12
Feb
09

Random Rants

I get it. Michael Phelps was stupid. He’s also young, which is a synonym. Someone with that kind of star power should have made certain that the “area was secure” before burning tree in Olympic proportion. He didn’t, he’s paying the price and he’ll still have mega millions in the bank and gold medals on display. I dare say that most of us played with a bong at his age. Umm, so did our President. What does that tell you? “Don’t smoke dope or you’ll be President or an Olympic swimmer!” Ack.

Bail out woes cause Regular Joe to get torqued. We hear all kinds of righteous indignation when institutions receive tax-funded bailouts and the turn around and use those funds to pay for bonuses and posh, swankienda field trips. It’s not right! Right? Wrong. I can say with certainty that it doesn’t look good when AIG has its lips on the government teat and then has a management conference at a 5 star spa in Cali. So which would cause more righteous indignation: canceling the conference and paying all the fees and penalties (hotel, meeting space, food/bev guarantees, flights, etc.) and getting practically nothing for the buck… or having the high priced soiree’ and at least getting some value? The point is that binding contracts were signed and that money was already allocated to be spent. Sure, it would have been more cost efficient for AIG to not play Nero while Rome was burning, but they were already on the hook. It’s the same with salary bonuses. Most of these bonuses are contractual obligations that were made before the bailouts took place. They don’t look right, but what would it cost to break the contracts? Sure, the boys at the top might make a big show of conceding their contracts (many have), but a lot of middle management that achieved all the goals in their contracts aren’t in such a benevolent (and public) mood. “My contract says that if I do X, Y, and Z… I get a $75,000 bonus. I did that and more. Check please.” You multiply that by a couple of hundred (thousand?) middle managers, times a couple of firms and you’re talking about some serious coin. How much do you think it would cost in legal fees to litigate those contracts if the employer decides to not honor it? Think the employer would win or lose? I know that the lawyers would win! But government and public indignation is not going to fix the crisis. From Houston’s Clear Thinkers blog:

The primary reason for the current financial crisis is that many banks cannot evaluate their own solvency or that of their current or potential counter-parties, primarily because of the difficulty of valuing mortgage-backed securities and other complex derivatives, and neither TARP nor the fiscal stimulus plan addresses this problem.

So our government is going to throw trillions of tax dollars and line up for posturing opportunities so that they can have the pretense of doing something. To what end? Seems as if we might be better off if we follow a swimmer’s lead.

Advertisements


%d bloggers like this: