Bailouts, Bonuses, and BarackOctober 22, 2012 Posted by: Joe Morgan, CFA
Who lived here?
He must have been a gardener that cared a lot
Who weeded out the tears and grew a good crop
And we are so amazed, we're crippled and we're dazed
A gardener like that one, no one can replace
The first day of my game theory class in undergraduate school, theprofessor asked everyone in the room to write down on a piece ofpaper either an "X" or a "Y" and hand it in. If everyone wrote downan "X," then he would give all registered students an "A" in theclass and dismiss us for the semester. If, however, only one personpenned a "Y," then that person would receive an "A+" and bedismissed for the semester, but all other students would have tocomplete the semester as scheduled.
The result was that fifteen of thirty students submitted a "Y," andwe all had to complete the regular coursework. The professorobviously was confident he would not have to explain why anystudent (or certainly the entire class) would be given a high gradewithout completing the coursework. His confidence was rooted inhuman nature and the desire for all successful students to strivefor the best possible result even perhaps with great disregard forhis fellow student.
So it goes in competitive classrooms, same as it goes in thebusiness world.
As a new and significant investor in the financial community, theU.S. government will exert its influence over their management,just as any other investor might. So, when President Barack Obamastated last week in an exchange with reporters that "There will bea time for them to make profits, and there will be a time for themto get bonuses - now is not that time," Wall Street took notice.
Putting aside for a moment the ridiculous idea that a corporationwould shun profits, let's look at the question of bonuses in asilo.
Taking a look at the balance sheet of any financial company, it isdifficult to find the true value-drivers. The most important assetsof any service-oriented business goes down the elevators and leavesthe building each evening - its people. Without the brains andbrawn of those individuals who have specialty knowledge, a bank'sbalance...Read More