A roundup of economic news from around the Web.
- Executive Pay: On Mother Jones, Joseph Stiglitz talks about executive pay. “How the market has altered the way we think is best illustrated by attitudes toward pay. There used to be a social contract about the reasonable division of the gains that arise from acting together within the economy. Within corporations, the pay of the leader might be 10 or 20 times that of the average worker. But something happened 30 years ago, as the era of Thatcher/Reagan was ushered in. There ceased to be any sense of fairness; it was simply how much the executive could appropriate for himself. It became perfectly respectable to call it incentive pay, even when there was little relationship between pay and performance. In the finance sector, when performance is high, pay is high; but when performance is low, pay is still high. The bankers knew — or should have known — that while high leverage might generate high returns in good years, it also exposed the banks to large downside risks. But they also knew that under their contracts, this would not affect their bonuses.”
- Bank Profits: Barry Ritholtz of the Big Picture says record bank and broker pay is engineered. ” How hard is it for any finance firm to make risk free money when they can borrow form the Federal Reserve at zero, and lend that same cash to the Treasury (by buying bonds) at 3%? I suspect this is essentially the Bernanke/Paulson plan (now Bernanke/Geithner) to slowly recapitalize the banks via the Japanese model, rather than force insolvent institutions to reorganize. What may thwart the massive Fed giveaway is the self-interested institutions, who are not lending, and capturing the lions share of this wealth via bonuses.”
- Fed Future: Tim Duy of Fed Fed Watch sees the Fed standing pat for the near future. “The underlying pace of growth is in doubt. To be sure, manufacturing is getting a boost from inventory correction and pent up demand; the upward trend in industrial production, ISM, capacity utilization, and new order for nondefense, nonair capital goods all look solid. But households are financially hobbled, and net import growth remains lacking. All told, the net impact is to stem the pace of job losses and, if temporary help is an indication, set the stage for actual gains in nonfarm payrolls in the months ahead. But a rapid reversal of the dreary employment setting looks elusive, especially given the likelihood that growth slows as government stimulus wanes in the second half of 2010. Loose cannons like Hoenig aside, all of this should keep monetary policymakers on hold, not pushing to actively contract the Fed’s balance. Further expansion of asset purchases is not out of the cards, as Bullard makes clear. But the bar to additional purchases looks high; the Fed will wait to see how actively evolves before taking that road.”
Compiled by Phil Izzo