THAT GEITHNER SPEECH CREDIT CRUNCHED!

MY BONUS IS YOUR BONUS TOO!

In line with public anger, Government and regulator sentiments, I wish to advise all my clients that I voluntarily accept a zero bonus remuneration cap for 2009 and 2010. Contractually binding arrangements with my various service companies, onshore and offshore, and unearned income streams from my various % of our portfolios remain as before. New York State Comptroller Thomas P. DiNapoli estimates that the US securities industry granted its employees $18.4 billions in bonuses in 2008 – a revelation that President Barack Obama characterizes as “shameful". I agree with him, this is very poor show. However, actual payout is much higher than this surely? $18.4 billion is only the cash portion of the bonus payouts and only accounted for the money paid to securities-industry employees who worked in NYC. Bonuses paid to such as myself working outside the city aren’t included. The Comptroller’s estimates don't include stock options not yet exercised, worth about another 25-100% of the cash bonus. Wall Street’s appetites for high rewards are said to have precipitated the banking-credit crisis, requiring taxpayers to pay our bills. and I don't charge any fees for photo opportunities or other busines smeetings and parties in the city. In future my bonuses will come from advising how taxpayers too may enjoy financial profits by packaging and selling assets at mouth-watering discounts to the Treasury and Federal Reserve, and this is what I've been telling little and big investor people at every opportunity. Currently, it is supposed that those same taxpayers are being asked to finance Wall Street’s bonus payouts, which were actually a proximate cause of the crisis. Not so. Tax liabilities for buying toxic bank assets generating substantial coupon may be deferred over a 20 year period! In fact, we are busy collecting tax liabilities right now, packaging these up and selling them at private auction. Thus, just as we distributed risk, we are now distributing the bonus rewards too and I feel sure that my remuneration (performance-related) will be commiserate. Life is a matter of incentives whether for actions that led to the near-collapse of the U.S. banking system or better for actions that lead to its miraculous recovery. This is just bio-economics, the fundamental greed, deceit and indifference of Adam Smith's "invisible hand" lending another "invisible hand" to redeeming the travesty of a mockery of a sham, shameful, irresponsible, hubris and so on being turned to greater advantage for all. Understanding the social dimension of the compensation equation requires a qualitative look at more than just the numbers. And for this our latest algorithmic models and techniques are the best in the business.
To all my employees I say, yes, proxy season is fast-approaching: the time of year when public companies – ahead of AGMs – send out proxy statements for shareholder resolutions and senior-exec compensation, but not in the same post please as interim trading statements, and when my institutional poker school friends collect your proxy votes to back each of my Board resolutions for the forseeable future measured by proxy asymptotic single factor economic risk indicators, red, amber, or green proxy-wise. The media paparazzi will attempt to photograph you by your new pool or at downtown champagne parties, on yachts in the Med and so on - it is the start of the shooting season on bonus execs, long eye-watering stories about huge payouts in cash, shares or other trinkets (all merely relative of course), quite forgetting that we pay tax at source, unless offshore (or non-cash in kind as in my companies' bonus barter timeshare system), or postponed bonuses and grants of stock numbered options under treasury SNOUT and structured complex original option plans, SCOOP.
This year, however, due to the ongoing financial restructuring crisis (plight for some, opportunity for others), exec-pay has become elevated to a most heightened emotional level (including by private plane, helicopter, boat, tourist property, clubs, restaurants, private schools, charities and luxury goods companies). Some firms taking government bail money have paid big bonuses (what in our group we now call arrangement & legal fees, independent valuation studies, due diligence costs etc. without attracting the ire of Federal legislators and the U.S. President's administration). Just so my employees understand why we're capping cash at $0.5m each, yesterday President Obama announced a salary cap of $500,000 for top execs (in firms participating in federal bailout programs) as an expression of fairness and “basic common sense.” Note: For 10 years, the NY State Comptroller’s office estimated bonuses paid to NYC-based securities industry employees. Last year's $18.4 bn is a 44% down from the $32.9 bn in 2007. But, that ain’t quite so steep as our Wall Street friends fear. We cut payrolls by 19,200, roughly 10.2% off the 2007 level of 187,800, so today's average bonus of $112,000 is now dispersed over fewer, a drop of only 36% (ave. cash bonus in 2007 was $175,186). Of course, not all of you gets a bonus and some folks get only small ones for now. Our clerks making $35,000 a year gross ain't getting $112,000, nosirree; but if you get to be a trader on say $150,000 gross, hey there's $2 m in your bonus pot (before tax) and you sure better be worth it! This here is a profit-driven industry, what goes to our traders comes straight outta my and my partners' share, and our shareholders and bondholders and the IRS and so on too of course! It’s important to remember all that, that while all are paid enough for the basics of living and commuting, bonuses are what you really work for as bankers, stock traders, money brokers and bond managers. To those of you who've been fired and not rehired, y'all can kiss that goodbye. Top salaries hereabouts are $100,000 to $750,000, but most are in the low-six-figure column of our IRS spreadsheet. In my case I am not salaried, of course, therefore all such restrictions and equations do not apply.
Our peer-group comparisons: end of last year, top guys at Goldmans decided to forgo any cash, stock or options bonuses for 2008, “the right thing to do” and I applaud their reinvestment of these for the future when valuations are near bottom. The top execs make do with $600,000 salaries aside from 'unearned incomes'. As for lower employees, they get a bonus pool of $2.6bn. But none of the $25bn of TARP money GS received will go to bonuses directly, not now, all sensibly reinvested. There is a nobility about forgoing bonus compensation on top of a $0.6m salary before tax. To understand the nobility of this, in 2007 CEO Lloyd C. Blankfein was worth $68.5m; co-presidents Jon Winkelried and Gary D. Cohn $67.5m; and David A. Viniar, CFO, $57.5m, all before tax. Politics: President Obama calls the $18.4 bn bonus pool “shameful,” U.S. Sen. Claire McCaskill, D-MO (pictured above in the pink), says that we "[just] don’t get it. These people are idiots.” I beg to differ here. This is a great time to be investing and not focusing on current income, not when returns to cash are paltry. Such funds are far better left in the business medium term to earn bigger returns later. McCaskill cites that execs at 116 banks that got government funds were paid an average of $2.6m in bonuses and 700 at Merrils got $1m or more. How can she say we're all idiots to be doing so well?
Responsible budgeting: Citigroup Inc. has reconsidered a $50m corporate jet in the context of $45bn Federal funds plus $300bn in government insurance received against losses on toxics. Obviously $50m is chump change in bigger picture. Citi cancelled delivery of the jet, because of pressure from U.S. Treasury Dept. What business is it of Treasury to worry about minor PR like this? Anyways, lease-back is an option in order not to damage the aerospace manufacturing sector at this critical time, and to help Citi out we may do the deal for them as a soft commission fee for which we'll chuck in our OBAMA remuneration risk metrics system for free.
McCaskill is vocalizing her voters' anger and has sponsored a bill called the Cap Executive Officer Pay Act CEOPA, so that any bail money recipients are capped at $400k, 25% less than President Obama is willing to grant. She picked $400k because that’s the salary paid to the President Obama, or 8 times median U.S. household income – which may not seem too bad, except for my pal Goldman’s Blankfein . who made that every 2 days back in the good days. A fuller accounting might include office costs, travel and other incidentals, and then I guess the Obama ratio measure would go up, like a whole lot. Sen. McCaskill doesn’t want to take away our toys or the 'punchbowl' entirely; she says once taxpayers get back what we owe them, we are free to pay whatever. The US Treasury’s TARP requires that senior-exec compensation is subject to “clawbacks” if compensation is based on inaccurate algorithms, where our new product comes in bigtime, the OBAMA (Opaque Bonus Assessment Management Algorithm). There's no color bar here as my pal Stan will confirm. For all our execs who artfully insist on severances and golden parachute contracts after bailing out or being pushed out of whatever they helped wreck, there’s no such provision envisaged in our proxies and next published accounts. I'm mindful of the plight of nice guy pal Merrill Lynch CEO “Stan” O’Neal, who got retired after announcing losses of $8bn (later revised to over $27bn, by the end of '08). He had to take a pay deal of $161m. But I told him, "Stan, with out OBAMA calc you can get a Bank of America pension fund bonus due on the tax saving over the 20 year period this loss is recoverable from the IRS. This shows just how effective our OBAMA bonus culture is when re-structured for "long term sustainable performance" measures.
My other close friends such as Citigroup boss Chuck Prince, who left with a $38m so-called “bonus” after announcing $billions in losses and steering the bank close to but not into near technical-insolvency, he took our advice in at least highlighting $500bn of book value potential sales when we showed how this may now be written down by say $150bn and become a valuable long term profitable tax liability vehicle subject to a series of complex related business programs of sell-offs and rehirings financed out of a 20 year MTN program. Or too, Martin Sullivan, former CEO of AIG, a great guy with a massive pool in his basement I paid for, when AIG won $85bn in cash and another $45bn in insurance backstops. For this he got $39.6m in his last 3 years and so this needed topping up using our OBAMA model with a useful additional $47m, that my boys figured out to be $15m severance, $4m bonus proportionate to the days he actually worked (at the office), plus stock and long-term cash worth about $28m. It is people like us who are the makers of money, the 'invisible hand' that according to the Scottish Saint of the matter of how to make it, Adam Smith, indirectly benefits everyone. This is something the cartoonists will never understand and of course I have to laugh too. In the final analysis, as my friends ask themselves fearlessly, are we worth what we are paid. Sure. Well, clearly given the risk/reward scale at which we take big decisions, would it be safe to pay us any less? And we know that now we are going to be making money for taxpayers too and that means bigger benefits all round! As I said at the last Algonquin Club gettogether “We want the smartest folks running these firms and in order to get them you have to compensate them or they will go elsewhere, maybe to the Caribbean. And don't forget we must be damn sure smart as new paint to have gotten that much paid to us, anyways?” Some people think, small people, that now their time has come to make it in the big leagues! I say little league yes, world series never! America should always be diligent in resisting letting free markets have small people in charge, domestically or internationally, and compensation should not be regulated by any government ratios, otherwise good folk will believe it's ok to work only for the state instead of for themselves? There are limits to compensation and these could be in the same ratio as it is possible to leverage shareholders’ balance sheets and the systemic risks that threaten our planet that only the biggest people should be entrusted with. There were no regulators capable of shepherding the global system. There are no shareholders able to take down richly rewarded directors because that's what shareholders aspire to too, so don't kid yourselves that greed ain't good business sense. I expect to return from my Davos meetings to Wall Street, via Long Island, Miami, Bay Street, and Grand Cayman once the Easter holidaymakers start over-crowding the slopes at Val d'Isere, Wengen and Gstaad where I am always in touch with all of you via my secretary's Blackberry.