Bosses of failed US banks refuse to hand back millions of dollars in pay
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ft.com
File Number SR-NASDAQ-2023-005
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https://www.sec.gov/rules/sro/nasdaq/2023/34-97060-ex5.pdf
(SVB CEO Greg Becker was paid ~$10 million in compensation while Signature Bank CEO Joe DePaolo received $8.6 million)
The current problems of the banking sector are a result of the bad incentives created by monetary policies. Banks will never work perfectly well for everybody but all these financial crises during the last couple of decades root could have been avoided by less government spending (for wars) and a much tighter monetary regime.
Left-leaning people should start informing themselves about monetary theory and general economics to avoid a vicious cycle of ever more government meddling dealing with the results of previous meddling that will ultimately undermine and destroy our free society.
So we should just give up and trust the rich/mega rich to please be nice to the rest of us?
Because so far, they're doing a stellar job.
Narrow banks would give you, the depositor, yield and totally eliminate the interest rate risk banks take on (and thus expose depositors to).
The regulator is in the tank for the wealthy, and you want to double down on regulation?
Particularly post-GFC, they are. There is an entire Supervision & Regulation tab [1].
The proper route for this is legislation, not rule making. Narrow banks aren't asking to just custody deposits. They're asking for a reserve account at the Fed.
(Also, Wall Street banks have nothing to do with this. The fear is deposits fleeing e.g. regional banks, not SIFIs.)
Risk has a price, and right now it's too low.
This is an absurd statement that makes you sound like a child. The USA went 50 years without a bank failure after Roosevelt's reforms during the Great Depression. After those reforms were loosened in the 1980's and 90's, they became routine.
Canada and Australia regulate their banks more heavily than the US. They were also the only developed countries not to have a wave of bank failures during the financial crisis of 2008. They're still free societies.
Preventing bank failures is both possible and straightforward to do. All it takes is the will and sense to stand up to the super-rich.
...that is when it's not a purely economic apartheid due to laws against inequality.
Correlation is not causation. 1973 marks the end of Bretton-Woods i.e. abolishing the Gold standard and, hence, an unprecedented expansion of the monetary base. The 1970s are remembered for their high inflation rates similar to today. Inflation also helped the Federal Government to finance its Vietnam war. Since 9/11 the FED is printing money like crazy which helped the government to finance its wars in Afghanistan and Iraq. With the Covid crisis monetary expanded like never before. Now we have a banking crisis, high inflation rates and a looming recession. But you tell me it’s because of the bank bosses‘ boni.
That’s exactly what I meant with „go inform yourself“ — it’s not meant to sound rude but it’s about understanding what’s really going on.
It’s the warfare state needing cheap money and credit. It’s not you and me. Especially not the American worker. That’s why I was directing my comment to left-leaning citizens: Learning about monetary and general economic theory will sharpen your arguments and help you to win your fight for a more egalitarian and free American society.
May I suggest this little classic on money and banking:
https://mises.org/library/what-has-government-done-our-money
You’re welcome. ;)
Banking, as it exists today is inherently an unstable activity due to interest rate risk and leverage.
Regulators at the Federal reserve are actively working against a much safer form of banking for depositors (narrow banking).
All you have to do to get safe banking is get the fed to approve allowing money market fund accounts to have the same access as banks.
One of the stupidest things to happen during the 2008 "crisis" was congress shoveling money at a bunch of firms "that couldn't fail", and companies immediately paying them out as "bonuses they were contractually obligated to pay".
Clawbacks somewhat arbitrarily limit the penalty to the amount earned in a way that doesn’t exist in other professions. They also seem to complicate the legal process of enforcement.
He made $470 million running Countrywide into the ground and had to pay a fine of $67.5 million.
Retired to live out his old age worth about $600 million.
Who is the fool in this equation? Hard to say it is Angelo.
My issue with clawbacks is that they set an upper bound of $470 million for a fine in his case, when I think the fine should be whatever it takes to deter lawbreaking.
Once the federal gov starts tampering with private contracts it's game over for the American economy. Maybe even America itself.
We could've.. Not bailed them out?
Who do you think ultimately enforces "private contracts"?
If you're saying that they shouldn't have been bailed out, then that's legit, but it was a rapidly evolving situation and it's easy to play armchair quarterback with future knowledge.
If you're saying that the funds shouldn't have been allowed to be used for executive compensation then you're just sweeping the problem under the rug. Money is fungible, so it just means different funds would have been used for those bonuses. You can easily find examples of this with PPP loans, and there are similar parallels in lottery money being used for schools (it technically is, but at the cost of other money being taken away).
If you're saying that they shouldn't have honored those contracts, then that's a pretty easy lawsuit to win and they'll have to pay out the bonus anyway, plus the additional legal fees.
It's a zero sum game where the best people go to where they will get paid out no matter what. I think this should change and I think doing it through regulation where all companies are forced to comply will remove the zero sum factor.
Only, the people making C-level hiring decisions are members of an ultra-wealthy elite with C-level positions at one or several other companies, so they're not getting duped. They're on the take.
It hasn't really worked so far.
I’m ahem smart and capable. And I will volunteer to pay back my $200M/yr bonus over the previous 3 years if my bank fails.
Honestly, I don’t think you’re right. The best people go where they have the best upside and impact. The sleaziest go where they have the least accountability. That’s true in any profession- I know plenty of SWEs and managers who build a fragile system and job hop before the maintenance starts.
Better for who? Workers? Investors? Users?
For some reason we don't see big tech coops at the size of Meta, yet nothing prevents them from existing. Any chance that it's the nature of coop itself that inhibits growth?
Well, you said it yourself: admonitions, AFAIK, aren't directives, and executives can and—of course given their incentives—will ignore them.
I wish my life was that easy.
The thing is that banks don't look at these as something with a market value. Instead it's an instrument that guarantees a certain interest payment every month, which will not change until maturation. In that sense the treasuries were extremely safe and reliable and didn't stop functioning. It's just that whole bank run thing forced a recharacterization of the assets as something that could have risk.
Instead of fighting for what, in terms of the lost deposits, is a drop in the bucket, how about we fight to again separate investment from commercial banking?
Also they did all sorts of dumb stuff like selling their interest rate hedges in early 2022 because they were worried the hedges would impair profits if interest rates happened not to rise.
I'm not sure what you're suggesting by separating banking and investing. Banking is about taking money from a bunch of risk averse people and investing it (e.g. by making loans to small businesses) and smoke and mirrors means safe money can be used for risky ventures. It's sort of a necessary way to push society towards taking on more risk. But banks can definitely juice returns by making riskier investments, or by keeping an insufficient capital buffer. That is what happened here and where our regulatory apparatus failed.