Comments on FiveThirtyEight: Politics Done Right: The Right Way to Fix Wall Street's Pay

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2009-10-10T05:14:19.349-04:00

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A financial worker in training is like a diamond i...

2009-03-31T14:26:00.000-04:00

A financial worker in training is like a diamond in the rough: a powerful cartel keeps most of them off the market.

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2009-03-30T11:03:00.000-04:00

@zozie:This in turn is the gut reason many have ob...

2009-03-28T17:15:00.000-04:00

@zozie:

This in turn is the gut reason many have objected to Geithner in his role as arbiter of government largesse. He's a member of the club.

The reason I object is this is precisely why Geithner was selected and why his own tax evasions were ignored (after he paid the back taxes).

Obama, Summers and crew are playing us; they picked Geithner because they want to reassure Wall Street it will be business as usual, the only difference will be that corporate largesse cannot be as blatant or the rabble will be roused.

But Obama's financial plans, through Geithner and Summers, will fundamentally change nothing, and that is the message they are sending to the top.

In politics they call these "dog whistles," meaning the vast majority of regular people ignore them but a few people in the know understand the coded message. It is a way to reassure a base without angering the public.

Dog whistles are used to convey sympathy for racism, for anti-feminism, for anti-union sentiments, for anti-global warming sentiments, and in this case, for corporate greed favoritism: Appointing Geithner and Summers to lead this charge is a dog whistle; while most people know nothing about them, the Fortune 500 CEO's and million-dollar salary folks are very reassured these guys will do the absolute minimum possible damage to the status quo.

The Obama administration has sent a clear signal they don't want to root out the self-dealing and the unwarranted salaries and the ripoff of the investors. All they want to do is stop the scandals, so the negative news will stop, and they can stop faking outrage every other day. It is so tiring!

As far as I can tell, they have no intention or desire or will to stop the gross injustice.

Just read Simon Johnson's article in the Atlantic ...

2009-03-28T14:31:00.000-04:00

Just read Simon Johnson's article in the Atlantic The Quiet Coup. He discusses the corrosive results of oligarchies on economies. The US financial sector at its higher reaches qualifies as an oligarchy.

My belief is that this group pays itself so well as it runs as a private club. They compete among themselves and are acutely aware of their relative standing within the club, but there is no tie-in to the outside world. Joining the club is the trick. Is it your school, your friends, luck at the interview - who knows. The reason probably varies.

Johnson refers to 2 very sweet deals proffered to 2 execs from Goldman Sachs - allegedly to avoid destabilizing effects.... if only we are were all so lucky! This is more evidence of a nice private clubbiness. It has to be eliminated before robustness can return to the non-club-members' economy.

This in turn is the gut reason many have objected to Geithner in his role as arbiter of government largesse. He's a member of the club. Can he possibly be ruthless and confident enough to rout out the self-dealing of the club?

Why in the heck would Melvin go to Wall Street and...

2009-03-28T12:03:00.000-04:00

Why in the heck would Melvin go to Wall Street and look for a finance job if he's an engineer? And why would a Wall Street firm higher an engineer to do a finance job, so what if he'd take $30,000 less. What's next...street sweepers applying at hospitals to be doctors?

Tony C. and Smoking Aces - I have to admit, SA, ab...

2009-03-27T11:38:00.000-04:00

Tony C. and Smoking Aces -

I have to admit, SA, about a third of what you say makes sense. It's been a while since I heard a conservative say anything that made sense. Last time was...approximately mid-1999. Then something happened...can't quite put my finger on it...although there was also a massive decrease in sense-making by conservatives starting in late 1994.

Obviously, if we had a defense budget that was actually what we need for actual defense of US territories from actual threats, we wouldn't have to worry about federal deficits, because there wouldn't really be one.

Also, we have a cost effective universal health care system that covers the elderly and disabled - overwhelmingly the greatest users of health care dollars - for a fraction of what private insurance for those patients would cost.

Doctors love, patients love it, and it's called Medicare. The incremental cost of just expanding it to healthy young people - who are rare consumers of health care dollars - would be trivial.

If some crazy radical would just cut the defense budget to say, five times the defense budget of any other country on earth (without laying off personnel, of course), and give everybody Medicare, this country would suddenly enjoy the advantages that exotic foreign lands like Canada now enjoy.

How do you pay regulators more when the president ...

2009-03-27T09:55:00.000-04:00

How do you pay regulators more when the president himself only makes $400K/year? IRS economists probably make in excess of $100K, and Bernanke only makes ~$190K/year as Chairman of the Fed.

Contrast that with Hank Paulson's ~$19M/year salary.

Are you going to have regulators making more than the Chairman? More than the President? How do we overcome this problem?

The paper referenced by Silver is misquoted, and t...

2009-03-27T07:09:00.000-04:00

The paper referenced by Silver is misquoted, and the second graphic is very poorly explained, which I think detracts heavily from the apparent reliability of the article.

The second graph has nothing whatsoever to do with salary; rather, it displays the number of undergraduates going into that profession in that year.

I'm disappointed.

Well everyone's entitled to an off day. Besides t...

2009-03-27T01:16:00.000-04:00

Well everyone's entitled to an off day. Besides the bad analogy between engineer and financier (which has been lampooned enough), you missed on the comparison between -10/+10 million and +20/+40 million.

Economically speaking they are not the same, only in mathematical absolute terms are they the same. What's important is rate of return on investment. For example regardless of industry losing 10M on a 100M investment is simply not sustainable (well maybe auto). Major changes are required regardless of risk.

Meanwhile a gain of 20M on same 100M investment may be low for certain industries. But it's not worth risking extreme changes in an attempt to raise it to 40M since the changes could also cause it to drop to 10M.

Greg said...I can definitely support the example f...

2009-03-27T00:55:00.000-04:00

Greg said...
I can definitely support the example from KPMG. I work at NERA Economic Consulting in the Antitrust practice, so we are constantly involved in cases with the FTC and DOJ.

A long time ago, I heard that when attorneys graduate from law school, the top 10% or so are hired by the big law firms. The next 20% or so go to work for the government, and the same with the bottom 20% or so.

Why do those in the 70 to 90 percentile go to work for the government, usually at a severe disparity of pay than if they went into the private market?

To gain experience, and to gain contacts. They start out as 'greenhorns', not knowing how to do that much, certainly not in a position to influence government policy. However, once they gain 3-5 years experience in the government, they have learned how the government thinks, how the game is played internally, who thinks how in the government, who is the best non-governmental player in the field, etc. Then after their 3-5 year stint in the government, most of them then go off into private practice or into the big law firms, with the knowledge they have gained by 'working for the other side'.

A bit of an initial sacrifice for the attorney, but a windfall gain within a few years.

That means the majority of those left in the federal agencies are the 'greenhorn' 70 to 90 percentile 'new guys' who have no experience, and the bottom 20%, who have little chance of gaining 'useful employment' in the private world.

Some of the people in the 90th percentile and up go to work for the government, and some of them and some of the 70th to 90th percentile stay with the government for more than 3-5 years. It's the opportunity of big money, though, that draws many of them out of the government. And especially since the constant GOOPer derogation of government and government service for the last 40 or more years, many have no concept of serving the public, only of making a huge salary.

In other words, the GOOPer philosophy of G-R-E-E-D has made the ability of government to attract the right combination of people to properly help society much more difficult.

One slight problem that explains why two manufactu...

2009-03-26T22:13:00.000-04:00

One slight problem that explains why two manufacturing and one extractive industry are numbers 2-4 on the list-- the definition of these industries changed between 1992 and 2007. 1992 used SIC codes, which includes separate headquarters establishments of manufacturing companies as manufacturing jobs. the NAICS codes fix this. So publishing used to include a bunch of blue-collar jobs that are not in there now.

There are probably similar changes in petroleum products and oil and gas extraction sectoral definitions that I am not as familiar with.

Also this is average pay, not median pay. The mean of entertainment industries that are #5 are probably skewed way high because of pro athletes.

Once you take all this into account, the financial sector is even more in a class by itself.

@Smoking:It may cost more, but that is hardly the ...

2009-03-26T22:09:00.000-04:00

@Smoking:

It may cost more, but that is hardly the point, whether it is $160M or $320M. This is between 72c and $1.44 per taxpayer per year.

It really doesn't have to cost us a dime: Charge the shipping companies an inspection fee and we break even. Say, 50c per ton of cargo; since a container typically holds 30 tons, that would be about $15 per container.

That would be $30 in revenue per hour per inspector, or $60K per year per inspector.

The proper wage is probably a $30K salary; with standard 10:1 management ratio and payroll overhead, figure about $60K per inspector required. We break even.

However, the point of the analysis is to point out that the cost to taxpayers is trivial even if off by a factor of three. A fine analysis isn't necessary if the rough analysis shows the first approximation is trivial.

Nate,One profession I'd like to see listed is the ...

2009-03-26T21:29:00.000-04:00

Nate,

One profession I'd like to see listed is the pay of our legislators. Both state and federal, if possible.
I'd like to also see federal employees listed but I'll not ask for that since it might be considered snarky.

jts

You get a bunch of Harvard, Yale and Stanford grad...

2009-03-26T21:27:00.000-04:00

You get a bunch of Harvard, Yale and Stanford grads in management positions at investment banks, and they're probably going to be predisposed to hire other Harvard, Yale and Stanford grads.

The relative advantage of starting salaries of Stanford grads over grads of other Pac-10 schools has been notorious for so long that the Stanford Band put out an album in 1979 titled "Starting Salary: $22,275.00" which was a considerable sum in those days.

http://lsjumb.stanford.edu/about/albums/15/

I can't imagine what the average starting salary for a Stanford B.A. grad is now.

BTW, check out the covers.

http://lsjumb.stanford.edu/about/albums/

And these disorderly rich kids are going to make how much when they graduate?

So to inspect EVERY container, we need maybe 4000 ...

2009-03-26T18:26:00.000-04:00

So to inspect EVERY container, we need maybe 4000 inspectors at a cost of $160M a year, if they get paid $40K.

Tony C.,

I don't mean to pick on your analysis because I'm agreeing with much of what you're saying, but you can't quite figure on just $40K per year in costs per employee. First off all, if that's total comp, you're talking about a salary of about $27K to $33K per year, after you account for benefits. It'd be hard to have a semi-skilled force out there for that little. So maybe you're thinking of a $40K per year salary, which would put total costs of around $50K to $60K for each employee. I don't know that a $40K salary would be enough for that kind of a job. I think the "market wage" would be somewhere closer to $50K, which would put total compensation up to $70K including benefits.

However, you can't have a force with that many man without some kind of "management" types so that these guys have somebody to answer to...so you're going to have to have some higher paid guys in the mix. All in all, I'd say you ought to figure on a cost of twice what you said - about $80K per year per person instead of $40K.

The factor in recent compensation that did not exi...

2009-03-26T17:58:00.000-04:00

The factor in recent compensation that did not exist in earlier eras is the stock option bonus, which has thrown the whole game out of whack.

Now, instead of focusing on what's good for the company, the CEO (and all others with a similat vested interest) are merely concerned with driving the stock price up. This has led to monumental absurdities such as "stock buybacks", which never did anything for the health of a company (not to mention its dividend) but serves to drive the stock price up so that exercised options yield more cash to the exercisee.

So while Nate's graph shows a tidy past history, the system has actually been overhauled into unrecognizeability, so I for one do not expect future compensation to shrink as regulation is reimposed.

wv anlegm: Phlegm from the other end.

Amazing analysis, unique and insightful!

2009-03-26T17:51:00.000-04:00

Amazing analysis, unique and insightful!

And as for shipping containers:Estimates vary from...

2009-03-26T17:45:00.000-04:00

And as for shipping containers:

Estimates vary from 12M to 20M per year entering the USA. At 20M, that is around 57,000 per day. These are 40 feet long and take no more than 30 minutes to inspect, with a geiger counter, drug dog, explosive detector and infrared scanner (for humans or animals). One inspector can inspect about 15 containers per day.

So to inspect EVERY container, we need maybe 4000 inspectors at a cost of $160M a year, if they get paid $40K.

That would be a bargain. It will not freeze world trade either, on average it adds the thirty minute inspection time to the delivery.

Once again, if a brute force approach is feasible, cheaper alternatives are probably available that also achieve 100% inspection, but it indicates that the failure to achieve 100% inspection is irresponsible on the part of government, when shipping containers can hold terrorists, illegal aliens, explosives, drugs, money, guns and other weapons, and even nuclear material or nuclear weapons.

Go check out the shipping yards: They crane them from the ship to the rail or truck and that's it, they drive away with no inspection whatsoever. They say they inspect "suspicious cargo," but are we still supposed to believe that terrorists, with hundreds of millions of dollars at their disposal, are incapable of disguising a sealed container as coming from some legitimate German or Chinese manufacturer? They are evil religious extremists, not stupid idiots.

Ask and ye shall receive. Incorrectly asked for th...

2009-03-26T17:14:00.000-04:00

Ask and ye shall receive. Incorrectly asked for this discussion on the FAQ page, and 3 days later it's here. Thanks, Nate. This discussion seems more probing and open-ended in it's nature than others. Touches on the true trajectory and maintenance of the priveleged class. Rarely happens. I'll enjoy this for the 3 weeks (maybe 3 days) that it lasts. I agree with others that a cross-country comparison that includes cost of living and true hours worked per year by profession would be nice. Or what other suggest: factor in the misery index somehow across professions (too big and political?). But in lieu of that, more wall street nepotism by colleges stats would be great.

Tony C.I don't even think we have to be that aggre...

2009-03-26T16:49:00.000-04:00

Tony C.

I don't even think we have to be that aggressive with man-power and stations in patrolling our borders and coasts, so I'm pretty sure we could do it for much cheaper. But your point remains that it could be done at a fraction of the budget and has much better spillover effects than embedding in army in two (or more) countries halfway around the world.

That's another thing - on my "(or more)" comment - we have no need to be scattered around the world in 150 countries on military bases in each one. Aside from a few strategic allies - and even that's stretching it - I say we keep our ass 100% within our own borders. That would save billions of dollars in and of itself, and we could use some of that man-power to guard the borders and coasts.

Correction:The borders and coastline are 19,950 mi...

2009-03-26T16:35:00.000-04:00

Correction:

The borders and coastline are 19,950 miles long. So call it 20K and let's get more ambitious; here is the budget for protecting the border:

A station every quarter mile at a cost of $50,000. That is $4B startup.

Two armed border patrol agents per shift, at every station, for three shifts: 120,000 border patrol agents, at $40K each: $4.8B per year. That is less than 1.5% of Obama's new budget. Divided by 225 million taxpayers, it averages $21.33 each, per year. About one in 1,875 people will be working as border patrol agents; and these guys would literally be within shouting distance of each other.

There may be a lot of cheaper ways to armor the border, but even this brute force, men-with-guns approach is an affordable alternative, so surely it is just irresponsible for the government to continue to allow the border to be as porous as it is.

Obama’s War Policies Worse than Bush’s, Anti-War ...

2009-03-26T16:22:00.000-04:00

Obama’s War Policies Worse than Bush’s, Anti-War Activist Says

Obama's war policy = epic fail

Your article was basically right until THIS point:...

2009-03-26T16:18:00.000-04:00

Your article was basically right until THIS point:

"In retrospect, it is clear that regulators did not have the human capital to keep up with the financial industry, and to understand it well enough to be able to exert effective regulation."

It has NOTHING WHATEVER to do with the highly-paid Wall-Street executives out-smarting the K-State grads who worked for government.

It's ALL POLITICAL pressure from the rich.

The financial services boom occurred during the deregulatory mania that took place in this country since Ronald Reagan.

It's no accident that the curve slopes wildly upward for financial services executives starting around 1980.

It was a palace coup by the elites, who deliberately skewed the system so that they could make more money.

Their political cover "theory" was that deregulation and less taxes (on the rich) equals "prosperity."

And since multi-billion $ corporations control the media in America this idea was propagandized endlessly as it still is today among right-wing media hacks.

Government was simply TAKEN OUT OF THE LOOP!

It's not that government regulators couldn't figure out what Wall Street was doing with these "credit-default swap" scams, although they were designed to be opaque. It's that government was largely hand-cuffed from regulating them because of CONSERVATIVE POLITICAL PRESSURE.

Phil Graham passed the "Enron Loophole." Energy futures markets were deregulated.

Accounting firms were permitted to issue "in-house" reports -- Audits from "friendly" firms that might either be partially owned or have a proprietary business relationship with the firm being audited (think Bernie Madoff).

No-one knew because of "fancy" (fraudulent) accounting practices what any company's REAL financial picture was.

Endless saga of de-regulation. Government because of CONSERVATIVE IDEOLOGY was prohibited from regulating business.

And because Whites voted for Republicans, they won elections and took their de-regulatory fanaticism with them. Democrats were (and some still are) afraid of seeming insufficiently "pro-business."

Now that Democrats are in charge and there's a total meltdown, the resistance to fundamental re-regulation of Wall Street, plus the banking and insurance industries is LESS.

Not weak. But, less. We might actually have a chance now that disaster is fresh in everybody's mind, although Wall Street is fighting back about how "unfair" and "disastrous" it is to "add to the regulatory burden" carried by business in a down cycle.

Of course in an "up-cycle" there's no pressure to regulate either. If things are going fine, why change anything, right?

Heads we win. Tails you're screwed. Saga of American capitalism.

Instead, we wasted one fortune in Afg and another ...

2009-03-26T16:14:00.000-04:00

Instead, we wasted one fortune in Afg and another in Iraq and got nothing.

Amen.