Saturday, January 31, 2009

A word about the bonuses

All the rancor over the Wall Street compensation system misses some crucial points. If we injected capital into the banks in the fall, it was because we believe that the banks are worth keeping. And what are the banks? Commercial banks have branches, real estate, ATMs, a bunch of stuff, but investment banks have people, culture, and a little technology here and there. That's it.

Cap the comp of the banks at $400k, as some wizard Senator from Missouri has suggested, and the legal entities we know as the former investment banks will disappear, poof... like Kaiser Tsoze. And the Evercores and Greenhills and Wasserstein Perellas will rise up to take their place. And then all those TARP injections would really, literally, have gone to waste.

And it will take time for new firms to form, and the ecosystems that made the things work, knowing you could call up Wendy in munis and get an answer or whatever, will be gone. So nobody will be able to raise money to get new ideas funded.

That's a key value of a corporation, knowing who's where and what they can do. Same deal in Detroit. Blow up GM and a lot of valuable relationships are gone.

Not that I know the answer, but posturing punitive is not it.

1 comment:

Anonymous said...

Yes, I'm sure Evercore would continue the investment banking tradition of reporting numbers in parentheses to show their collective brilliance. In the normal business world a loss of hundreds of millions listed in the wrong column of your 10-K is bad, but obviously not in their world.