Market crash: are we there yet ?

[PBzeer]

Let me go a bit further. Blame is a political ploy. In economics, it is far more important to understand the what, how and why, than it is the who. If you understand the first three, the last becomes evident. It's about fixing problems, not finding a scapegoat to blame things on.

Having Congress and/or the President, involved in the private sector does not lend itself to economic solutions as their prime motivation is the retention of political power. Or, to put it more bluntly (and this goes for either party) they will not choose a "right" economic solution if it requires a "wrong" political choice. I can only think of a handful of Congressmen who would put doing the right thing above their political future, and that's the real problem with making politics a career path instead of a civic duty.

[TropicCat]

Well, An argument can easily be made that a President or member of Congress is inseparable from the private sector. Both need money for elections. As long as PAC's exist, the American Public's 'business' is not necessarily a priority.

[PBzeer]

So, in other words, the need for campaign cash is justification for not making the necessary choices to fulfill the functions they were elected to perform?

Maybe you don't follow politics that closely, but, that's been the case long before "campaign contribution reform" gave us PACs.

[SailorGregS]

I don't think you can blindly take the regional inflation rate and blindly say "Our inflation rate is 3%" or "Somebody smarter than me said the inflation rate is 3%", people do this, and think that 3 is the number.

Inflation is based upon the individual, and your buying habit and daily consumerism. "YOUR" core inflation, and the inflation for Canadians based upon the World Bank, not the Federal Reserve is not the same as some Americans as stated here.

The World Bank states that the average inflation rate for the next 10 years will hover around 2%. Our core inflation rate is about the same, if not less. Therefore, all the investments made, based upon future value calculations using today's NPV, to PV, should use 2%. Now, if you insert 3, 4 or 5% and still come out with a PV number that meets your needs then you're gold.

Now, that the inflation rate is established and that you should be looking at your personal core inflation rate, you can begin to gain real wealth.

One big problem. The Chinese are having an annual growth rate of 6.5%, down from 12%!! This is a problem, the reason is that it will create an additional 25 million unemployed people. The Chinese need to ensure that the American bonds and treasury notes they own and will purchase are of value. If they inject more stimulus into their economy based upon American notes they hope the annual growth will stay in double digits.

This isn't possible. Unfortunately, for all of us the Chinese economy rules the world and we just have to hope it doesn't falter.

[erps]

Originally Posted by PBzeer

Catching up on my reading this evening (morning?), sheds some further light on the "outrageous" AIG bonus'.

Anyone have any thoughts on whether Congress should get the money back with a 95% tax law they're threatening?

The bonus scandal was the main new topic yesterday. While it sounds outrageous, I have to keep reminding myself that we're not getting the whole story. Congress tax threats amounts to a taking and an emotional reaction. Should we be concerned about due process and equal protection?

[danjarch]

I've read that the attempts to get the bonuses back through a narrow and retroactive tax law would be unconstitutional in a couple different ways so it doesn't look likely.

[SailorGregS]

They will tax the bonus to the point that a federal tax coupled with state and personal tax will amount to 100% recovery.

Bottom line, Obama is embarrassed, so he will get it all back.

[camaraderie]

Bill of Attainder Definition: A legislative act that singles out an individual or group for punishment without a trial.
The Constitution of the United States, Article I, Section 9, paragraph 3 provides that: "No Bill of Attainder or ex post facto Law will be passed."
"The Bill of Attainder Clause was intended not as a narrow, technical (and therefore soon to be outmoded) prohibition, but rather as an implementation of the separation of powers, a general safeguard against legislative exercise of the judicial function or more simply - trial by legislature." U.S. v. Brown, 381 U.S. 437, 440 (1965).
"These clauses of the Constitution are not of the broad, general nature of the Due Process Clause, but refer to rather precise legal terms which had a meaning under English law at the time the Constitution was adopted. A bill of attainder was a legislative act that singled out one or more persons and imposed punishment on them, without benefit of trial. Such actions were regarded as odious by the framers of the Constitution because it was the traditional role of a court, judging an individual case, to impose punishment." William H. Rehnquist, The Supreme Court, page 166.

[gc1111]

So the proper way to address the bonus issue is by criminal prosecution of the idiots that caused the problem. Give them their bonuses and then send them to jail!

But we also need a "Truth Commission" to investigate the government idiots/crooks that allowed the situation to arise.

[Cruisingdad]

Let me just chime in here on the stay bonuses... with the real world.

Should you be outraged? I don't know. I guess to the average person it would seem that this was rediculous. Many people here and elsewhere do not earn a Million dollars in their life... much less in one bonus. And then, they consider the fact that we are propping up that company with tax dollars just so they can give these outrageous bonuses... how dare they? Hmph. Sorry, I am not supporting them, but I will at least comments on what I see all the time.

Retention bonuses are very common. I have many people I am working with right now that have considerable retention bonuses. Now, I am not working with anyone whose retention bonus is a million+. However, a half million or so is not uncommon. On top of that, they are given contracts to keep them there to the end which may include a cash bonus of many hundreds of thousands, continuing their salary for a year(s) beyond termination, or both. Both is very common. And incidentally, when they get these cash bonuses, they are typically walking out the door the next day (well, at least after the check has cleared).

Why?? Have you considered that some of these people are irreplaceable? Have you considered that there really are people whose jobs are so critical and who play such an intrical part of a company that their leaving would cost much more than the measealy stay bonuses they are receiving? If they walk out the door, the tail spin of what they leave behind could cause massive problems for the company. The company CANNOT stop them from leaving. This is America. All they can do is put together very lucrative golden handcuffs (a term we use in our business) to keep them around as long as possible.

How many of these people who got these bonuses were truly, idependentally, responsible for AIG's failure?? Come on. I bet it would be hard to place the blame on any one person. Likely, they were doing their job or what they were told to do. Yes, even senior management is told to do.

Am I shocked at the size of the bonuses? Well, a bit I guess. However, I certainly understand the reason for them. If I were working for AIG, and I saw what was happening around me, and I was getting lots of recruiting calls (which you know they were, probably by the second), I would certainly have been listening. The leadership knew that. They knew the only way to keep them from leaving and having an even bigger mess on their hands was to pay them unbelieveably high bonuses to keep them around. Even in the best of times, replacing someone at that level takes a long time. Now imagine trying to recruit someone into AIG under the mess they are in right now!! You could about forget it. And anyone worth a crap that did come would probably demand bonuses and salaries well beyond the stay bonuses that were given to the management that we keep hearing about.

Maybe you say, "Well yeah, CD, but a million dollars??? Come on!" I understand. Funny, though, it is all relative. When I was in college, and this is really the truth without exhaggeration, Kris and I were happy to get .25 to go to McDonalds to get an Ice Cream cone. If we came across $5 - we would go to Taco Bell and eat our fill. She worked in the bank and when she got some Christmas bonus (it was $100), we felt like we had won the lottery.

Now... $100??? Not to belittle it, but that would not even begin to touch the bills we have. Crap... that wouldn't even touch the medical bills. It is not how much money you make, it is how much you have left over and what your outgo is. Some of the poorest people I have ever met were 'millionaires'.

If I were councelling the management at AIG some months ago, I would have told them they were crazy to stay there (and no, I do not work that sector, thank God). No doubt they saw that too as did their leadership (whether it be the CEO or the board). I actually think they had no real choice but to extend very high stay bonuses. They do seem a bit high to me... but again, I do not work that sector and everything is proportional. These bonuses were not rewards for whta they had done, they were bribes to keep them from going.

All I am trying to do is give you the other side of the story and the reality of how the world works in senior management. Unless proven otherwise, I suspect that they did what they had to do to keep as much talent with them as possible. THis whole debacle with the press could have been handled differently and I think the Obama comment(s) certainly did not help. I feel that the damage done now will have considerable impacts on those people. No doubt that they will either give back their money, get taxed out of the mind for it, or belittled for doing what about any other person would have done on this planet. And before you say, "Well, so-and-so refused their bonuses..." just remember that was apples-oranges. There is only one AIG, and you do not know what the future prospects of that person(s) job was nor the total comp others in other industries/banks were receiving in base/bonus, etc.

I do not doubt that there is some aspect of a 'good ole boy's club' in Insurance. But in what industry is there not? And if you really want to get upset, did you see how much money walked out the door to the banks of other countries? Did you see how much went to other banks? How long will you, YOU AS AN AMERICAN, have to work to pay back just the billions that went overseas? If you want to be mad, be mad at Congress and those who drafted the 'bailout-lottery' of nearly a TRILLION DOLLARS with little or no oversite. Be mad at the legislative failures and graft that made this possible. Be mad at what got us here in the first place.

My opinions.

- CD