Spartacus

What the hell IS an investment banker, anyway?

Who are these greedy bastards that have destroyed our financial system and cost the taxpayers billions? What do these Wall Street guys (and girls) do to command such exorbitant bonuses? Well, I'll tell you.

First of all, you need to understand that there are four major functional areas in an investment bank, all with very different jobs and responsibilities:

• Senior management: the top 15 or so executives who run the company and make strategic decisions (like how to allocate capital and resources),
• Sales & Trading: the folks you see sitting in front of rows of screens, yelling into headsets, this group can also include retail brokers and research analysts,
• Investment Bankers: the people in suits who get hired by other corporations to help them raise capital or advise them on acquisitions and other financial matters, and
• Operations: the "back office" people who support the rest of the firm in clearing trades, IT, accounting, facilities management, etc.

Senior Management

When people rail against greedy investment bankers, these are generally the people they are thinking about. These are the CEOs that have been called in to testify before Congress and the heads of divisions who authorize major commitments of the firm's capital. They are also the recipients of big company perks like cars and drivers, use of the corporate aircraft, etc. In publicly held companies, the total compensation of the top five corporate officers is published in the annual proxy statement, which can be found on the SEC's Edgar site. If anyone is "responsible" for having caused this mess, it is these senior managers. However, many of the executives who were in charge during the bubble period have been fired or otherwise lost their jobs.

Sales & Trading

The guys on the trading floor who devised many of the financial products that have become "toxic" assets (CDOs, credit default swaps, etc.) also bear some of the responsibility for the mess we're in. But the number of people involved in these esoteric securities was fairly limited. Most traders, salesmen, and brokers spent most of their time on "plain vanilla" products like stocks, bonds, currencies, futures and options and commodities. And while many of these "Master of the Universe" types were paid multi-million dollar bonuses, they also worked very hard for their money; putting in long, stress-filled days on the trading floor, and hours of research and reading at home.

Investment Bankers

The banker's job is to call on corporate clients seeking to be retained for financings (debt or equity) or for financial advisory assignments like mergers and acquisitions or restructurings. They bear little responsibility for the current financial crisis. In fact, their job has remained largely the same for the last quarter century; 70 to 90 hour weeks spent building financial models and preparing presentations for senior management at client firms. These folks usually travel extensively (3 to 4 days a week on the road is not uncommon) and spent many (most?) nights and weekends in the office or on a never ending series of conference calls with clients and colleagues. While the level of activity among their clients is down, this business remains highly profitable since it makes only limited use of their firm's risk capital.

Operations

These employees had virtually nothing to do with the current problems. They perform jobs similar to their equivalents in non-financial firms, though their compensation levels (and hours worked) tend to be higher than in other large corporations.

*** Bonuses ***

Nothing is less well-understood than Wall Street's compensation system. In most American businesses, workers receive a salary based on hours or weeks worked. In some companies, at the end of the year, some or all employees may be paid a "bonus" based on their individual performance or the firm's level of profitability. In addition, people in sales related jobs are often paid on a commission basis, based on sales volumes. However, on Wall Street, things are completely different.

In virtually all investment banks, only senior management have large annual salaries (with large bonuses often contractually specified as well). Mid and lower-level professionals are paid standard, modest salaries based upon their titles; for example, all Managing Directors might have base salaries of $200k and all VPs might have base salaries of $125k. At the end of the year, based upon their individual performance, the profitability of their group and the profitability of the firm as a whole, they are awarded a bonus which comprises the bulk of their total compensation. These bonuses are typically paid in January or February of the following year. Managing Directors (a title awarded after 7 to 10+ years of increasing responsibility in an "up or out" hierarchy) typically receive total compensation of between $1 and $5mm per year, based upon the net revenues they were able to produce for their firm. MD level compensation in many firms is approximately 10 percent of the net revenue generated by each senior professional.

Of course, especially for senior bankers, a significant portion of their annual bonus is paid in restricted company stock. This stock typically vests over a three or four year period and is forfeit if you leave to join a competitor. For investment bankers who were unfortunate enough to have worked for firms receiving TARP funds, this stock is generally worth a small fraction of its original value.

Finally, most Americans don't understand the cost of living in the NYC area. In most parts of the country, if you are earning $250k per year, you are living in the best part of town in a big beautiful house. In Manhattan, it is hard to buy a 3 bedroom apartment for less than $2mm. In most of the country, the suburban public schools are considered excellent. In Manhattan, most middle class professionals try to send their kids to private schools where annual tuition is $30k. While there are a few excellent public schools, this is not a viable option for most people. Renting a parking space for your car in Manhattan costs $500 a month -- in many parts of the country you can rent an apartment for less. One could go on and on (but I won't.)

This is not to say that we should feel sorry for those poor, misunderstood investment bankers. Most of them are doing quite well. However, if you are an employee of a firm receiving TARP investments from the feds and you had nothing to do with the activities that caused these massive write-downs, you can be forgiven for not understanding why you should have to hand over to the government more than 100% of last year's bonus. (The House bill that passed last week called for taxing bonuses above $250k at big TARP firms at 90% (plus Medicare tax of 1.45% and NYC state and local income taxes of 10.5%), bringing the total for NYC residents to 101.95%.)

Dropping a DIME on Hamas

Israel has been accused of dropping Dense Inert Metal Explosive (DIME) bombs on Hamas positions in Gaza. This new type of munition is designed to limit the shrapnel and blast effects to a very small area, thereby reducing the risk of collateral damage to non-combatants.

Naturally, the usual prospects are complaining about possible war crimes. (I suppose it is better to drop conventional high explosive munitions that will destroy an entire building, civilians and all.)

Boycott United Internet AG and 1&1 Hosting

Respected LA blogger and lawyer Patterico has had his domain name stolen by his hosting service "1&1". 1&1 are a subsidiary of the German internet firm United Internet AG, who coincidentally just happen to own sedo who is auctioning off the domain name.

Pretty despicable, if you ask me.

Remember John Kennedy O'Hara?

... the Brooklyn Democratic gadfly who was railroaded by Crooklyn DA Charles Hynes? (For some background, see posts here, here and here.) Anyway, he dropped me a note the other day alerting me to a new website seeking to gain him a pardon from Governor Paterson.

It's a colorful, amusing site, and worth a visit. Even Sex and the City's Mr. Big has come out in support of O'Hara. Be sure to sign the online petition asking the Governor to remedy this cruel injustice. Free John O'Hara!

Plausible Deniability?

It was an exciting night at the Repub's convention. Fred Thompson made a good speech endorsing McCain's character. The last Democratic nominee for Vice President, Joe Lieberman, made a solid speech endorsing McCain as the man to trust with the Presidency.

Yeah, yeah. However, I am underwhelmed by the choice of Sarah Palin as McCain's understudy. Sure she's cute. A bonafide MILF. And a good shot. But a stone cold light weight. The "bridge to nowhere" flip flop. The limited profile in the public eye. Of course, she does have more executive experience than either Obama or McCain. But a heartbeat away from the Presidency? I don't think so.

I'm not an Obama fan. He is an old-school liberal dressed up in post-partisan camouflage. He is also seriously in love with the sound of his own voice, which is not an attractive quality. That said, there may be some advantages to having him in the White House these next four years.

Firstly, the next four years promise to be very difficult from an economic point of view. The fallout from the real estate bubble will take time to work itself out. The impact on financial institution's balance sheets will provide a real drag on any recovery. As will the overstretched state of household balance sheets. In short, the American consumer is hitting up against the limits of debt availability, and our financial institutions are facing massive pressures to reduce their lending exposure.

If you buy this premise, being the next President of the US of A is not going to be a fun gig. Yeah, sure, you will be able to appoint a Supreme or two, as well as sign into law provisions that will make it very hard for large businesses to avoid unionization. But overall, it is likely to be a bummer.

On the plus side, if Obama wins, GWB has nearly two months in office as a legless duck. (Think Lame Duck to the 3rd power.) This is a golden opportunity for Dubya to go medieval on Iran's nuclear program. The US can commit multiple sorties to take out all of the Iranian nuclear enrichment sites, while the incoming Administration wrings its hands and protests ineffectually. After the damage is done, Obama becomes President and apologizes sincerely.

Problem solved. September 2, 2008 at 11:16 PM | Permalink | Comments (0) | TrackBack (0)

Best of the Worst

Funny music videos are an endless source of amusement for some of us. Here are three of the best:

• Tommy Seebach's Apache: Seebach was a Danish pop star who died from alcoholism in 2003. (NB: the link shown at the bottom of the screen in the video is to an unrelated porn site. Definitely NSFW.)


• The Leningrad Cowboys cover of Sweet Home Alabama: with backing from the Red Army Chorus, no less. Simply awesome.


• Mohammad Rafi's Jaan Pehechaan Ho: think Bobby Darin meets Bollywood. (You may have seen this as part of the opening credits in Ghost World.) Very catchy tune.

Hat tip to Mikee, from the incomparable Tivoli Bread & Baking Co.

Update on Steven Vincent & Nour Khal

Today's LAT has an excellent feature by Erika Hayasaki following up on the Steven Vincent story. Vincent, as you may remember, was an independent journalist murdered in Iraq by radical Shiite militiamen in Basra during August 2005. He was also the author of In The Red Zone, which chronicled his travels in Iraq. If you haven't already read it, it is worth a look.

The story is accompanied by several great photos by Carolyn Cole of Vincent's widow, Lisa Ramaci, and Nour Khal, his friend and translator who was seriously wounded when Vincent was killed. Khal is now living with Ramaci in the East Village apartment she and Vincent had shared.

Viva La France

Proof that elections matter; the French government has volunteered to begin protecting UN ships carrying food aid from pirates off the coast of Somalia.

The United Nations (UN) World Food Programme (WFP) has accepted France's offer to protect its ships from Somali pirates as its vessels carry food aid to needy Somalis. In a WFP press release, Executive Director Josette Sheeran states, "We are grateful to the Government of France for this generous offer, which would reduce the threat of piracy and allow WFP to feed more hungry people in Somalia."

Nice.

Free at last! Free at last! Thank God Almighty, we are free at last!

Well, Pinch finally woke up and smelled the coffee, pulling the plug on TimesSelect. Like many, I predicted the inevitable, but underestimated (by some eighteen months!) how long it would take the Times management to join the "reality based" community.

As usual, Mickey Kaus (the thinking person's favorite liberal pundit) was all over this story from the beginning.

Our Man in Al Queda

Sunday's UK Times featured an excerpt from a book written by a former Al Queda trainee, "Omar Nasiri" (a psuedonym). If the excerpt is representative of the rest of the book, Inside the Jihad: My Life with Al Qaeda: A Spy's Story, looks to be an interesting read. Here is a taste:

Abu Hamza looked at me with his one good eye as we were introduced. “Masha’Allah, brother,” he said. “Can you meet me in the office after prayers?” “Of course,” I told him.

When prayers were finished I stood outside the office on the first floor of the Finsbury Park mosque in north London. Hamza approached with a young boy by his side. He gestured with his hook and the boy opened the door for him. We sat on the floor and Hamza asked the boy to bring us tea.

Hamza asked me which of the camps in Afghanistan I had been in, and I told him. Then I leant forward slightly. “I met someone you know,” I said in a conspiratorial voice. Hamza raised his brow just slightly.

“I trained with Assad Allah,” I told him. “He told me about the nitroglycerine, and how you lost your hands.” Hamza looked away. “Brother,” he whispered, not meeting my gaze, “please don’t share that story with anyone.”

As I was to learn later, Hamza claimed he had lost his hands defusing a landmine on the front lines in Afghanistan. I knew the real story.

New Thinking on Iraq

Jonah Goldberg has an excellent column in today's LAT with some new ideas regarding Iraq. Essentially, he suggests holding a referendum in Iraq on whether or not US troops should remain in that country until the Iraqi government decides they are no longer needed or to leave immediately.

It's an interesting idea.

Death of a Hero

Marine Lance Corporal Christopher Adlesperger was killed during combat operations in Fallujah in December last year. He has been nominated for the Congressional Medal of Honor for his bravery under fire during the battle to retake the city the previous month. If his nomination is approved, he will be the first Marine awarded the Medal since Vietnam.

The LAT's Tony Perry has an excellent piece describing Corporal Adlesperger's life and how he risked his life to protect fellow Marines. It is well worth reading.

Hamas, blaming the victims!

From today's UK Telegraph:

Ghazi Hamad, the Hamas government's official spokesman, said Palestinians had been "attacked by the bacteria of stupidity".

"The anarchy, chaos, pointless murders, the plundering of lands, family feuds … what do all of these have to do with the occupation?" he asked in the opinion piece published in the Palestinian newspaper, al-Ayyam. "We have always been accustomed to pinning our failures on others, and conspiratorial thinking is still widespread among us."

He was particularly scathing about the failure of the Palestinians to make a success of the Gaza Strip, the territory that Israel effectively surrendered a year ago.

"When you walk around in Gaza, you cannot help but avert your eyes from what you see: indescribable anarchy, policemen that nobody cares about, youth proudly carrying weapons. From time to time you hear that so-and-so was murdered in the middle of the night, and the response comes quickly the next morning. Large families carry weapons in tribal wars against other families.

"The reality in which we are living in Gaza can only be described as miserable and wretched, and as a failure in every sense of the word."

City of Brotherly Love vs Military Service in Iraq

According to an analysis in the Washington Post, being a young black man in Philadelphia is more dangerous than being a US soldier in Iraq. . .

Toonwars Redux

Today's WaPo runs a Reuters story by Parisa Hafezi reporting on the opening of Iran's holocaust cartoon contest at the Museum of Palestine Contemporary Art in Teheran. (You remember this contest, which had been announced by one of Iran's leading newspapers in the wake of the furore over Muslim protests of the Danish Islamic cartoons.) According to Masoud Shojai, the head of Iran's Cartoon House, the contest "is a test of the boundaries of free speech espoused by Western countries."

While the exhibit consists of more than 200 cartoons, the only one shown on the organizer's web site is pretty tame:

While there are plenty of links to photos of various Iranian dignitaries touring the exhibition (including Iran's Minister of Culture, who appeared to be enjoying himself), it's hard to find any images of the actual cartoons. (Perhaps because most of them are terrible, but I suppose the murder of more than 6 million people is tough material for any cartoonist to work with.) However, I did manage to track down some of the cartoons at an Iranian website called IRFP.

If the Iranian editors expect these cartoons to provoke outraged public demonstrations against Iran, violent riots, and mobs of angry Zionists burning down Iranian embassies throughout the world, they are going to be sadly disappointed. (The IRFP's website has this amusing warning: "Attention Regarding to clarification of the issue of "Holocaust" this website possibly will be closed by United States, in this case please refer to the following address: www.irancartoon.com www.adlroom.com www.sharifnews.com [sic]")

As far as I can tell, the only Israeli reaction has come from the privately run Israel News Agency, which has launched a marketing campaign to ensure that people searching for "iran holocaust cartoons" will be directed to the INA's web site where holocaust cartoons are interspersed with photos and facts about the real holocaust. Also worthy of note is the Anti-Defamation League's web page showing examples of the Arab media's routine portrayals of jews and Israel.

I guess the Western commitment to free speech and religious tolerance has withstood this "test."

Technorati Tags: Holocaust cartoons, Cartoon war

Old time religion

You've gotta love how becoming a devout Muslim seems to often lead directly to study of bomb-making techniques.

This fellow Mohammed (pbuh) has a lot to answer for.

I Remember . . .

. . . sometime after 9/11, driving somewhere in Manhattan in a yellow taxi driven by a middle aged guy from Saudi Arabia. I asked him, as I often did with middle eastern looking people at that time, whether people were treating him badly because of 9/11. Perhaps touched by my concern, he turned to me and asked me why Mayor Giuliani had rejected a $10 million donation for disaster relief from Saudi Prince Alwaleed bin Talal? He seemed to be genuinely confused about why New Yorkers were offended by this generous offer.

I remember trying to explain to him that people were angry because the Prince's statement about US policies towards Israel and the Palestinians were inappropriate, that they sought to justify the terrorists' violence against American civilians. The poor man was puzzled by my response. He said it was all so simple: if the US were only to stop supporting Israel, "this whole problem" would go away. The Saudi people had no quarrel with the American people, they only objected to our government's policies towards Israel.

I was reminded about this incident by Bernard-Henri Lévy's piece about Israel in this week's NYT Magazine. It's worth reading for many reasons, but Levy drives home the point that Israel is on the front line of the West's fight against Islamofascism. And as I tried to explain to my Saudi cabbie, the US will never abandon Israel, not because it is a Jewish state, but because it is the only western democracy in the Middle East.

I only hope I was right about that.

Sharing the Blame: Britain's Anti-Terrorism Cock-ups

UK Times correspondents Sean O'Neill and Daniel McGrory have a new book (The Suicide factory) detailing the mistakes and"intelligence failures" (to use the US term) that led to the rise of Sheikh Abu Hamza's terrorist recruiting center in London's Finsbury Park mosque. (Abu Hamza is the Egyptian-born cleric who recruited shoe bomber Richard Reid and is currently awaiting trial in the UK on numerous terrorism charges.)

Today's Times has some excerpts worth reading. Here is the money quote:

Government departments pointed the finger of blame at one another; politicians complained that the police and the spymasters did not investigate him properly; Scotland Yard moaned about MI5 and vice-versa. Detectives felt that the Crown Prosecution Service let them down; the CPS moaned that the court system was stacked against them. The judges retorted that they did not make the laws; if anyone was to blame it was the civil servants and politicians at Westminster. The blame game went round and round as Tony Blair banged the table in exasperation.

Every chance there had been to pursue Abu Hamza seemed to have been missed, wasted or blocked.

For more than twenty years there had been a catalogue of bureaucratic foul-ups and a lack of resolve by the British authorities to tackle him, even when presented with a clear opportunity to do so.

More excerpts are available online here and here.

Technorati Tags: Abu Hamza

Shiny!

Imagine Auric Goldfinger as the host of a variety show on Russian TV in a post-apocalyptic alternate universe, and this is what you get. (Via Popbitch)

Culture Wars Down Under

An old friend of mine, Imre Salusinszky, has been appointed to chair the Australia Council's literature board. (The Australia Council is Oz's counterpart to the US' National Endowment for the Arts.) In spite of having been chairman of the English Department at the University of Newcastle and having a doctorate in English Literature from Oxford, his appointment appears to have upset some of Australia's arts establishment:

Fresh from appointing controversial historian Keith Windschuttle to the board of the ABC, the Federal Government yesterday revealed that The Australian's Imre Salusinszky will chair the Australia Council's literature board. Sydney Institute director Joe Gersh will become the council's deputy chair.

Former Australia Council chairwoman Hilary McPhee attacked the appointments. "This Government is shameless; their ideological bent is so palpable," she said.

But critic and cultural commentator Peter Craven said Dr Salusinszky "notwithstanding his deeply lunatic politics, is a man of considerable warmth with an intense feeling for the literature he likes".

Perhaps some of them are upset because Imre quit his tenured academic position several years ago to become a journalist working for that notorious fascist Rupert Murdock.

Anyway, I think Imre will do a wonderful job doling out writing grants since he cares a lot about good literature and not a whit about multiculti political correctness. (Of course, this begs the question of whether or not the government should be in the business of deciding which artists should receive funding in the first place, but that is another story.)