Six Wall Street Banks to Distribute 10% of the $700 Bn Rescue as Pay and Bonuses for This Year's Performance

Shameless greed seems to be a virtue and a way of life on Wall Street

The Guardian
Wall Street banks in $70bn staff payout
Pay and bonus deals equivalent to 10% of US government bail-out package
By Simon Bowers
Saturday October 18 2008

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.

Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.

The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.

At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

In the first nine months of the year Citigroup, which employs thousands of staff in the UK, accrued $25.9bn for salaries and bonuses, an increase on the previous year of 4%. Earlier this week the bank accepted a $25bn investment by the US government as part of its bail-out plan.

At Goldman Sachs the figure was $11.4bn, Morgan Stanley $10.73bn, JP Morgan $6.53bn and Merrill Lynch $11.7bn. At Merrill, which was on the point of going bust last month before being taken over by Bank of America, the total accrued in the last quarter grew 76% to $3.49bn. At Morgan Stanley, the amount put aside for staff compensation also grew in the last quarter to the end of August by 3% to $3.7bn.

Days before it collapsed into bankruptcy protection a month ago Lehman Brothers revealed $6.12bn of staff pay plans in its corporate filings. These payouts, the bank insisted, were justified despite net revenue collapsing from $14.9bn to a net outgoing of $64m.

None of the banks the Guardian contacted wished to comment on the record about their pay plans. But behind the scenes, one source said: "For a normal person the salaries are very high and the bonuses seem even higher. But in this world you get a top bonus for top performance, a medium bonus for mediocre performance and a much smaller bonus if you don't do so well."

Many critics of investment banks have questioned why firms continue to siphon off billions of dollars of bank earnings into bonus pools rather than using the funds to shore up the capital position of the crisis-stricken institutions. One source said: "That's a fair question - and it may well be that by the end of the year the banks start review the situation."

Much of the anger about investment banking bonuses has focused on boardroom executives such as former Lehman boss Dick Fuld, who was paid $485m in salary, bonuses and options between 2000 and 2007.

Last year Merrill Lynch's chairman Stan O'Neal retired after announcing losses of $8bn, taking a final pay deal worth $161m. Citigroup boss Chuck Prince left last year with a $38m in bonuses, shares and options after multibillion-dollar write-downs. In Britain, Bob Diamond, Barclays president, is one of the few investment bankers whose pay is public. Last year he received a salary of £250,000, but his total pay, including bonuses, reached £36m.

Major Market Bottoms over the Last 150 Years

Guest Commentary this weekend comes courtesy of George Slezak, who used to trade the pits for his own book, and brings a well-developed set of experience to almost any market.

My view is a little different from George's on the macro level. However, the point is to listen to other fact based points of view, and take from them what makes sense for you, even if you may disagree on some of the basic assumptions.

Opinions without facts are almost worthless. Everyone gets on a streak now and then, and carve their hits into marble and write their misses on the sand. But opinions mean nothing, because if the normal trader's opinion is probably little better than a 50-50 coin flip, and if he knows a lot and is an insider, he's probably lying. So take the facts and make something you can estimate and follow with confidence, and try to search out people who have a better than average track record in following the markets.

George and I seem to both agree we have not yet made a major bottom. In fact another 8% down from here at least in a panic selloff looks about right. Its not clear where the bottom will come however, because this selling is being driven by a forced liquidation of the funds, who are getting some brutal treatment from the Gang of Nine Banks. We have an open mind to the continuation of the looting until Bush and Paulson leave town.

Let's allow the market to tell us. And in the meanwhile, here is some valuable information from George, who regularly takes the honors in the tallies of the forecasts of letter writers. His site can be visited here at Stock Index Timing.


Stock Index Timing
George Slezak
Commentary for Saturday, 10/18 9:30 am

A "real" bottom is safe.

Let me begin with a big picture review. I believe we are going into a market pattern like 1938 to 1942, or 1893 to 1897, or 1910 to 1914, or 1946 to 1950, or 1978 to 1982, or 1946 to 1950.



Now, 1938 to 1942 is the primary pattern I expect us to follow, but that pattern is not unique in history. As you can see there are a lot of 4 year market patterns of essentially market consolidation.



I started trading on the trading floor in 1978, so, even though it just looks like the markets were just in a channel, I know those years can be great trading years. Unfortunately, the buy and hold guys are going to feel more pain for another four years or so.

My closest friends that are buy and hold guys followed my advice and put their age in government bonds. So, if they were 60 years old, they have 60% in Ginnie Maes or other Government guaranteed bonds, and the other 40% in dividend stocks. Their 40% is down about 40%, or 16% of their total, and they will survive.

For those of us that want to "trade" the coming years I really think we can prosper! When I say trade, I don't mean we use our "can't lose" investment dollars. I would say maybe 5% of your investment dollars could be used for trading. If you make money, it grows. If you lose it, it needs to be money you won't miss.

The Next Phase of the Market

The next phase of the market we will NOW be facing is the "slide and bottom phase."

We might as well understand a little bit about bottoms because in the coming 4 or 5 years we are going to have a series of up and down markets, and all those "downs" are going to have bottoms.

When I look at the above charts, I see major bottoms and trading bottoms. Right now we are looking for a major bottom so let's talk about it. I am calling a major bottom a bottom after a major slide. I think our slide right now is a major slide and will have a major bottom pattern.

The major slide we are in right now is completely out of control. I think all major slides go completely out of control.

Obviously the 1929 crash was a market pattern that went completely out of control. So did the 1987 crash. But the major bottoms after a long slide in the charts above also went completely out of control, like the 1938 bottom.

In my commentary last week I said I thought we had a major bottom. We had huge volume on the day of the low, and reversed ON THAT HUGE VOLUME BOTTOM DAY to close nearly 9% off the low. The key thing I saw in that Friday trade to make me think it was a major low day was any stock bought by the street on that day had substantial built in profits at the end of the day and could be held through the weekend with the reasonable expectation of only taking risk of loss of profits, not capital.

See, broker dealers are Reg T exempt. They can borrow 100% of the money they need to carry a position. So if they bought stuff real good, they can borrow enough to carry the stock and as long as it stays a good trade they continue to pay just the daily interest on the margin.

It's like day trading stock index futures with day trade margins. Overnight markets on E-Mini S&P futures is around $5,000, and day trade margins are about $1,000. So if you day trade a 20 lot and catch the bottom real good and hold it you have a $5,000 profit in each position. You "earned" enough to cover the overnight margin, so you might carry the position, or at least some of the position, over the weekend.

But if the market stutters and starts to slide back towards the lows, you will take off some or all of the positions because you no longer have that great cushion. See, your just a trader and "you know you don't know." If the trade were good, you wouldn't get squeezed.

That is the reason I moved from a buy signal to a sell signal on Thursday. The market was returning to the lows. The NASDAQ 100 actually traded to a new low. The bottom I thought was a "safe" bottom was retesting and as a trader for many years I KNOW a test can pass or fail! So I know anyone that had great buys on the big volume low day the week before was out of those buys. Why would you hang on for a test?

I know, many of you guys would hold onto those buys until they turned into 5% losses. Those of you that do that, are you doing well? Have you been trading long? Do you view yourself as successful?

I know, sometimes those that buy down are successful. Scale down trading is a valid trading plan only when you budget your capital, ie committing 5% of your capital on each scale.

But the street guys that bought bunches on the 16 billion share trading day were using 10 times their capital and were holding only because they had a lead. If they want to stay around, they took profits on the way back down and were completely out well before the slide back towards the low got close to the lows.

You know, these are some of the most basic concepts of trading and also the most misunderstood. It is like applying "modern portfolio theory" to your individual investments. A broker might tell you a "diversified portfolio of International, value, growth, commodities, etc" will give your portfolio a balanced return over time with less overall portfolio risk. Then you come into a time like know and every one of your market classes is down 40%! And you need your money now!

See, if you are the California Retirement system, the idea of a balanced portfolio over time - ie the next 100 years - works just fine because you do not have any current need on the majority of the funds. If you don't have a 50 year or endless time horizon your screwed if you follow that investment theory.

The same goes for scale buying. Scale buying takes large capital where small pieces are committed a little at a time. Often when you start your scale you only get one buy entry and then when you take your profit at 10% you didn't make a lot of money because you only had a small position. But that is how that trading approach works. If you do it a different way, it won't work.

(If you want some information on scale trading see American Scale Trading .com http://www.americanscaletrader.com/ )

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Here is a comparison of the current market bottom to the 1938 market bottom. Do you see at the bottom the two up gaps and then the market holding above those up gaps? That is what I was hoping for last week. Instead, we fell back down and are back near the lows, did lower lows on the NDX and other indicators. Now it looks more like an area a week or two before the low than the low.



Here is the 1929 bottom. Do you see the same reasoning as I explained in the 1938 bottom? We moved too far back down already. I expect another slide to another panic low.




Here is the 1987 bottom and there the market held on the retest. Since, however it wasn't a clean "leave it in the dust" bottom, so it was sloppy for weeks and retested later.




My point is a good bottom gives the buyers a a free pass and never gives them any pressure. Right now we have pressure on the bottom and reasonable trading buyers are already out of the market.

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Please understand this is the way to works at MAJOR BOTTOMS, not intermediate bottoms. Intermediate bottoms in a trend are different because it is not threatening the major multiyear lows on a new trading low and forcing panic selling from long term positions.

We are now looking for a MAJOR BOTTOM, and since we are retesting I expect us to slide through to lower lows.

Unfortunately, the slide through may look real bad. I expect we will have a week of downtrend days and then a combined 20 billion share day climax, maybe before the end of the month!

BOTTOM LINE?

Strap yourself in and get ready for the ride of the century! It's gonna look so bad that the dismal forecast above of the next four years of a chop between Dow 6,000 and Dow 10,000 isn't going to look so bad after all.

Did I say 6,000! Yeah, that's 62% back to the 1974 low. I HOPE we hold the 50% back level of the 7,200 year 2002 low. But if that doesn't hold we could go further. We will see if it happens, maybe in the next few weeks.

Looking Good Billy Ray

Feeling good, Louis...

Reuters
Lahde, who bet versus subprimes, quits hedge funds
by Jennifer Ablan
Fri Oct 17, 2008 5:15pm EDT

NEW YORK, Oct 17 (Reuters) - Andrew Lahde, the hedge fund founder who shot to fame with his small fund that soared 870 percent last year on bets against U.S. subprime home loans, has called it quits, thanking "stupid" traders for making him rich. (and the beat goes on - Jesse)

In a biting, but humorous letter to investors posted on the website of Portfolio magazine on Friday, Lahde told investors last month he will no longer manage money because his bank counterparties had become too risky.

Lahde ripped his profession in the letter. He noted another hedge-fund manager who recently closed shop and was quoted in The Wall Street Journal as saying: "What I have learned about the hedge fund business is that I hate it." To which Lahde responded, "I could not agree more with that statement.

"The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking," said Lahde, who according to the website birthdates.com is 37.

"These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America."

Lahde, whose Lahde Capital's Short Credit Fund returned 886 percent in 2007, said he didn't have a strong opinion about any market other than to comment, "Things will continue to get worse for some time, probably years."

But while he will no longer manage money for high-net worth individuals or institutions, he will continue to manage the wealth he has amassed.

"Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest," he said. "I am content with my rewards. Moreover, I will let others try to amass nine-, 10- or 11-figure net worths. Meanwhile, their lives suck." (Newsflash - lots of people living from paycheck to paycheck have lives that suck too - Jesse)

Last autumn, the Financial Times reported that Lahde had launched a fund to bet against commercial real estate -- which made 42 percent in its first two months.

"I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life -- where I had to compete for spaces in universities and graduate schools, jobs and assets under management -- with those who had all the advantages (rich parents) that I did not," Lahde said.

(In his letter on the web, Andrew drifts into a heavy fugue state, and recommends a think tank to be funded by George Soros to design a new government, and that our economy could be based on hemp. Don't bogart that dream, Andrew. - Jesse)

Andrew Lahde's Farewell Letter:

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck.

Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don't worry about my employees, they were always employed by Mr. Springer's company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life -- where I had to compete for spaces in universities and graduate schools, jobs and assets under management -- with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it.

Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt.

George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man's interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. (We'd like to give the Constitution another try - Jesse)

This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft's near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won't see it included in BP's, "Feel good. We are working on sustainable solutions," television commercials, nor is it mentioned in ADM's similar commercials.

But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won.

At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant -- marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources.

Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let's stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best, - Andrew Lahde