Sunday, June 7, 2009


The NY Times has an in depth op-ed article in Monday's paper that makes it very clear that President Obama's efforts on the economic front have done very little to change the market infrastructure that brought us to an economic cliff. What's at stake? According to the authors, the "restoration of the American people’s — and the world’s — faith in American capitalism and in our nation."

The authors, Sandy B. Lewis and William D. Cohan, argue that in spite of a smattering of good news the "storm is not over, not by a long shot." In an effort to help us understand why the storm is not over they take a look at the rules and the infrastructure of our economy and ask some very basic questions. Those of you who have followed this blog, listened to my radio program, or read my book, will be familiar with these questions, and the subsequent discussion.

1. Why are we so desperately anxious to restore the previous banking model as the status quo?

2. Why is so much effort being put into propping up those at the top of the economic pyramid — the money-center banks, the insurance companies, the hedge funds and so forth — when during a period of deflation like the one we are in, any recovery will come only by restoring the confidence of the people down at the bottom of the pyramid?

3. Why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need?

4. Why is the morphine drip still in the veins of the financial system? Is there to be any limit on bailouts?

5. Why has Mr. Obama surrounded himself largely with economic advisers who are theoreticians and academics — distinguished though they may be — but not those who have sat on a trading desk, made a market, managed a portfolio or set a spread?

6. Why isn’t the Obama administration working night and day to give the public a vastly increased amount of detailed information about what happens in financial markets? (this means explaining and exposing everything from CDOs to CDSs, and their Frankenstein-like "synthetic" instruments).

7. Why are we not looking to change our current civil and criminal racketeering statutes, which are playing a perverse role in investigations of the crisis?

Some of the proposals and the discussion that follow these questions are enlightening. I especially like this one: "Instead of getting guaranteed salaries or huge bonuses, [corporate executives/CEOs] should have the bulk of their net worth completely at risk for a long stretch of time — 10 years come to mind — for the decisions they make while in charge."

Put another way, CEO pay should be stretched out over periods that would take into consideration what happens to firms after the CEO leaves. I also like the author's discussion which suggests that we develop RICO-like statutes for market players.

The article is long, but worth the read.

- Mark

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