Financial advice

Posted in Liberty at 11:32 by RjZ

Here’s a bit of financial advice. If your money or investments are in a bank that is receiving federal bail-out money, find another bank. That’s easier said than done right now, but I predict there will be a few popping up in near future. Among other bad omens, President Obama has decided to cap salaries for banks getting federal aid. I can see his point and it’s a populist move that I am sure will earn him favor but some unintended consequences are that any bank with a salary cap won’t be able to attract and keep the best people.

Here’s how it goes; if you’re on the board of a bank and the CEO retires, or gets hit by a car, how do you attract a new one just as good as the last? The other CEOs are already getting the top salary you can offer, so there’s no reason for them to leave their current positions and help you out. As a result, you get less than top quality executives at a critical time. Is this the best way to handle U.S. citizens investments? What sounds like a good idea has the unintended consequences of making sure we don’t have the best people watching over our money.

The good news is, once those smart folks can get their hands on some capital, which, admittedly, isn’t easy just now, they’ll start their own investment institutions, free from this government regulation, and also free to attract the best and the brightest. Investors looking to maximize their money after such a painful recession will flock to them, and the Obama administration’s plan won’t even have accomplished what it was intended to do in the first place-keep people’s money safe by regulating banks.

The fact is, government has to either control every single thing, a plan we’ve seen doesn’t work in places like, say, the Soviet Union, or we leave a loophole for clever people to get around the regulations and they don’t help in the first place. I wish we could have been avoiding credit default swaps and bad home loans in the past decade; it sure would have helped out my money, but if it hadn’t been these problems, it would have been something else.


  1. Kate C said,

    February 4, 2009 at 12:18

    Funny, I was just talking to my Mom about this topic this morning, as my father is a VP at Wachovia (formally with AG Edwards, soon to be Wells Fargo, and possibly UBS…) and this, plus the banning of all executive bonuses has her and my father in a right fit.

    She had a similar argument, if you can’t pay people enough, then you won’t get good people. And I can see that logic. But it follows a nasty assumption: that people only do things for the money. And I don’t think that’s absolutely true. There are certainly other reasons to run a big company besides the paycheck. The prestige, the power, the sense of self-importance and personal success.

    I know that you could offer me all of the money in the world, and I would never take the job of a CEO. Likewise, I’m sure there are plenty of brilliant, driven people in the world would would jump at the job for much less than $500 grand.

    Do professional athletes really only take those jobs because of the money? Or movie actors? Or doctors?

    If we wanted to make sure that we got the best people to do the *most important jobs*, then why don’t teachers make $500k a year? Or policemen? Or the civil engineers who build bridges and sewer systems?

    I dunno. Mom said that my dad deserves his big paycheck because he went to college for nine years and has two graduate degrees. I pointed out that I’ve already been in college for nine years, I will have a higher degree than Dad when I finish, and I will NEVER, EVER, make as much as he did last year. That’s not stopping me, though.

  2. RjZ said,

    February 4, 2009 at 12:39

    I think that’s a fantastic point, Kate. It’s clear that my analysis over simplifies things a bit, and in a nasty way too, but you’ve got to admit, it is a motivator for loads of people and here we’re talking about banks; that is, the kind of positions that attract folks interested in money, no?
    Sure there are other motivators, but money is a big one for a lot of people and it seems pretty risky to take that off the table and hope that you can attract people to your bank or business on your reputation alone. Still, great points, and you’re right, banks better start thinking of other ways to compensate people in addition to cash.

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