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Throwing the Baby Out with the Bath Water!!

Posted by Larry Doyle on March 20, 2009 3:12 PM |

I questioned a Wall Street friend of mine this morning whether Washington in general and the Obama administration and Democratic Congress specifically could be so myopic or actually are so calculating in attempting to enact legislation that would impose tax rates of 70-90% on certain Wall Street employees. My friend quickly responded that the Washington crowd is not that smart.

Make no mistake, the proposed legislation of taxing certain Wall Street employees at 70-90% rates is targeted at addressing public outrage over improperly allocated compensation. However, Washington is utilizing a bazooka when in fact they need a laser.

In so doing, the politicians pushing this legislation are showing themselves to be misinformed and misaligned in understanding the basic tenets of capitalism and free market principles.

How will individuals who work at firms that do not now need nor ever needed government assistance respond? “Get me out of this firm!!” The best individuals will go to foreign firms and privately held companies. The firms impacted by this poorly crafted legislation will be filled by lesser talented professionals. In so doing, Washington may feel they are appeasing their constituencies but they will be assaulting capitalism and free market principles. Perhaps those have been their goals all along.

Again, I am FULLY supportive of government restrictions on government firms or firms supported by government funds (AIG, Citi).  However, as the WSJ reports, Wall Street Shudders as Lawmakers Take Aim at Pay. This legislation is the equivalent of “throwing the baby out with the bath water!!”

LD

  • thinkaboutthis

    thinkaboutthis says:
    March 20, 2009 at 1:16 pm “Gimme Credit” thread — I sort of responded to this thread earlier. I shall expand relative to this writing.

    Lar you wrote, “The best individuals will go to foreign firms and privately held companies.” or the firms will be placed into a position to seek foreign workers to come here for the talent and be in the same mess any which way.

    I am probably one of the few people that totally – 100% disagree what has been done to the people that received bonuses. These elements of receiving funds from the government should have been in the terms and if not, so be it. The accountability is not the firm’s — it was the lenders.

    Now, where the government should be spending its time is in discovery as to which elements of the company were doing illegal activity which caused this to snowball. Apparently, my understanding says — not many–what they did was take advantage of lack of regulation and capitalize upon it… In other words, Americans being Americans.

    It is very simple — if you understand the rules of a game — the smart people always play in the creative zone which the rules do not define, and therefore create their own freedoms and growth. In some fields it does not involve the lives of the masses or global markets — in others it does.

  • thinkaboutthis

    ‘or the firms will be placed into a position to seek foreign workers to come here for the talent and be in the same mess any which way.’ NOTE ___ this is the posters statement — not the writer of the thread.

  • Larry Doyle

    Think…you have pretty much nailed it!! Well done.

  • anon

    “The smart people always play in the creative zone which the rules do not define, and therefore create [your] own freedoms and growth”.

    I’m curious about this zone of which you speak. I can see that grammatical rules and basic sentence structure do not apply in this fantastical zone. Do tell, just which self created freedoms and growth have you, the smart people, conjured?

    Truly, I was going to explain, legally, why you don’t need to worry your pretty little heads about the proposed legislation but its rather satisfying to watch you twist up your panties. You financial types, you’re not the only ones with voodoo.

    • Larry Doyle

      Anon,

      I would be interested in your take as to why you think this proposed bill will not be implemented. I have heard dramatically different opinions from seasoned financial and legal professionals.

      • anon

        LD,

        I’m happy to oblige your request. With all due respect to your ‘seasoned financial and legal professional’s’ opinion, they are incorrect if they believe that the “not that smart”, as you’ve identified them, actually intend to undermine the rule the of law. I have a lot to say about that but you’ve asked for a legal opinion, and so:

        Congress is not empowered to pass a bill of attainder. Any legislation which operates as a punishment against named or readily identifiable individuals, without a trial, is unconstitutional and unenforceable. Likewise, the 5th Amendment prohibits the federal gov’t from from seizing private property without just compensation as well as deprivation of property without due process. There’s also the prohibition of unequal protection of the law.

        That’s just off the top of my head. I’d be delighted to research it thoroughly for you (or any of your seasoned financial professional friends who are uneasy) and prepare a memorandum containing fully fleshed arguments and controlling precedent, provided we execute a retainer agreement.

        In my view, there’s several other political reasons Congress will not pass the proposed legislation and though not as tight and buttoned down as the legal ones, persuasive nonetheless.

        • Larry Doyle

          Anon,

          I sense that you took offense at something written either by me or by the other reader. If so, accept my apology, I don’t think any offense was intended, but if it came across that way, I understand.

          I appreciate your legal opinion here. I have heard this defense from some but I have also heard others indicate there is precedence for a law of this sort.

          It will be very interesting to see how this plays out. I do think it seems certain that many entities will clearly not want to get engaged with the government for any reason given heightened risk of legislation, even after the fact.

        • Larry Doyle

          Anon,

          I also now realize that you probably think I am writing on behalf of my friends or former colleagues. Not so. I am merely offeriing my honest opinion. I am not now nor will I ever be a shill for anybody or anything, on Wall Street or off.

          • anon

            LD,

            I have never thought you were a shill for anyone. I was poking a little fun at the “seasoned” legal professionals who evidently cannot distinguish the existing precedents from the proposed legislation. I appreciate your website and your posts.

            Also, neither you nor thinkaboutthis offended me. Its just displaced aggravation at the AIG and Wall Street ‘talent’ and their specious arguments in defense of their looting. Its pretty easy to get all ginned up for a bout, my apologies for the sass mouth.

    • thinkaboutthis

      Anon writes, “I’m curious about this zone of which you speak. I can see that grammatical rules and basic sentence structure do not apply in this fantastical zone. Do tell, just which self created freedoms and growth have you, the smart people, conjured?”

      If eye did knot kno anee betta afther reeding yer replie, I wood think ita defknitlee lens the impresshun u r insultin mie literazee skils.

      Perhaps, before you begin with those cute grammatical slams, you ought to take a step back and ‘cease and desist’ with those habits toward strangers.

      Now, that we have that out of the way — I must ask you if you are primarily a logical thinker or are you more of a creative thinker that partners logic? Shucks, it dont matta…

      Here goes my friend.

      1. The word ‘smart’ was not referring to IQ’s or the ability of one to pass the LSAT.

      2. The word ‘smart’ was used in the context of one utilizing their own skills of awareness, creativity and thinking both outside and within the box at a higher level than the average bear. Superseding and identifying restrictive boundaries of an organization within the confines of the law and lack thereof, is not only a skill but a gift.

      Anon, I could have a blast going back and forth with you. However, what cha say we keep it objective?

      • anon

        You’re right. Sorry about that.

        • thinkaboutthis

          I appreciate that and look forward to your viewpoints.

  • Andy

    “However, Washington is utilizing a bazooka when in fact they need a laser.”

    No LD; they are just covering their behinds after enabling and allowing this.
    It is a shame.

    • Larry Doyle

      Regrettably our political credibility is eroding in the process. That erosion does not come without a cost. What is that cost? Higher interest rates for long term debt and lower value for our curency. Who pays? We do.

      • Andy

        Indeed we do, LD. I already feel the squeeze even though I am one of the “lucky ones” b/c I have a stable job. But I am getting really angry. Why? Because I cannot tolerate the level of incompetence across the board we are witnessing today. It is unbelievable… Any one of us would have been fired long ago
        for 1/10 of this.

  • TeakWoodKite

    I am not happy about the “bonuses”. Yup, in fact I am
    “down right disgusted”, but the object of my anger is not the people getting the contractually obligated bonuses, it is out and out the people who negotiated the terms of the AIG bailout and didn’t look at the liabilities on the balance sheet.

  • Larry Doyle

    Your anger and mine are pointed in the same direction. Makes one wonder if these public representatives were conflicted in some way.

  • Mountainaires

    Myopic, slapdash, incompetent, keystone cops, astonishing, breathtaking, reckless, and uhm…did I mention incompetent?!

    One more word: Backlash.

    Private capital not buying:

    http://www.reuters.com/article/wtUSInvestingNews/idUSN2047204920090320

  • Larry Doyle

    Great link….consistent with the piece Ijsut posted on Confidence.

    This quote speaks volumes.

    The climate is rather treacherous as investors do not necessarily trust that the government will not change the rules or create retroactive measures — particularly as it relates to clawbacks,” said Greg Peters, head of global credit strategy at Morgan Stanley in New York.

    Potential investors in the public-private investment fund “worry about getting involved with the government and then having congress try to dictate how to run your business,” Peters said






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