On mice


What to do with mice?

I thought this hilarious email from Hal was a good starting point for the (first moral hazard) question which is haunting us all: if the bailout is approved, will the mice get away with the cheese, or will the execs get away with a slap on the rolex and dozens of millions?

Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country
has had crisis that has caused the need for large transfer of funds of
800 billion dollars US. If you would assist me in this transfer, it
would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will be
my replacement as Ministry of the Treasury in January. As a Senator,
you may know him as the leader of the American banking deregulation
movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We
need the funds as quickly as possible. We cannot directly transfer
these funds in the names of our close friends because we are constantly
under surveillance. My family lawyer advised me that I should look for
a reliable and trustworthy person who will act as a next of kin so the
funds can be transferred.

Please reply with all of your bank account, IRA and college
fund account numbers and those of your children and grandchildren to
wallstreetbailout@treasury.gov so that we may transfer your commission
for this transaction. After I receive that information, I will respond
with detailed information about safeguards that will be used to protect
the funds.

Yours Faithfully Minister of Treasury Paulson

During 2007 broker execs earned $39 billion (see here and past history here)  in bonuses only. It doesn’t sound right !

And after the purchase of the New York Lehman office, Barclays has stated that they will pay a cool $2.5 billion in bonuses, corresponding to 9 months, to retain a cadre of executives, which otherwise would leave the company and are deemed vital.

What makes them so necessary, was it the landing of the company that called Barclays attention?

Mmmm. What am I saying? Of course, if not… the price would have been higher for Barclays.

Will mice ever change their ways? It doesn’t look like it, but, Stiglitz suggests that their incentives should be changed. I agree, but, how? Mice, as noted, are capable of extracting billions of USD out of their own companies’ bankruptcies.

Mmmm. Got an idea, why not put a reasonable cap on their salaries, say $3 million, and pay the difference in their own company’s stock, deferring the transfer by two years.

I’ll take these conditions any day.

And of course, execs could also be sued, they are less inmune to attacks since the 2005 ENRON debacle.

And they still want them there working for them? Mmmm.