Slippery Slopes

Planos de bónus de ratos e homens,,en,Nossos planos mais bem-sucedidos costumam dar errado,,en,Nós vemos isso o tempo todo em um nível pessoal,,en,acidentes,,en,bons e maus,,en,mortes,,en,tanto de entes queridos e tios ricos,,en,nascimentos,,en,e loterias todos conspiram para reformular nossas prioridades e tornar nossos planos nulos e sem efeito,,en,não há nada como uma infelicidade sólida para nos levar a colocar as coisas em perspectiva,,en,Esta oportunidade pode ser o proverbial forro de prata que somos constantemente aconselhados a ver,,en,O que é verdade em um nível pessoal também é verdade em uma escala maior,,en,O colapso financeiro de toda a indústria deu uma claridade filosófica à nossa profissão,,en,uma clareza de que poderíamos estar muito ocupados para notar,,en,mas para os terríveis problemas em que estamos agora,,en,Essa clareza filosófica inspira análises,,en,e colunas,,en

Mas, this dictum of denying bonus to the whole firm during bad times doesn’t work quite right either, for a variety of interesting reasons. Primeira, let’s look at the case of the AIG EVP. AIG is a big firm, with business units that operate independently of each other, almost like distinct financial institutions. If I argued that AIG guys should get no bonus because the firm performed abysmally, one could point out that the financial markets as a whole did badly as well. Does it mean that no staff in any of the banks should make any bonus even if their particular bank did okay? And why stop there? The whole economy is doing badly. Assim, should we even out all performance incentives? Once we start going down that road, we end up on a slippery slope toward socialism. And we all know that that idea didn’t pan out so well.

Another point about the current bonus scheme is that it already conceals in it the same time segmentation that I ridiculed in my earlier post. Verdadeiro, the time segmentation is by the year, rather than by the month. If a trader or an executive does well in one year, he reaps the rewards as huge bonus. If he messes up the next year, Certifique-se, he doesn’t get any bonus, but he still has his basic salary till the time he is let go. It is like a free call option implied in all high-flying banking jobs.

Such free call options exist in all our time-segmented views of life. If you are a fraudulent, Ponzi-scheme billionaire, all you have to do is to escape detection till you die. The bane of capitalism is that fraud is a sin only when discovered, and until then, you enjoy a rich life. This time element paves the way for another slippery slope towards fraud and corruption. Mais uma vez, it is something like a call option with unlimited upside and a downside that is somehow floored, both in duration and intensity.

There must be a happy equilibrium between these two slippery slopesone toward dysfunctional socialism, and the other toward cannibalistic corruption. It looks to me like the whole financial system was precariously perched on a meta-stable equilibrium between these two. It just slipped on to one of the slopes last year, and we are all trying to rope it back on to the perching point. In my romantic fancy, I imagine a happier and more stable equilibrium existed thirty or forty years ago. Was it in the opposing economic ideals of the cold war? Or was it in the welfare state concepts of Europe, where governments firmly controlled the commanding heights of their economies? Se assim, can we expect China (or India, or Latin America) to bring about a much needed counterweight?