Miscellaneous Felix Salmon Review

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


MISCELLANEOUS FELIX SALMON REVIEW….Felix Salmon:

I’ve now reached the point at which I simply don’t believe people when they say that lower pay for bankers will result in worse performance — especially since it looks very much as though it was higher pay for bankers which was at least partly responsible for much of the present crisis. Let’s bring down pay, a lot, and see whether performance really falls.

The financial system went for decades, quite happily, without monster paydays: why can’t we go back to those days? No one thinks we need to pay the Treasury secretary lots of money to make sure he’s “working hard”; why are bank CEOs any different? And insofar as lower bank salaries would drive America’s best and brightest into other sectors of the economy, that would surely be a good thing.

Hear hear — and not just for banks. Our economy worked just great back when CEOs were paid 50x the median salary, and I don’t see why it can’t do so again. The most efficient way to make that happen, of course, is not to directly cut CEO pay but to pay line workers more. Not only would they spend that extra money on actual stuff (as opposed to idiotic investment scams), thus helping drive the economy upward, but it would automatically reduce the pot of money available for all the suits. It’s a twofer.

In other Felix Salmon news, he says I got a couple of things wrong in my super-senior tranche post yesterday. First, he says that the synthetic CDO market is smaller than the cash CDO market, not bigger, and also that banks mostly didn’t keep synthetic CDOs on their books at all. Rather, they kept the real CDOs and sold off the synthetics. Noted.

Elsewhere, Felix points to a post by Sam Jones that explains super-senior tranches in yet another way, and it’s worth reading on the off chance that you have an obsessive interest in this stuff. If you don’t, though, here’s the conclusion:

The risk is with the noteholders of the synthetic CDOs. And just as with [asset-backed] CDOs, those noteholders are likely to see some very severe losses. Synthetic CDOs are only now about to experience the same kind of dramatic collapse that plagued ABS CDOs way back in late 2007 and early 2008.

The trigger will be the growing number of corporate defaults, which just like assumptions on subprime mortgage defaults, was, in many synthetic structures, underestimated. Barclays analysts see a “rising tide” of synthetic CDO downgrades on the horizon. Downgrades which could well have huge regulatory capital requirements on the super-senior positions banks have on their books.

Oh goody. And for what it’s worth, this is why I’m interested in all the gory details of this stuff. Ezra is right that the housing bubble underlies everything (though it might not next time….), but the financial rocket science really did kick everything into another gear. Understanding it is not only interesting for its own sake, but also provides some insight into how everything unfolded and what’s going to happen next. Though, at this point, I admit that I’m not even sure I want to know.

DONALD TRUMP & DEMOCRACY

Mother Jones was founded to do journalism differently. We stand for justice and democracy. We reject false equivalence. We go after stories others don’t. We’re a nonprofit newsroom, because the kind of truth-telling investigations we do doesn’t happen under corporate ownership.

And we need your support like never before, to fight back against the existential threats American democracy faces. Fundraising for nonprofit media is always a challenge, and we need all hands on deck right now. We have no cushion; we leave it all on the field.

It’s reader support that enables Mother Jones to report the facts that are too difficult, expensive, or inconvenient for other news outlets to uncover. Please help with a donation today if you can—even a few bucks will make a real difference. A monthly gift would be incredible.

payment methods

DONALD TRUMP & DEMOCRACY

Mother Jones was founded to do journalism differently. We stand for justice and democracy. We reject false equivalence. We go after stories others don’t. We’re a nonprofit newsroom, because the kind of truth-telling investigations we do doesn’t happen under corporate ownership.

And we need your support like never before, to fight back against the existential threats American democracy faces. Fundraising for nonprofit media is always a challenge, and we need all hands on deck right now. We have no cushion; we leave it all on the field.

It’s reader support that enables Mother Jones to report the facts that are too difficult, expensive, or inconvenient for other news outlets to uncover. Please help with a donation today if you can—even a few bucks will make a real difference. A monthly gift would be incredible.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate