The way that my compensation works is that I get about two-thirds of my pay via my monthly paycheck and about one-third as a lump sum at the end of the year. Last year that lump sum was much smaller than in previous years, and so I ended up with a 25% pay cut, and I was lucky because I kept my job, and missed the 25% layoffs.

I don’t work for AIG or Lehman and the people that I work for strike me as generally competent, and largely stayed away from doing crappy things. Still, I got a 25% pay cut for AIG’s mess.

No I don’t make a million dollars, and if you want to punch the executives at Lehman or AIG in the face, be my guest. But do you think that it is fair for people who aren’t AIG to be compensated the same than people who are.

Whew. Was worried it was two orders of magnitude larger.

“Heavy regulation, but pro-business regulation. If the banks were heavily regulated so that none of the crap of the last few months had happened, my bonus would have likely been much larger.”

The USA finance sector gives bonuses for covering up toxic asset exposure?! I guess the non-finance employed American people voted for pocket Change.

I’ve actually toured an automotive assembly plant, so it’s obvious to me that it would be far easier(and even necessary) to have robots run the financial industry than it would be to have robots replace humans in manufacturing. The Japanese were the most zealous early adopters of robotic manufacturing systems and concluded that this is useful for quality control of processes and also doing hazardous processes, but they don’t do away with human workers. In fact the necessary skill level goes up in the factory since people now need to run, program, manage, and maintain the automated equipment.

But in the finance sector, I see far fewer hurdles. I have actually liked dealing with ATM machines, though I’m sure the brick and mortar banking system would like to convince their customers that we really want a personal touch. But I think it would be rather easy to convince bank CEOs that ATM machines should be made in their own image! We could have 8ft tall Ken Lewis, et all, robotic neighborhood ATM machines. They would wave at passing customers, wearing a big idiotic grin on their faces and customers would drive up and deposit their paychecks in iBankermanATM’s pocket. We may anticipate a range of customer inquiries at this point, such as…”Can I get cash back?”…”Can I get a loan and does it matter what it’s for?”… “What’s my interest rate?”…etc.

iBankermanATM would respond at that point with the same grin, then ask “what’s your identity today?”. Upon getting the customer response, iBankermanATM’s speech recognition software embosses a credit card with the information and iBankermanATM hands it to the customer and waves goodbye. The credit card says “3% Interest Rate” in large letters on the front side. The backside has the “change in terms notification” already laser printed on it and states the interest rate is 20% and there is an annual $50 card fee.

So it’s not that difficult in my view. Also Isaac Asimov did a lot of the preliminary work with his Three Laws of Robotics. This was necessary to head off the scenario we saw with Terminator, where we had a too big to fail Arnold and his sentient weapons of mass destruction attempt to wipe out the human race.

Bankers are of course much too wimpy for us to fear this scenario, and I’m sure most people could take an axe or a sledgehammer and reduce their neighborhood iBankermanATM to rubble. Though it probably wouldn’t occur to them to do this until after they realize their deposited paychecks disappeared into thin air and their new paychecks have a tax increase to cover some of the cost of their old paychecks disappearing.

But obviously Three Laws of Robotics are not enough and we need more to safeguard the system. Some candidates are:

4)Thou shalt not get Congress to change the Laws of Robotics
5)Thou shalt not pretend to be an insurance company and sell phony insurance, with no reserve cash, to cover near certain losses of your customers.
6)Thou shalt not put bad investments off balance sheet, only to mention later that off balance sheet losses are still causing you a problem.
7) Thou shalt not run 30-1 leveraged hedge funds by borrowing in overnight money markets.
Handbags do not cost $4000
9) You are NOT Masters of the Universe…see Laws One thru Three.

That’s a start, but I’m sure there are many more.

Nah, it’s exactly the right one.

The problem here is that an unfettered market is this abstraction that doesn’t work in reality. If the capital flows are large enough, then they will have implicit government support even if the government denies it.

I really don’t think that the issue is lack of data. The big problem is that the decision makers in 2003-2005 were operating under very flawed economic principles, one of which is that governments should minimally intervene in markets. If you threw more data at Greenspan, it wouldn’t have made a difference.

Citigroup’s SIV exposure is listed right there in its 2006 10-K report on page 142. Now you might argue that putting those numbers in an obscure footnote on one page of a 180 page report just buries the information.

You’d be right, and adding more data is going to help this problem, how? More data sometimes makes this more opaque, not less.

Personally, I think that people are saying “we didn’t know” to avoid saying “we were wrong.”