Simon sez

Finally getting around to Simon Johnson & James Kwak's op-ed in the NYT.

Talk about music to my ears. The rationalization for executive bonuses keeps changing.

Point, counterpoint:

• First it was performance. These people brought in the bucks.
  Those bucks were notional. If they want a percentage of what they brought in, I'm sure the American taxpayer would be happy to collect their percentage of the net loss.
  
• Then it was was for retention. Retention awards, see? We don't want these people to leave.
  Why the hell not? These people drove their company and their nation into the ditch. If some other fool company wanted to hire these idiots - we might want to let them.
  Further, many of these people have already left the companies - so paying them to stay seems a mite stupid.
  
• So we moved on to contract law - a defense of the sacred bond of the inviolate business contract. We have to pay them, or our business community will be to afraid to do business.
  Hogwash. Bankruptcy breaks all kinds of contracts, and just because the government didn't want to bankrupt these companies doesn't mean their contracts aren't up for renegotiation.
  
  I mean, what's the difference between the UAW being driven back to the table to alter their pay structure (after all, they are "ruining the auto industry") and Wall Street bankers being forced to alter the terms of their employment when their employer is about to crater?
  
• And then we arrived at necessity. We need these people to un-f%#* the economy. They ruined it, they know how to clean it up.
  I almost bought into this one - there is a certain amount of logic to having these bankers keep their jobs to undo their own handiwork. I sort of envisioned a kind of serfdom, but that would present the risk that these folks wouldn't do their best.
  
  Simon and James enlarge that point and basically say - there's no gurantee these fools will do their best work in any situation:

[AIG] defends the payments by arguing they’re needed to retain employees who are crucial for winding down transactions that are “difficult to understand and manage.” In other words, only the people who stuck the knife into the American International Group can neatly extract it for a decent burial.


There is no reason to believe this.


Similar arguments made during the 1997 Asian financial crisis, when currencies and stock markets collapsed in much of Southeast Asia, turned out to be a smokescreen to protect the executives who were partly responsible for the mess. Recovery from that crisis required Indonesia, South Korea and Thailand to close or consolidate banks. In all three countries, bankers protested, claiming that their connections with borrowers were critical to recovery.


[snip]


The lesson of all this is that when insiders have broken a financial institution, the most direct remedy is to kick them out. Traders are hardly in short supply, and you don’t need to rely on the ones who made the toxic trades in the first place. Companies must always plan around the potential departure of even their star traders, or they are certain to fail. A.I.G. does not need to keep all of its traders, especially since it takes far fewer people to unwind a portfolio than to build it up.

They go on to say that if there really are reasons we need these traders to fix their mess, their employers have to do better than assure us these people are essential. Spell out the particulars - put them in front of independent experts and we'll see if these people still need their jobs.

Ether way, they don't need incentives. In this market, they should be happy to have a job.

Failing that, there's always a subpoena.