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06/14/2009

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Anonymous

I think an overlooked restraint on the pay czar's power is the threat of constitutional challenges. The administration clearly does not want courts meddling in these programs, and judicial interference would limit the effectiveness of the programs by slowing the process. These suits will probably be subject to rational basis review - which is virtually impossible to win - but the suits do not have to be successful to interfere substantially with the administration's objectives. Conservative and libertarian groups are likely to bring constitutional challenges to these programs regardless of the pay czar's actual actions, but they are unlikely to be joined by mainstream industry groups unless the pay czar overreaches (don't want to bite the hand that feeds).

Anonymous

So now we are going to go from excessive risk to no risk, excess to insufficiency, from stupidity to ignorance, from freedom to servitude, from a distributive economy to a centrally planned one. How long will the American people tolerate this political nonsense. Is it really a rational public that cures problems by choosing a solution which will make the problem worse.

Jim

Anonymous

Jim, Perhaps take a bit longer view? Truth is we're hardly at risk of a "centrally planned" economy but are patching up the damages wrought by too little regulation.

Looking back our car companies were, to some extent, victims of over-regulation in the past; such as not being able to shed something on the order of half their dealers. So, I'd cheer the fact that after a century of building most of our vehicles that they are being set up to provide competition to the other car companies. They are all large enough to maxx out economies of scale, so we, and our economy would seem to benefit by there being more, not less competitors.

IF we believe in the power of capitalism to profit from voids in the market, I suspect that many of the ousted dealers could turn their companies around by becoming competitive service and repair alternatives, especially in the rural areas where the drive to the remaining dealer is a long one.

Overall, it's good to remember that every machine has to be rebuilt from time to time and we are living in an era of fundamental change...... note 15% of the workforce being unemployed or in marginal, often part time, sht-jobs, and there being no shortages of anything and little likelihood of shortages (other than fossil fuels) any time soon?

Anonymous

Large corporations have successfully lobbied for years against changing the way executive compensation is set, namely by blocking moves that would give shareholders more say. Since they have artificially maintained high compensation level through lobbying, is it not right for the administration to artificially reduce executive compensation through its powers. I know that this is not right way to do it, but if executives have abused the system for their good the government may as well as do the same to suppress their gains. Blind in Vendetta.

Anonymous

We make a mistake in conflating the apparently excessive pay (given despite dismal outcomes) in the US auto industry with the financial industry where the recipients had the bad fortune to guess wrong on risk. GM has been heading steadily - and increasingly - toward fiscal disaster for at least the last 10 years. The executives who helped push that bus are of a very different sort from those who did the opposite: who miscalculated risk.

Anonymous

"Our car companies were, to some extent, victims of over-regulation in the past; such as not being able to shed something on the order of half their dealers. . . . many of the ousted dealers could turn their companies around by becoming competitive service and repair alternatives, especially in the rural areas where the drive to the remaining dealer is a long one."

Except that the same dealer-sponsored state laws that prevented manufacturers from shedding dealers also prevent anybody but dealers who can also sell new cars from performing warranty work.

Anonymous

Hello,

Judge Posner, as a federal judge involved with supposedly challenging appellate cases, where do you find the time to write books? Frankly, are you using tax payer time for your own financial gain? If the pay of federal judges is inadequate for your needs, then the right thing to do is resign your judicial position. You will be free to accept a very high paying partnership in a law firm (Jones Day Posner or Wilmer Pickering Posner, or even Dewey Posner). And then you can do whatever you want. We all know that federal judges are not accountable to anyone, but maybe we the taxpayers can humbly require that all federal judges regardless of their liberal or conservative bias, put in a day's work for a day's pay.

Professor Beckler, please correct me if am in error, but doesn't the University of Chicago with huge financial resources accept all kinds of financial assistance from the federal government? It is no secret that Harvard, Yale, and Stanford do so. And if the University of Chicago does accept federal funding, do you personally agree that this is in keeping with your ideas that government spending should be limited.

Thank you.

Anonymous

Hello Mr. Posner, Mr. Becker:

First post, recent visitor, look forward to exploring and learning.

My first impression is that micromanaging is ineffective role for the Federal Government, and that my teenage years recall the efforts of President Nixon and his Wage Price Control efforts that seem to cause a temporary solution with much bigger long-term economic consequences.
Clearly some pressure needs to be used to encourage better compensation towards a balance of long-term consideration along with short-term opportunities. That the shareholders clearly need more transparency and understanding of how these compensation packages will effect their investments, and a means be found that allows them to better influence corrections when they are slipped into the CEO pay package.
Since at this time the Federal government does play a role as a shareholder, along with structuring means of transparency, and regulation, it can provide a role in identifying what effective means can be established so that shareholders do have some real decision-making voting ability towards monitoring and approving a CEO pay package that maintains a balanced approach towards long-term and short-term opportunities for the company, corporation, business.

I would like to suggest topic of interest to me, on and off for 30+ years. It started in 1973 during my experiences in the Air Force during and after the Yom Kipper war regarding the national security and economic needs for this nation regarding oil and energy. Two general principles struck me deeply, that our need for oil could led to military actions by the U.S. in the Persian Gulf, and that like the depression era Civilian Conservation Corps the U.S. would need to consider the establishment of a decentralized, nation-wide Youth Energy Conservation (Efficiency) Corps.

Shortly after moving to San Jose CA, 1978, I learned of Congressman Paul N (Pete) McCloskey’s bill in the House of Representatives to replace the Selective Service System with a voluntary National Youth Service System. The core principles of change were to have males and females register at 17 encouraged to debate the role of service both in a community format of service and military service. At 18 provide feedback towards yes, no, or maybe towards some form of contracted service. Maybe (to age 23) allowing for further consideration, maturity, additional education for post higher Ed participation. Community service would be vastly expanded with some programs being established by local government, state and federal agencies, but a even higher percentage of focus would be on non-profit maintained programs. Today those on Social Security or really retired, should be encourage to also participate more as volunteers then as a form of contracted service.

I have gotten brief kind words from members of Congress, including extensive correspondence with my representative then, Congressman Mineta, and Congressman Panetta. Nearly every White House administration, especially the Reagan Administration, but not the current Obama Administration, yet has provided thank you notes. Since 9/11 I have gotten brief encounters with many people of influence, photos to document close encounters, but near zero feedback, at the Commonwealth Club of California, World Affairs Council of Northern CA, Marines' Memorial Association – San Francisco, U.C. Berkeley. Not sure why silence is the best these encounters offer, and how capitalism can offer a foolish veteran, career clinical laboratory technician, the means to market participatory democracy constructive citizenship, contracted service as a national product worth purchasing or at least investing in.

Being a fan of Charlie Rose these last 15 years, I discovered Mr. Posner’s presentation very compelling, worth further exploration, have order a few of his past books, and current one for further understanding of his perspective on life, society, civilization. Charlie Rose is a part of my close encounters, shared detailed documents, wall of silence.

I hope both you Mr. Posner and Mr. Becker can consider this three-part theme of mine:
Educational (decision-making) Democracy
Constructive (sweat-equity) Citizenship
National (economic-individual) Security

I like to think of myself as a existential phenomenologist, trying to understand the reality of what challenges and solutions lie ahead for our nation first, government and capitalism second, political parties a distant third. Having worked in the health care field most of my life, this life game of who lives or dies seems very real, but finding solutions towards a better more effective structure is so complex with winners and losers that our narrow minded ego’s will probably prevent us from outlining, and creating any real reform that is cost-effective. I look forward to your discussions on this and many other topics.

I hope my priority can become a part of your priorities, at least as a interesting intellectual consideration.

Peter Jesella

P.S. Anonymous seems to be a very popular commentator.

Anonymous

Great! Thank you!

Anonymous

Judge Posner notes as examples of companies under public control both Fannie Mae and Freddie Mac. Given their status as Government Sponsored Entities ("GSE"), even before they were taken over by the government they already had directors that were political appointees of the President of the United States. Fannie Mae and Freddie Mac's highest risk was always political risk given their status as GSE's and the political whims of Congress (see, e.g., their ever increasing low income lending goals that arguably pushed them into ever riskier lending as the pool of eligible borrowers dwindled). Government control of either boards of directors or of the compensation committees of corporations does not provide any safety net or provide better value to corporate entities. It just encourages political meddling and bureaucratic mediocrity and inefficiency.

Anonymous

Judge Posner notes as examples of companies under public control both Fannie Mae and Freddie Mac. Given their status as Government Sponsored Entities ("GSE"), even before they were taken over by the government they already had directors that were political appointees of the President of the United States. Fannie Mae and Freddie Mac's highest risk was always political risk given their status as GSE's and the political whims of Congress (see, e.g., their ever increasing low income lending goals that arguably pushed them into ever riskier lending as the pool of eligible borrowers dwindled). Government control of either boards of directors or of the compensation committees of corporations does not provide any safety net or provide better value to corporate entities. It just encourages political meddling and bureaucratic mediocrity and inefficiency.

Anonymous

Man can only befree through mastery of himself.

Anonymous

Peter: It's interesting to consider forms of public service. I was drafted during the Viet fiasco with one of the positive aspects being that of working with others from across our nation.

But, for most, I'd say the time spent delayed or at times killed finishing college and getting started in a career. Still it's tempting to think of young folk volunteering to directly serve the nation they are about to inherit.

On the other hand, if we believe in capitalism and it's most important aspect of deploying scarce resources efficiently, one could argue that simply "following the big bucks" is more efficient than doing what tasks the government thinks should be done.

Today, I'm again interested the concept, as I think a combo of productivity increases and "global competition" in which the "globe" has a nearly infinite supply of un- or under employed labor, and that perhaps the government is going to HAVE to be the employer of last resort in order to mop up surplus labor.

Usually the World Wars I and II are spoken of against a back drop of complexity or a charismatic leader gone mad, but surely world wide recession/Depression played a major role in the unrest and rivalries. I'd a lot rather the government hire our surplus labor to do positive things than waging war and there are things that need doing. "Capitalism" seems to do a fairly poor job of getting the right number of lawyers and the right number of those angels who take care of old folks for less than the most basic min wage. Could? should? government try to take corrective action?

Lastly, I wonder if the Peace Corp was neutered and prevented from being what it might have become? For example, after we and the USSR tired of playing "cold war" games in Afghanistan, suppose that a far more muscular Peace Corp had gone in to help that impoverished and war torn country back on its feet and filled much of the void exploited by drug lords and Taliban? Ahh, who is to know? Jack

Anonymous

Anon.... 12:46 sez ......."(state laws) also prevent anybody but dealers who can also sell new cars from performing warranty work."

.......... Yes I think that is true for actual warranty repair for which the dealer is paid by the mfg. Maintenance can be done by independents, though perhaps most folk would be nervous about keeping enough records in case of a breakdown and warranty claim.

.......... A while back in talking to a diesel engine company, I discovered that one of their "problems" was that of today's diesels going 4 times further before needing overhauls; I suspect that despite our laments the same is the case for cars; there's not much TO do for 100,000, sooooo, perhaps we and auto mechanics will have lots of off-warranty cars of 100k plus that are worth repairing.

And perhaps that's wrong too, as a whole new tech takes place, and isn't that yet another sales problem? Who would want to invest in costly gashogging SUV's that may soon be rendered obsolescent by new products? LOTs of folks displaced by various aspects of globalism, productivity increases as well as blatant theft, so despite the sadness of many family dealership's plight, I suppose it's their turn now with many others to take a turn later.

Jack

Anonymous

Jack,

One of Anon's points about the auto dealers, I believe, is that they happily used their political clout to obtain government protection from market conditions and then went way too far once they realized government gave them the whip hand over manufacturers, and so are less deserving than others, at the group level, of our concern now that the chickens have come home to roost.

Anonymous

Compensation as Motivation is a superb tool for motivation, but motivation without supervision or regulation is a disaster waiting to happen. Sound and look familiar? This applies not only to the lowly Janitor, but all the way into the Board Room. BTW, what ever happened to all the Middle Management companies once had? Oh - that's right, they were cashiered for not being cost effective and adversely affecting efficiencies and freedom of action via empowerment.

A "Pay Czar" for those Corporations that have taken monies from the Fed.? Sounds like a good idea too me.

neilehat

Anonymous

There was a lady from the countryside who came to the city and checked into a hotel. Then she said to the bellman, "I refuse to take a tiny room like this, with no window and no bed in it! You can't treat me like a fool just because I don't travel much! I'm going to complain to the manager!" So the bellman said very politely, "Madam,
this isn't your room. It's the elevator!"

Anonymous

Life is a leaf of paper white, thereon each of us may write his word or two.

Anonymous

good

Anonymous

Anon 2:04 "One of Anon's points about the auto dealers, I believe, is that they happily used their political clout to obtain government protection from market conditions and then went way too far once they realized government gave them the whip hand over manufacturers"

JJJJJ General agreement, but the dealer/mfg relationship is another one with inherent problems regardless of how they do it.

In retailing (theoretically) the law insists that retailers can buy product from any mfg or wholesaler. In practice, say, a mfg of skiis would rather not open up the small shop down the street to compete with the volume dealer in the same town, but they get around it by saying "We aren't producing enough to open up a new account". Naturally this is crap as the small store is doing less business for the season than the big store does in a good week. Once they do "open up" a store they have to continue to supply unless there is cause.


The Big Three have long had market power akin to a government in a nation of central planning, with similar problems. If the game were strictly that of devil-take-the-hindmost with lagging dealers being dropped each year, those at risk would surely engage in wholesaling a batch of product to the detriment of the rest of the dealers. And how would small dealers get started to begin with?

With too many dealers plying for too few customers, which is much of the problem today; the shopper can work each against the other and both against internet marketing) For developing and maintaining a brand on a product like a car, cut throat competition is not always healthy.

So we start down the slippery slope of standards and relationships with the dealer being assured that he'll be around long enough to amortize local advertising, special tools, parts, etc. with the mfg having more control over how his product is sold than in lower priced mass marketed goods. It's not simple.

As we consider "chickens coming home to roost" we should remember that when the market for a thin margin, hotly competitive, nearly commoditized product shrinks to half what it had been that no matter what is done lots of chickens will end up with no place to roost.

This one mess has been brewing for a long time too, as dealers and mfgs took future sales through a host of incentives to "buy now". Now they've flooded their market with product that won't need to be replaced for many years, and of course the triple whammy of high fuel prices, a recession brewing, and a credit collapse adds up to a biz guy's worst nightmare.

Jack

Anonymous

Dear Judge Posner,

In Australia, executive compensation for public companies is disclosed and put to a non-binding vote of shareholders at the annual general meeting. While non-binding, it does give the shareholders a chance to voice dissatisfaction, which in some cases does lead to changes in compensation structure.

Also with regards to deferred compensation in company stock, this does not really work unless it is done in a way that strips out the ups & downs of the market. Otherwise in a general bull market a bad manager will most likely still win and in a bear market a good manager lose. A solution to this is to have deferred "alpha" compensation where the executive is both long his/her company's stock and short their competitors stock. This means the executives needs to perform better than their peers. This could also be replicated at the trader level for deferred compensation also.

My personal preference for CEOs & senior executives is that their cash salary is really a premium for them *selling* to the company a *long dated put* on their stock. Which can only be partially hedged by *buying long dated puts* in their competitor companies. This makes it very clear that the CEO has the *obligation* to perform rather then the *right* to walk away if he/she fails.

Kind regards,

Sean

Anonymous

Sean........ It's interesting that we'll trip all over ourselves to reward the CEO and a few upper execs with (in theory) performance bonuses et al, while rank and file employees rarely haves such "incentives".

Somehow, the words "company", "team" etc. conjures up for me the concept of people working together for a base pay plus sharing in the rewards the company was able to achieve at year's end. The "genius" is not all at the top. Consider; branded chain restaurants or stores that still provide customer service, it's often a cheery and helpful waiter or knowledgeable and helpful sales person who makes far more difference than anything else.

Today, half of our workforce is flitting from one crappy job to another with neither company nor employee making much of a commitment to each other, so the companies end up with poorly trained people while the employees often end up being "entry level" for most of a "career".

I'd predict that stock options, incentives and a sense of ownership would result in a substantial increase in productivity and the growth of America's companies and its competitiveness in the world, that would more than pay the incentives. "Humping it" for the CEO's and a few at the top to be grossly over-rewarded is hardly the way to build a competitive and inspired team.

Jack

Anonymous

Dear Jack,

Let me be clear on my personal, ethical approach to the world -> I essentially take a Hobbesian/Japanese hybrid ethical approach that sees ones participation in society being about obligation not rights. Rights exist outside society, if you can enforce them, but obligations only exist within a society.

However, one needs to be realistic and take a Bayesian approach where you take the current reality and then modify it for the better. Rather than taking radical, idealistic approaches that are clearly a significant departure from the current framework.

I personally dislike having a performance component to my compensation because I believe that in anything one should always do ones best irrespective of incentives. (though I believe in market to market for ones ability/position) But this is not our current reality and also may not be an evolutionary stable strategy (at least for the current USA/western, even Chinese, framework).

If you are looking for a role model for the ideal of obligation within the financial world lookup a person called Nugget Coombs who was the head of the Reserve Bank of Australia -> a earlier peer of Mr Greenspan.

I would also like to note that it is very interesting that both Australia & Canada have been able to avoid most of the global financial crisis while being very culturally similar to the USA & UK. I think this needs highlighted more and looked into deeper as it would probably show that increased regulation is not necessarily better -> USA was probably more regulated but hampered by being poorly supervised...

Kind regards,

Sean

Anonymous

Stock holders have all the "control" they will ever need - they can choose not to buy the stocks of companies whose articles of incorporation and bylaws are stacked against shareholders. By all rights this consideration should engender competition for capital, and be factored into the investor's expectation of return on investment. Instead, people buy a particular stock because they think there is a danger of other people making money on it. To the extent that the SEC et al foster an unjustified reliance on their oversight, the government is culpable and should attempt remedial measures. The big picture, however, is quite the obvious con, and does not move me to sympathy. Historically, large numbers of people have made and increased their wealth by making these investments, despite the burden of self-interested principals at the top, rather like mob control of the New York garment district - blood sucking, but not enough to kill the host.

One would hope recent events would encourage people holding capital to dispense it more prudently, and in the short term that may happen. (In the long term, by which I mean eons into the future such as 2012, the inner fool will re-emerge and hope shall no doubt once again spring eternal.) Maybe a company attempting to attract capital in the present market could try advertising stockholder-friendly bylaws as a good reason for investors to back their enterprise instead of another. I for one would welcome such a hopeful sign of the intelligence of capitalism.

Anonymous

The above post, beginning "Stock holders have all the "control" they will ever need", was not intended to be anonymous. The software has changed and I wasn't given a field to enter my i.d.

Terry Bennett

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