Ben Walsh

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As European leaders are being criticized for their austere approach to economic recovery, Fed Chairman Ben Bernanke is similarly fending off critics who believe he's not doing enough to grow the economy. Europe's obssed with cuts; Bernanke, the argument goes, is obssessed with inflation.

Remember, the Fed has two mandates: to create "stable prices" (largely, keeping inflation in check) and to help maintain "full employment". Bernanke's critics, of late, have accused him of worrying far too much about the former.

And at the heart of the debate is whether a tactic long-taboo to central bankers, inflation, is in fact what the U.S. needs to drive unemployment down. (Think of the effect inflated housing prices could have on unemployment.)

During yesterday's Paul vs. Paul debate on Bloomberg TV, Paul Krugman again argued that the "notion that wages are fixed and any inflation comes at the expense of workers is wrong. Wages tend to rise faster in an economy that's doing well." Ron Paul portrayed any inflationary policies as theft from savers.

On Friday, the LA Times published the of pay for Lehman Brothers' top 50 employees in 2007.  That's employees as in managing directors and below: pay for "named corporate officers" like Dick Fuld was publicly disclosed. This is how much you make if you're not running the company, but just working there and making lots of money.

While LAT's originals contain lots of interesting information like year-over-year comparisons, they're not easy to read, and not searchable. So, as a public service, Ben Walsh put together the list in searchable form.

It's worth noting a bunch of people with incredibly vague job titles like "MD, Executive Administration" (Benoit Savoret, $18 million in 2007.) These are managers -- and pretty important ones, judging by their paychecks -- yet not important enough that their pay needs to be disclosed to the SEC or to investors. Collectively, they're more perpetrators than victims when it comes to the financial crisis: they can all live quite happily for the rest of their lives on what they made in that one single year.

Re-reading can lead you to real gems. Going back over JPMorgan’s annual letter to shareholders, I couldn’t believe that the first time around I missed this quote in the third paragraph of the first page:

In addition to the ongoing global economic uncertainty, other traumatic events — such as the earthquake and tsunami in Japan, the debt ceiling fiasco in the United States, revolutions in the Middle East and the European debt crisis — have impeded recovery. In the face of these tragic events and unfortunate setbacks, the frustration with — and hostility toward — our industry continues. [emphasis added]

There are a lot of ways to describe the Arab Spring. Most do not imply that it was either a tragic event or an unfortunate setback, but Jamie Dimon does. Or, at least, what his ghostwriters did. As a human being, that’s a pretty callous way to describe a series of popular uprisings against autocratic governments. But let’s think like Jamie Dimon. As the Chairman and CEO of  a global financial institution, does it make sense?

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In the first day of trading since the New York Times published David Barstow's devastating investigation into systematic corruption at Wal-Mart in Mexico, Wal-Mart de Mexico fell 12.5% and Wal-Mart dropped 4.7%. In total, approximately $12 billion in market cap was lost.

Wal-Mart's own response seems to do little to mitigate the damage.

Felix raises the possibility of an investigation by Mexican authorities into WalMex's banking business. The WSJ's Vipal Monga writes that the cost of the internal investigation alone could weigh on the company, pointing to the $93.3 million Avon spent last year investigating FCPA violations:

In 1996, Richard Parsons joined the board of directors of Citicorp. Two years later, in 1998, Citicorp’s board approved its merger with Travelers – a merger that was illegal at the time, since it violated the Glass-Steagall Act. But no matter, in 1999, the Glass-Steagall Act was repealed, allowing the creation of Citigroup to go through unimpeded. There was no indication at the time that Parsons objected at all to the way that the law was changed to allow the creation of a financial services behemoth.

Parsons remained on the Citigroup board until three days ago, when he stepped down as chairman. And now he is publicly casting doubt on the wisdom of repealing Glass-Steagall:

“To some extent what we saw in the 2007, 2008 crash was the result of the throwing off of Glass-Steagall,” Parsons, 64, said during a question-and-answer session. “Have we gotten our arms around it yet? I don’t think so because the financial-services sector moves so fast.”

The shareholders have finally spoken. In a move that rebuked Citigroup management and the board of directors, the bank’s shareholders rejectedthe proposed $15 million pay package for CEO Vikram Pandit, as well as pay for three other execs.

Just this week, Citi released first quarter earnings that beat expectations, but signs of a stronger balance sheet haven’t been enough to cover the broader story here. Citigroup’s stock is down 44% in 2011, and 89% under Pandit’s tenure. Only a month ago the bank failed the stress test and then defended its capital position by, in part, calling the Fed’s evaluation “hypothetical.”

Shareholder rejection of management pay is exceedingly rare, but in this case it was far from radical: the ever cautious ISS recommended voting against the package not on the size of Pandit’s pay but on its lack of performance incentives. It’s those incentives that make executive pay material to shareholders at a $100 billion institution.

Goldman Sachs reported earnings this morning and the good news was that things weren’t as bad as people thought they were going to be. That doesn’t mean Goldman had a good quarter, however:  Both revenues and earnings were down compared to the same period last year. Long-term pessimism regarding the firm’s earnings power remains.

So what’s wrong with the bank Bloomberg used to call the “most profitable  securities firm in Wall Street history”?

CFO David Viniar’s attempts to explain underscored the problems the firm faces. Viniar’s answers in short: the markets are healthier now than they were last year. That explains why Goldman beat its fourth quarter results. But it’s unclear why, if markets collectively exhaled, Goldman couldn’t beat last year’s first quarter numbers. Viniar was stuck explaining why Goldman’ revenue and earnings didn’t rise dramatically in a low volatility, bullish environment.

Producing a colorable response to the question of what precisely JPMorgan’s Chief Investment Office and Bruno Iksil were doing writing $100 billion in credit protection is not a simple task. Case in point, John Carney’s explanation:

Traders I spoke with say that Iskil is probably using the CDX trade as part of a strategy to hedge inflation rate risk. The clearest way to hedge inflation risk is to buy Treasury Inflation Protected Securities, or TIPS. But the yield on 10-year TIPS has been so low it has sometimes fallen into negative territory.

JPMorgan may be seeking to combine the inflation protection of TIPS without locking in the low yields by pairing its TIPS purchases with selling protection on CDX. The idea is to skim the higher yield offered in corporate bonds to balance out the low yield of the TIPS. This could even be somewhat self-financing, as the income from selling protection could be used to purchase the TIPS.

This morning, JPMorgan reported $5.4 billion in earnings, or $83 million per weekday. While management trumpeted the increased strength of the company’s “fortress balance sheet” (trademark pending), they also pushed back on a Bloomberg report that a bank division called the Chief Investment Office had shifted from risk management toward large-scale speculation.

The CIO division, of course, is where the now infamous trader known as “Voldemort” works, and Bloomberg has compiled more evidence that the bank could have trouble with the Volcker Rule. Bloomberg’s reporting contradicts JPMorgan’s description of the CIO as a division that uses approximately $360 billion in excess deposits to manage risk, not to make bets for its own account:

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon has transformed the bank’s chief investment office in the past five years, increasing the size and risk of its speculative bets, according to five former executives with direct knowledge of the changes.

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The most hotly debated cure for America's gigantic and protracted foreclosure crisis is all about principal – or rather, principle. The idea behind principal reduction is straightforward: Instead of valuing a struggling borrower's mortgage at its original value, you reduce the amount to something closer to the market value. That, the argument goes, lowers the borrower's payments and makes him or her all the more likely to stay in that home.

The business press jumped yesterday when it seemed that Ed DeMarco, head of the FHFA (Federal Housing Finance Agency), the regulator that oversees Fannie and Freddie, seemed finally to change his principles on principal reduction. The American Banker this morning was rightly skeptical – DeMarco in fact only opened himself to discussing the topic. DeMarco's argument against principal reductions is that they could trigger "strategic defaults." Of course, this moral hazard argument is somewhat ironic coming from the regulator of taxpayer-owned Fannie and Freddie.