By Elana Schor
Financial executives have spent so much time testifying before Congress these days that earlier this week, The Hill offered CEOs a
Dos-and-Don'ts guide to staying on lawmakers' good side. Something tells me that the good folks at the Security Traders Association of New York (STANY) haven't read it.
In a letter to the Senate Banking Committee today, the STANY offers a hilariously hyperbolic plea for rejection of the 90% tax on bailout bonuses that
the House passed last week. You can read the full letter
right here, but here are some key passages ...
... here, STANY visibly shakes its collective head at the idea of a bonus tax, asking senators what the Founding Fathers would make of congressional anger over executive compensation:
Whether retroactive, punitive taxes upon bonuses that were contractually mandated prior to the government's involvement in A.I.G. are legally immutable or not, the use of taxation to punish a select group violates the principals upon which this country was founded. The government's reaction to the bonuses undermines businesses' faith in the government, which will frustrate the purposes of the relief programs aimed at economic recovery. At a time when the government is unveiling programs to encourage private investor to partner with it, we need a government that can be counted on to not change the rules of the game.
Then STANY goes on to suggest that any limits on executive bonuses might force businesses to not cooperate with the Treasury Department's new bank rescue plan:
This kind of retroactive, emotional rulemaking negatively impacts the incentive of parties to do business with the government and with firms that partner with the government. Now is the time when Wall Street and the federal government should be working together to implement viable solutions to improve the economy. Reactionary policies, such as H.R. 1586 serve to make businesses leery of such a partnership.
Even as the STANY praises AIG executive Jake DeSantis for his resignation op-ed in
yesterday's New York Times, it admits that DeSantis could have feigned the whole thing:
Whether this letter which has received a tremendous amount of buzz since being posted is a legitimate resignation letter or not, the sentiments are shared by many on Wall Street.
The letter contains at least 10 grammatical errors, according to my informal count -- including the spelling of President Obama's name as "Barak". Perhaps The Hill can write a follow-up with tips on how to draft a letter to the Capitol.
Corporate NarcissismBy Peter A. McKay
In a resignation letter
published in the New York Times today, AIG executive Jake DeSantis complains that he and other employees who weren’t directly involved in structuring credit derivatives have been unjustly caught up in the recent controversy over the company’s bonus payments. After all, their activities weren’t at the heart of the housing mania that has been unraveling in disastrous fashion since mid-September.
What’s not mentioned in the letter is that Mr. DeSantis, as head of business development for commodities, was indeed involved in a separate bubble that also held serious consequences for the broader economy and that also burst last year. That “other” bubble, which entailed gains in an array of raw materials over several years, ended shortly before the housing bubble, which has since easily overshadowed it.
Oil prices rose more than five-fold between the start of the Iraq war in spring 2003 and their peak last summer around $150 a barrel. That in turn helped the Dow Jones-AIG Commodity Index — which is jointly owned by the publisher of the Wall Street Journal — to more than double over approximately the same timeframe. Now the index has plunged more than 50% from its records hit in July 2008.
In retrospect, most traders and analysts now agree that commodities’ run-up constituted a speculative bubble fueled in large part by buying from hedge funds and other players who had no industrial need for raw materials. Among the main vehicles used by these investors to place bets on paper on the sector were various index products, including instruments that paid returns based on the DJ-AIG.
In the meantime, sharp gains on commodity-trading floors translated into increased prices for people around the world at the pump, at the supermarket, and elsewhere — a phenomenon that helped to wreck consumer confidence well before last fall’s eruption of financial crisis. (In a recent interview with the Wall Street Journal, British Prime Minister Gordon Brown — who served as his country’s chancellor of the exchequer through most of the commodity bubble — said that excess oil speculation is a problem that regulators around the world are going to have to revisit once they’re done dealing with the credit crisis.)
Now that AIG itself has melted down, it is selling its commodity-index business to UBS. A spokeswoman for Dow Jones & Co., said that deal will have no effect on this company’s stake in the index. AIG’s press office said Mr. DeSantis is declining interviews, preferring to let his published resignation speak for itself.