• UBS, the Swiss banking giant, announced on Monday that its top executives would not get a bonus at the end of the current year “as public scrutiny of bankers’ compensation intensified under bailout plans by governments.” The move followed that of the top seven execs at Goldman Sachs who also fell on their compensation sword the day before and, a month before that, the CEO of Deutsche Bank announced he would forego his bonus this year “as a very personal sign of solidarity.” Other banks and investment houses (e.g., Morgan Stanley) were expected to follow suit. This activity followed a warning given by Representative Henry Waxman (D-CA), chairman of the House Oversight and Governmental Reform Committee, that banks that use taxpayer bailout money to pay bonuses would face a public outcry. This was a major sacrifice (read: “very personal sign of solidarity”) by these top dogs. For example, this year, Lloyd C. Blankfein, Goldman’s chief executive, will have to get by just on his base pay — $600,000. Last year his total compensation, base pay plus bonus, was a mere $68.5 million. Hopefully, ole’ Lloyd put some of that somewhere safe, like under his mattress and not in Goldman stock (which is down about 70% since the same date last year), and that he’ll be okay during these tough times.
• Matt Taibbi, the insightful but underrated political correspondent for Rolling Stone, has a post-election analysis in the current issue entitled, “Requiem for a Maverick.” But it’s the sub-title that’s the winner: “John McCain ran one of the most incompetent, schizo campaigns in history — and for that we owe him big-time.” My sentiments, exactly.
• The New York Times reported on Thursday that a federal appeals court blocked Royal Dutch Shell from drilling oil wells off Alaska’s North Slope. The reason: the court found that the Bush Interior Department had failed to conduct an environmental study before issuing the company’s drilling permit. Failure to properly perform an environmental study is a violation of the 1970 National Environmental Policy Act which means, of course, that a federal agency violated a federal law. What was overlooked was the requirement that the federal agency assess the impact that offshore drilling would have on bowhead whales in the Beaufort Sea as well as indigenous communities on the North Slope.
• Also on Thursday the Times also reported that a federal district court judge in Washington issued “a sharp setback” to the Bush administration, ruling that five Algerian men were held unlawfully in Guantanamo for nearly seven years. Until the Supreme Court ruled last summer that Guantanamo detainees had the right to raise constitutional issues affecting their detention in habeas corpus petitions, the government could, and did, hold persons without charge, without counsel, and without allowing even the detainees themselves to be informed of the evidence against them. This was the first such habeas corpus case to reach the courts. The “secret evidence” against the five Algerians consisted of a single “classified document from an unnamed source.” So here we have: five men, seven years, secret evidence, one document, and an unnamed source — Franz Kafka couldn’t have thought up a more insidious scenario. It was the second important story of the day about the federal government violating a federal law.
• On Friday, the stock market was heading for another big dive when, all of a sudden — ta, da — word leaked out that President-elect Obama was about to nominate Timothy Geithner to the post of Treasury Secretary. Timothy Geithner is currently president of the Federal Reserve of New York, an extremely important position in the financial and economic worlds, and is a guy that Wall Street absolutely loves. So, what happens? What happens is that after the news reached the Street in the late afternoon, the Dow surged upward by nearly 500 points (more than 5%), thus ending the day, and the week, on a somewhat positive note for a change. (The Wall Street Journal’s lead editorial on Saturday was entitled, “Geithner Nets 500 Points.”) All this on the appointment of one guy.
It seems to me that any financial system that is that sensitive to the presence or absence of one guy, even the top guy, is just a tad nuts. I don’t care if Obama selected one of the twelve apostles to run the Treasury, it shouldn’t determine the investment fortunes of millions of people. But it’s been that way for some time now. Remember Alan Greenspan? Remember his explanation for the stock market boom of the 90s — “irrational exuberance”? Remember back then when Alan could do no wrong (he later received the Presidential Medal of Freedom from President Bush, was knighted by Queen Elizabeth, and received the Legion of Honor from the French). Unfortunately for Alan, however, is that he’s been in for severe criticism lately, and he himself admitted before a Congressional committee on October 23 that he “made some mistakes,” mainly about de-regulation.
One thing I do remember back in the 90s is how everyone was irrationally exuberant about the deference they were willing to pay Alan and how they fawned on his every word. If he said something even vaguely nice about the economy, the market went up by 40 or 50 points; and if he rolled his eyes about interest rates or the prospects of inflation, the market went down by an equally significant number. I had the feeling then that if Alan were to fart down-wind, the market would go down, and, conversely, farting in the other direction made the market go in the other direction. It was then that the Fart Theory of Market Fluctuations was first conceived. That theory is still sound, and it was evidenced once again by Timothy Geithner’s expected appointment as Secretary of the Treasury.
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