Tuesday, October 14, 2008

The Financial Crisis: You Gotta be Kidding Me

This blog entry was sent in by a friend of Obama is America! who is an investment banker at a prominent investment banking and securities firm that does major trade both domestically and internationally.  

The first part is commentary on the financial crisis and on an article related to taxes and the bailout.  This article is copied below the commentary.  

Below the commentary and the article please find some clips from Bill Maher.

Thank you.

You Gotta be Kidding Me

Read below…stay informed.

This article enrages me. No wonder ppl feel like we're greedy b@stards in the finance industry.

(1) Those companies shedding more than $300mm in bad assets obviously weren't managing their risk very effectively; so why shouldn't they lose some tax breaks since they're directly benefiting from the bailout?

(2) Why should an exec who was overpaid in the boom not have to forego some current income, given that the fallout of his choices are occurring now? (and his "boom time" compensation obviously didn't reflect the the risks he was exposing his company to begin with...as evidenced by Dick Fuld getting paid like a madman - think circa $100mm per yr - during the boom, only to have his company, Lehman Brothers, file for bankruptcy the next year)

(3) Any greedy exec who doesn't participate in the plan just because it'll cut down his compensation package should be jailed. (I'm not saying this figuratively.) As a shareholder of a company, if you tell me you're not going to participate in the plan bc you won't get to deduct your overweight compensation package for tax purposes, I will tell you (1) f*ck you and your lack of morals, (2) deal w/ it by just not compensating yourself so much. That solves the problem of having a non-tax-deductible expense! (Get rid of the EXPENSE, idiot.)

(4) Vote Obama. I was shocked and disgusted that Henry Paulson and Ben Bernanke even initially opposed this idea of having executives pay for their actions. Their whole rationale was, "If we make executives get paid less, they won't participate in healing the financial system." To this we should all respond, "Then do we really want these people running the financial system?" Thank God the democrats called Bush and the other Republicans out on their bullsh*t. After 8 yrs of Republican rule, suppressing taxes for the uber-wealthy (TRUST ME…it's happening. If you're unaware of private equity being taxed at 15% or tax shelters for hedge funds or the repeal by Bush of the Estate Tax, designed to only tax estates > $20mm…you really should be. Because you're paying top dollar marginal rates, my friends), de-regulation and lack of oversight of the financial system, etc etc…aren't you tired of it?

McCain was there this WHOLE 8 yrs, seeing the bubble grow, helping write the policies that fueled the fire we're experiencing now. We should have learned that this whole ridiculous notion of the "trickle down" effect that Republicans teach isn't right…it just isn't happening. Because you know what really happens? While Henry Kravis (co-founder of KKR), who is literally worth half a trillion dollars, pays 15% in taxes, his maid is paying closer to 40%. Our GDP is growing alright (well, it was), but the top 1% of income earners in this country are capturing most of this growth. And for what? We get a promise that we'll be protected from "terrorism" and "terrorists." Last I checked, we're way more f*cked now than we ever were right after 9/11 (I'm not downplaying the emotional effects, I'm talking purely economic impact)…last I checked, there are more terrorists after we attacked Iraq than before…and last I checked, 9/11 happened during a Republican regime. What "national SECURITY" are we really hoping for?

I'm stepping forward to say that I'd happily vote in a leader who may raise taxes for my firm, which would translate to lower comp for me. The point of the matter is, we need leadership that will restore the ethics of the financial system (which lead to a restoration of trust…which is the ONLY way to fix this problem…not by throwing more rescue packages at it). When we let people play willy-nilly for a decade, this is the mess we get ourselves into. And on that note…if you know any person in the financial industry that wants to debate this point, have them call me. If they truly don't believe the Republicans got us into this mess, they're probably not that smart anyway…and I love debating stupid people. (Thought I'd end on a lighter note :P)

US pay curb to hit shareholders
Financial Times - 13 Oct 2008 - By Francesco Guerrera, James Politi
(c) 2008 The Financial Times Limited. All rights reserved 

Banks participating in the US government's $700bn bail-out package could suffer a significant rise in their tax bill because of a little-noticed provision designed to curb outsized executive pay.

Wall Street bankers and compensation experts say the new rules, coupled with other measures to reduce executive pay, could dissuade companies from taking part in the rescue plan.

"It puts companies in a difficult position," said James Reda, founder of James F. Reda & Associates, a compensation consultancy. "If they participate in the bail-out, they will get hit with a large tax bill."

Under the new provision, companies that sell more than $300m in bad assets to the US government would lose the tax breaks they receive on the multi-million dollar bonuses paid to their executives.

In addition, the bail-out bill reduces the amount of an executive's salary that is tax-deductible from the current $1m to $500,000.

The change could increase companies' expenses and reduce their earnings by millions of dollars and prevent executives from collecting their large remuneration packages for as long as the company participates in the programme.

The legislation also states that the pay restrictions, which apply to top executives but not to other employees such as traders, remain valid even if the executive resigns or retires.

This means the rules would apply to deferred compensation, such as the large pension payments and severance packages often awarded to outgoing executives.

The provisions are part of measures designed to defuse criticism that taxpayers' money is being used to bail out millionaires on Wall Street - a key concern of several Washington politicians, especially among the Democratic ranks.

But Wall Street executives argue that the rules are misguided as they will burden companies, rather than their executives, with millions of dollars in higher tax payments. "It is a crazy measure because instead of punishing Wall Street executives, it takes it out on shareholders, who will end up paying for this," a senior banker said. "It is a progressive tax on companies that pay executives more than $500,000."

US Treasury Secretary Hank Paulson, a former Goldman Sachs chief executive, had initially resisted measures that would reduce executive pay, amid fears that they would deter companies from participating in the bail-out plan.

But he later relented and Treasury officials say they do not believe the executive pay clauses will keep companies away from the plan

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