Comments on: Your Bonus: Toxic Waste

By: Kiers

Kiers — Mon, 22 Dec 2008 23:51:00 +0000

These guys are lucky JUST TO CONTINUE TO BE EMPLOYED. Hmmph!

By: relvalguy

relvalguy — Fri, 19 Dec 2008 05:07:06 +0000

“Bonuses will take the first hit should the securities decline further in value”.I’m sure enough of these guys to not believe such statements anymore.It’s a convenient ploy to take bonuses home while appearing to improve accountability at the same time.As always,the devil is in the details,and we are sorely short on those.

By: Not so sure

Not so sure — Thu, 18 Dec 2008 22:58:46 +0000

So basically insiders skinned the shareholders on the way in ( when they loaded up the balance sheet ) and on the way out ( by valuing the assets low enough so to create profits with a good probability)
And people think that this is good thing and they way forward; how gullible!

By: jck

jck — Thu, 18 Dec 2008 22:02:25 +0000

65% off face value according to the FT:
“People close to the situation said the assets had been marked down heavily, to an average of 65 per cent of their original value, making it likely they would appreciate in value as credit markets thaw during the next few years.”
Credit Suisse ties pay to illiquid assets

By: SS

SS — Thu, 18 Dec 2008 21:54:52 +0000

Does anyone really think they salted their bonus pool with valuations they didn’t expect to increase dramatically…

By: Ovid Benelli

Ovid Benelli — Thu, 18 Dec 2008 19:20:41 +0000

Good thinking. Perhaps I can make my next mortgage payment with Madoff certificates.

By: David Merkel

David Merkel — Thu, 18 Dec 2008 17:59:44 +0000

This would make everyone interested in underwriting quality, even those in unrelated departments.

By: jonathan

jonathan — Thu, 18 Dec 2008 16:56:14 +0000

Nice idea. It was always wrong to pay current bonuses on pools & deals with uncertain future value. In some realms, as in certain pension fund real estate investment operations, the dealmakers would vest in an equity pool because that was believed to align their incentives with the fund’s. We have seen the problem with bonuses paid on deals that then generate massive losses.

We talk about ways to prevent bubbles. One would be a mandatory insurance pool, like the FDIC, but another would be to de-couple bonuses from the present. The number of iffy deals would drop and the people in the pool would police their own because they would suffer if colleagues became pigs.

By: jck

jck — Thu, 18 Dec 2008 16:16:50 +0000

It looks like a kind of simple CDO structure like the ones the Fed and the SNB are using for Bear, AIG, UBS toxic assets etc…, the “executives’ bonus” are the first tranche i.e equity , the bank is funding and would take losses in excess of the first tranche, I am simplifying but you get the idea.

By: Not so sure

Not so sure — Thu, 18 Dec 2008 16:00:41 +0000

But what marks are they using on the assets?
Will they cherry-pick the better ones?
If losses happen , who will pay for them? ( The liability to the employees will be non cash for five years, so who funds the losses as they happen?)
Why CS offers leverage to the investments of the employees? Could this end in people having to pay CS money?
Sounds good in paper , but how will it work in practice?