AIG: Bonus

The article below from Salon points to the weak argument of AIG executives that they need to pay bonuses to executives:

http://www.salon.com/opinion/greenwald/2009/03/16/aig/

It points out that union contracts have been changed for the bailouts of auto companies. In some respects this supports an argument the government should have left AIG to face bankruptcy proceedings. If AIG had been subject to bankruptcy proceedings we would not be in this ridiculous position where execs who are responsible for the AIG downfall are now being rewarded.

There is almost a feeling of dealing with socio-path. The continued sense of entitlement by execs at AIG is just beyond the pale. Pay us a bonus we caused the collapse our company.

Conservative Confusion in Canada

The Conservative government is being pulled in three different directions: ideological, pragmatic and populist. A good government needs to choose its directions. Canada has usually favoured pragmatic parties the Liberals under Chretien and the Conservatives under Mulroney were both pragmatic governments.

The current government oscillates wildly between populist, ideological and pragmatic. The original GST tax cuts, as well as all the strange little tax cuts in the previous budget were populist in nature. Ideologically the Conservatives are pro tax cuts but the most efficient tax cut would have been a broad income tax cut. The most recent budget is pragmatic both in attempting to stay in power and also in the strong movement worldwide towards providing stimulus. It has now switched back to populist with its crime bill.

The Conservative government if it is too be trusted and re-elected with a majority needs to choose to be either pragmatic, ideological or populist. While all broad political parties have a diverse range of constituencies it is up to the leader to define the direction of the government. So far Harper has failed in making the direction clear.

Greenspan

http://www.huffingtonpost.com/2009/02/19/alan-greenspan-the-oracle_n_168168.html

Good article on Alan Greenspan and the questions regarding his legacy.

Obama in Ottawa

So I went up to the Parliament hill to see President Obama's brief arm waiving to the crowd. My thoughts on this recent meeting is it both matters and does not matter. Regardless of the leaders of Canada and the United States the relationship will always be fairly strong. Even when President LBJ grabbed PM Pearson by the collar at camp David annoyed at Pearson's position with Vietnam relations continued. On the opposite end of the spectrum was the close relationship between Reagan and Malroney. The Canada/USA partnership is not based purely on the leaders but also on our military, economic, and geographic closeness. That being said a close relationship between the leaders allows for a more productive partnership. It is also worth noting that clearly Obama was more than well briefed on Canada's relationship with the United States. He seemed very aware of Canada's economic concerns, our involvement in Afghanistan as well the country in general.

The most strange aspect of this visit is the fact that for the first time I can remember a Prime Minister wants to appear closer to the US President. Usually in Canada Prime Ministers pay a political price if they appear too cosy to the US President. This was certainly the case for Mulroney and his relationship with Reagan. The Chretien government often had staff members bad mouthing President Bush Jr. partly to distance the Chretien government from the Bush White House. In this case the need for Harper to appear copacetic with the Obama administration may help to drag PM Harper to a more enlightened position on the environment.

It will be interesting to see if the popularity of Obama lasts not just in the US but also in Canada and other foreign countries. If it does last it represents great political capital the US can use overseas to gain support in the UN, deal with the middle east, improve trade etc.

Torys and the Economy

Clearly the Torys have not overcome there philosophical divide on the issue of how to deal with the economy. Flaherty and the PM Harper have stated opposite positions on whether additional money for stimulus will be forth coming if the economy continues in downward decline. Flaherty stated that more money may be possible yet the PM said otherwise. The Torys were largely forced by the Liberals to adopt a essentially Liberal style budget. The hard line Tory ideologues many of which were hold overs from the Reform party believe in a true free market approach to economics and that budgets should remain balanced at all costs. This may create a problem for the government in responding to a rapidly changing system. It also should create a significant weakness that the Liberals could use to their advantage.

I generally try not to dovetail US and Canadian politics. But it looks like the Republicans have a similar problem trying to adjust their messaging in response to the economy. The difference is far more Republicans are willing to cling to their orthodox economic positions; tax cuts, free market, and minimal state intervention.

Both the Republicans and the Torys need to create a measured right wing position. They need to recognize the problems of market excesses in the last few years and develop appropriate policies around the problem. Sadly particularly in the United States the more sensible members of the right wing thinkers are being pushed to the margins. It is important the a coherent right wing position develops. Not because I support this position but good policy will not be developed to deal with the financial crisis if the only good ideas come from the political left.

Executive Compensation at BMO the CEO Always Wins

Currently there is a large debate in the US because a number of big banks have still handed out considerable bonuses. This is clear questionable given the fact that banks were certainly a major contributor to this mess.

Canadian banks have largely not be sucked into the loan scandals in the US mainly due to stricter regulations. So our banks are in less of a tenuous position than the UK, US, Iceland and others not because of great thinking of planning by CEOs but because our regulations in hind sight were better.

None the less banks have still seen revenue decline substantially and stock prices plumet. This leads the obvious of question of why BMO is paying out such a hefty compensation package. I have attached a graph of how BMO stock has done in the last year and comparing it to the TSX Composite it has done worse. Yet the direct compensation for the CEO of BMO Bill Downe has gone up he received $6-million in direct compensation versus $5.5 million in 2007. Certainly his return on stock options has probably gone down or is completely under water. The board cited that Bill Downe "performed well in challenging times." BMO missed four out of its five performance targets. Mind you these targets were probably set before the economic crisis. But you still have to wonder what a CEO has to do in order to not receive a substantial pay cheque.

It is clearly time that executive compensation is put to a shareholder vote. In fact a two stage vote would make the most sense. The shareholders vote on the compensation plan for the upcoming year and they also vote on whether the CEO met his/her targets in the past year.

Money Money Money

A couple of interesting Bills related to money on both sides of the border.

Canada- The budget looks like it is going to pass. But it appears that Ignatieff has put the Torys on notice stating that their support of the government as limited and subject to review every 3 months. Given the fact that Harper already tried to play political games and still appears a bit direction less with respect to economic policy this is a wise decision.

USA- Obama's big stimulus package passed a vote of the House with no Republicans in favour. I always thought Obama was bending over backwards to accommodate the GOP unnecessarily in the words of some "He won." There were extra tax cuts included at the insistence of the GOP that seemed just a continuation of Bush-economics. Yet in the end no GOPer in the House voted in favour. This makes the GOP look slightly ridiculous and may mean that Obama should somewhat rethink his bipartisan approach. I think he certainly wants to be bipartisan and that actually may lead in some cases to better policy but I think he may want to consider if there is a better way to go about it. The GOP is now blaming Peloisi for there lack of support. This is probably due to the fact that Obama is widely popular and he consistently invited in the Republicans for sit downs to discuss the budget.