Obama Actually Did Wall Street a Favor

By: Reggie Middleton | Thu, Feb 12, 2009
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I see a lot of cackling over Obama's compensation restrictions, but to be honest he did Wall Street a favor. Shareholders and senior management had to have been looking for a way to reign in compensation costs (despite the fact that the reign in would have cut their own compensation). Put it this way, any prudent business manager could not be happy that his industry has the highest compensation costs in the world. Think about it.

This is that devilishly handsome investment blogger guy with his wife Sunni @ her last birthday party. Some of you may have met her online or at a boombustblog event, she is helping me grow the blog, and one of her many tasks is fielding support questions from subscribers, when she is not helping build out the risk management infrastructure of my proprietary trading operations. I am taking all of the steps necessary to avoid becoming the casualty that you see the investment banking, private equity and hedge fund crowd morph into.

She is a very capable woman (and a cutie too), with a over a decade and a half experience in risk management, financial engineering, internal auditing of financial insitutions, and energy product trading.

She served as a department manager for the risk management & regulatory consulting arm at Ernst & Young before moving to a very large hedge fund to perform internal auditing for US operations. Before that she worked for an energy company in trading and risk management. Here is her (free registration required to view this) BoomBustBlog page with her bio, and for those who want to know a little more about me, click here.

I will post more info about the BoomBustblog team soon, including CFAs and forensic CPAs. Yep, we ain't your Daddy's blog (if your daddy even knew what a blog was)!

The problem is no one or two firms could have done it on their own. If one (or when) one firm tries to reign in costs, workers just skip along to the other overpaying firms. Let there be no mistake, most of Wall Street's revenue generating line was overpaid. These guys would be hard pressed to find similar compensation in any other line of work given their skill set.

For the Wall Streeters on the blog, don't take it personally. I am a born and bred NYer, so many of my friends are amongst the rank of the overpaid (or at least were), including my wife who recently was dismissed from a very prominent brokerage firm - along with the CEO, the CFO and COO, as well as a few entire departments. She is a beautiful person (literally), intelligent, a good mother, quite capable, and yes - she was overpaid too! So, be aware, I am being objective.

Thus, by being forced, en masse, to curb compensation (actually, they are being compelled since there are ways around the ban), shareholders of these big Wall Street firms owe Obama, et. al. a bit of gratitude. I don't think there will be a talent drain on the Street. For one, I believe that "so-called" talent was over estimated to begin with (no one has yet come through to match or best my risk adjusted or published blog research performance for 2007 and 2008 - yes, that's and open challenge!), and the special skill of avoiding regulatory oversight has its limits in terms of productivity to society. Even if the talent on the street was not overestimated, there is still the question of where they will go of they leave the Street. Not many industries are keen on paying someone 4 years out of grad school 3 million dollars to generate revenues unadjusted for risk that may need to be clawed back a couple of years later.

Hey, as mentioned above, I think I put out better performance numbers and better research than any popular outfit on the Street, and I don't even pay myself 50-60% percent of the revenues. My money goes back in to feed and grow the business. So, if I can be that prudent and responsible and still outperform the Street (on a shoestring budget, may I add), then the Street can do it as well. Simply exercise some prudence. If Wall Street banks were run like I run my private operations, Wall Street shareholders would be that much wealthier. As I said, you should be thanking Obama for doing for the industry what it couldn't do for itself.

You will probably get a redistribution of talent, such as my wife helping out with the blog - but that is a good thing, isn't it? Think about it. Now, any institution that follows this blog can potentially get access to her talents, experience and insights - a deep resource that was heretofore locked into a compensation contract with your competitor. In addition, those institutions can get it wrapped with the macro, valuation and forensic expertise of my staff.

I don't know about you, but I think some synergies will be released into the open business environment that were squandered in the work pits of Wall Street banks and brokers. I realize this may not be the most popular of stances, but that is one of the reasons why my research is considered superior to practically all of that on the sell side - I can tell the truth where other's can't, don't or won't.

Now, if the banks don't like being told what to do, how much to pay, and generally being micro-managed from DC, they can always just give the TARP funds back. That won't happen anytime soon though. Paulson hooked those guys up once in comes to intrinsic cost of capital. Taxpayer money is a lot cheaper than Buffet money, or so they thought. There were some extrinsic costs that seem to have slipped under the radar. In addition, let's not forget that most of these banks are insolvent anyway (see The Anatomy of a Sick Bank, Re: JP Morgan, when I say insolvent, I really mean insolvent, Is JP Morgan Taking Realistic Marks on its WaMu Portfolio Purchase? Doubtful!, About this Bank Plan - It Won't Save the Truly Insolvent Banks!) - thus they can't afford to give the money back!

From Bloomberg:

Giving Back

"It clearly underscores who the banks are being run for," said Doug Sandler, the chief equity officer for Riverfront Investment Group LLC in Richmond, Virginia, which has about $450 million in assets under management. "It doesn't make me feel like I want to own a bunch of bank stocks when they're kow- towing to Washington."

Frank told the bankers if they don't like the restrictions on the government aid, they should return the funds.

"We will take it," Frank said. "If there are any obstacles to you giving it back, we will undo those obstacles."

The CEOs said they intended to pay back the government's money. When pressed for specifics, Mack of New York-based Morgan Stanley said he wanted to repay "some portion of it by 2012." Stumpf said, "It would depend upon credit markets more than anything else."

The new scrutiny of bank spending on advertising and employee programs has led San Francisco-based Wells Fargo, which received $25 billion in TARP money, to cancel at least two events to recognize top achievers.

Wells Fargo had best to behave - About this Bank Plan - It Won't Save the Truly Insolvent Banks!, or Wells Fargo Forensic Analysis. 'Nuff said!

I think the US and Euro bankers should count their blessings. After all, they could have been a top banker in China!

From MarketWatch.com:

China Airport Executive Sentenced to DEATH!

In handing down its sentence, the court said Li's actions had resulted in large economic losses for that nation and that the amounts involved were extraordinary.



Reggie Middleton

Author: Reggie Middleton

Reggie Middleton

Reggie Middleton

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

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So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

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