Thursday, December 08, 2011
From a couple of professors at the University of Zurich, a study that suggests that applying a surtax to the bonuses of bankers will tend to increase risk-taking behavior, rather than dampen it.
First, whaddya expect from a couple of Swiss academics?
Second, governmental attempts to regulate compensation in the name of populism almost always backfire, because people acting in their self interest are a lot more motivated and devious than politicians and regulation-writers. See, e.g., the consequence of Bill Clinton's surtax on executive salaries in excess of $1 million per year. That drove much higher performance-based equity compensation, the primary cause of soaring total pay.
... That drove much higher performance-based equity compensation, the primary cause of soaring total pay.
And, that contributed to the shift from paying dividends to increasing stock prices. This shift leads to an increased emphasis on short-term growth instead of long-term growth. Each new attempt to fix the problems caused by the last fix causes new problems. These are compounded with each bad outcome reinforcing the other bad outcomes.
Eventually you wind up with a company that is going to revolutionize the grocery business by using FedEx to deliver orders, and you know "we're not in Kansas anymore" when this seems like a reasonable business model to most people.
As noted by the esteemed philosopher Hunter S. Thompson, "When the going gets weird, the weird turn pro."
"For the Snark was a Boojum, you see."
I didn't look at the article but it's plausible. When it comes to investments, government is the worst kind of partner. It wants a cut of the winnings, but doesn't share in losses.
When you're investing your own money, it can skew your decision to taking less risk. Hence the popularity of tax-free municipals for the likes of John Kerry and his Heinz wealth.
When you're working with other people's money -- and you have a personal lifestyle bogey to support -- I'd double down,