, but Weill argues that its repeal "created the opportunities to keep people still moving forward."

Levitt is skeptical. "I view a gilded age as an age in which warning flags are flying and are seen by very few people," he said, referring to the potential for a Wall Street firm to fail or markets to crash in a world of too much deregulation. "I think this is a time of great prosperity and a time of great danger."


Not that money is the only goal. Hindery, the cable television entrepreneur, said he would have worked just as hard for a much smaller payoff, and others among the very wealthy agreed.

"I worked because I loved what I was doing," Weill said, insisting that not until he retired did "I have a chance to sit back and count up what was on the table."

And Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group, declared: "The money is a byproduct of a passionate endeavor."

Griffin, 38, argued that those who focus on the money — and there is always a get-rich crowd — "soon discover that wealth is not a particularly satisfying outcome." His own team at Citadel, he said, "loves the problems they work on and the challenges inherent to their business."

Griffin maintained that he has created wealth not just for himself but for many others. "We have helped to create real social value in the U.S. economy," he said. "We have invested money in countless companies over the years and they have helped countless people."

The new tycoons oppose raising taxes on their fortunes. Unlike Crandall, neither Weill nor Griffin nor most of the dozen others who were interviewed favor tax rates higher than they are today, although a few would go along with a return to the levels of the Clinton administration. The marginal tax on income then was 39.6 percent, and on capital gains, 20 percent. That was still far below the 70 percent and 39 percent in the late 1970s. Those top rates, in the Bush years, are now 35 percent and 15 percent, respectively.

"The income distribution has to stand," Griffin said, adding that by trying to alter it with a more progressive income tax, "you end up in problematic circumstances. In the current world, there will be people who will move from one tax area to another. I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard."


Some chief executives of publicly traded companies acknowledge that their fortunes are indeed large — but that it reflects only a small share of the corporate value created on their watch.

Frankfort, the 61-year-old Coach chief, took home $44.4 million last year. His net worth is in the high nine figures. Yet his pay and net worth, he notes, are small compared with the gain to shareholders since Coach went public six years ago, with Frankfort at the helm. The market capitalization, the value of all the shares, is nearly $18 billion, up from an initial $700 million.

"I don't think it is unreasonable," he said, "for the CEO of a company to realize 3 to 5 percent of the wealth accumulation that shareholders realize."

That strikes Robert C. Pozen as a reasonable standard. He made a name for himself — and a fortune — rejuvenating mutual funds, starting with Fidelity. In one case, he said, the fund he was running made a profit of $1 billion; his pay that year was $15 million.

"In every organization there are a relatively small number of really critical people," Pozen said. "You have to start with that premise, and I made a big difference."

Weill makes a similar point. Escorting a visitor down his hall of tributes, he lingers at framed charts with multicolored lines tracking Citigroup's stock price. Two of the lines compare the price in the five years of Weill's active management with that of Buffett's Berkshire Hathaway during the same period. Citigroup went up at six times the pace of Berkshire Hathaway.

"I think that the results our company had, which is where the great majority of my wealth came from, justified what I got," Weill said.


Others among the very rich argue that their wealth helps them develop new technologies that benefit society. Steve Perlman, a Silicon Valley innovator, uses his fortune from breakthrough inventions to help finance his next attempt at a new technology so far out, he says, that even venture capitalists approach with caution. He and his partners, co-founders of WebTV Networks, which developed a way to surf the Web using a television set, sold that still profitable system to Microsoft in 1997 for $503 million.

Perlman's share went into the next venture, he says, and the next. One of his goals with his latest enterprise, a private company called Rearden LLC, is to develop over several years a technology that will make film animation seem like real-life movies. "There was no one who would invest," Perlman said. So he used his own money.

In an earlier era, big corporations and government were the major sources of money for cutting-edge research with an uncertain outcome. Bell Labs in New Jersey was one of those research centers, and Perlman, now a 46-year-old computer engineer with 71 patents to his name, said that, in an earlier era, he could easily have gone to Bell as a salaried inventor.

In the 1950s, for example, he might have been on the team that built the first transistor, a famous Bell Labs breakthrough. Instead, after graduating from Columbia University, he went to Apple in Silicon Valley, then to Microsoft and finally out on his own.

"I would have been happy as a clam to participate in the development of the transistor," Perlman said. "The path I took was the path that was necessary to do what I was doing."


In contrast to many of his peers in corporate America, Sinegal, 70, the Costco chief executive, argues that the nation's business leaders would exercise their "unique skills" just as vigorously for "$10 million instead of $200 million, if that were the standard."

As a co-founder of Costco, which now has 132,000 employees, Sinegal still holds $150 million in company stock. He is certainly wealthy. But he distinguishes between a founder's wealth and the current practice of paying a chief executive's salary in stock options that balloon into enormous amounts. His own salary as chief executive was $349,000 last year, incredibly modest by current standards.

"I think that most of the people running companies today are motivated and pay is a small portion of the motivation," Sinegal said. So why so much pressure for ever higher pay?

"Because everyone else is getting it," he said. "It is as simple as that. If somehow a proclamation were made that CEOs could only make a maximum of $300,000 a year, you would not have any shortage of very qualified men and women seeking the jobs."

Looking back, none of the nation's legendary tycoons was more aware of his good luck than Andrew Carnegie.

"Carnegie made it abundantly clear that the centerpiece of his gospel of wealth philosophy was that individuals do not create wealth by themselves," said David Nasaw, a historian at City University of New York and the author of "Andrew Carnegie" (Penguin Press). "The creator of wealth in his view was the community, and individuals like himself were trustees of that wealth."

Repaying the community did not mean for Carnegie raising the wages of his steelworkers. Quite the contrary, he sometimes cut wages and, in doing so, presided over violent anti-union actions.

Carnegie did not concern himself with income inequality. His whole focus was philanthropy. He favored a confiscatory estate tax for those who failed to arrange to return, before their deaths, the fortunes the community had made possible. And today dozens of libraries, cultural centers, museums and foundations bear Carnegie's name.

"Confiscatory" does not appear in Weill's public comments on the estate tax, or in those of Gates. They note that the estate tax, now being phased out at the urging of President Bush, will return in full in 2010, unless Congress acts otherwise.

They publicly favor retaining an estate tax but focus their attention on philanthropy.