Heads I win, Tails you lose, The NYS Comptroller Thomas Napoli recently revealed that the Securities Industries in the NY state only’ granted its employees a staggering $18. 4 Billion in Bonuses after the onset of US Financial Crisis, which the newly elected US President termed ‘shameful’. The figure only includes the cash portion and doesn’t include the auxiliaries like the stock options and other convenient cash vehicles that raise the value by 25 to 100% (Frey and Lenz 2009).
This is the unaccounted and unbridled Greed, Deceit and Avarice Wall Street that pulled the Main Street and their residents to their knees (Business Pundit 2008). Top executives’ salaries in the financial head offices run from $100,000 to $750,000 (Stein 2008). The 116 banks those received the bailout money had heads who were receiving $2. 6 Million in bonuses (apart from salaries) (Stein 2008). The US senator C.
McCaskill revealed that the Citigroup Inc even in the process of receiving $45 Billion Direct Government Investment’ has recently taken the delivery of $50 Million luxury corporate jet (Sheng 2008). The same Citigroup exec that lead the bank on the brink of insolvency took bonuses of $38 million in the same breath. Same is true for the AIG’ one of the largest failures with $85 billion of Government help along with $45 billion of backstopping by taxpayers, Mr Sullivan the CEO went with the severance package amounting to $47 Million (Sheng 2009).
Potential remedies Last century was mired with hordes of Financial turmoil that inflicted discomfort and vex to the global and regional economies one after the other. The new century though commenced with the fervor of prosperity and success’ suddenly despite in the presence of complex forecasting models and all the incumbent rules and regulations’ fractured to surface the faltering underlying snags in the financial tectonic plates that now carries the entire world.
While such crisis can not be halted altogether, the crux of redressing the current problems should be to cripple the momentum and magnitude of the next financial tremors. Thus the intention behind the transformation of the economy’s body language should be Better Regulations along with strict implementation rather then the tirade of more rules. Especially the realm of Micro-Regulations in Base 2 should be added on with Macro-Regulations that honors the phenomenon of developing through the roots rather then form superficial tissues.
The world has seen more than a hundred Banking crisis but each time these are the bankers who are chided, emergency plans are put into place to cover the loop holes and the story starts again after filling the last ditches without identifying and erecting the most fundamental causes that unfurl the fault lines again. The current quagmire is just an extension and re-happening of the very fundamental and yet inevitable boom burst cycle.
These are the banks that render successes and yet fail the Capitalist structure (Predominant system ruling the global economy), thus protecting them is not only vital for health of any financial system but it failure bodes evil for the entire economy, thus regulations which can not halt the collapses are worthless at best. Ands the root cause of banks crashing out when the social cause of Systemic financial crumple surpasses private cost to individual financial entities. Thus the new set of rules should be such that to transform these externalities to get internalize!
Desist the fall out. The US financial system is beyond comparison when it comes to its underlying structure cum DNA. It is based on Capital market and its auxiliaries. There’s a larger share and role of investment banks and their entities along with the institutional investments. Over the years, under lax or almost no rules and regulations, American banks, Insurance and ‘pre-insurance, industries accumulated charges worth trillions on their balance sheets, which were backed by literally phantom assets.
Thus over the period of time, as the mortgage advances climbed up, it began to create much bigger vacuum on their back that suddenly ended up in Bust! Shock that made whole structure collapse under its own weight. Now the government is trying to cleanse this mess, by buying mountains of crap ‘bad assets, to clear up bank’s balance sheets, keep them until the economy recovers and to sell them back to public when crap turns into something worthy!
(The 8 trillion dollar bailout, 2009). Thus the underlying cause of this whole drill is to lighten up the bank’s load so that they could get stand again and start functioning by lending. This is vital as banking industry forms the very backbone of US economy and without it their can not be any recovery, another driving force for such a move is to secure the interest of tax payers by shielding their deposits and shares.
This would lead of credit that serves as a fuel for other economic activities, the eased credit would halt the fall of other financial and industrial units thus containing the contagion from spread, this stabilization would enhance the investor’s confidence that would ease up the investing and buying constraint that is the cause of pain from other side of equation. Thus the whole bailout or Emergency Economic Stabilization act is a move to stabilize the economy and retort the keel to its original location.