Worth reading

[George$]

Charles Gave and GaveKal offers some interesting reading and new (to me) ideas - here are some links -with some repetition and overlapping text and charts.

(i) Charles Gave webcast CFA Conference May 2007 - click on 'launch' on right hans side

(ii) Free online book, Our Brave New World - pdf, 2.5Mb 130 pages

(iii) An Introduction to GaveKal and the GaveKal Funds - 71 page pdf

[72offsuit]

I thought this overview of how the CPP invests was quite interesting

http://canadianfinancialdiy.blogspot.com/2008/06/investing-surprises-and-ideas-from-cpp.html

There's a link to their 2008 annual report about 1/3 of the way down.

[brucecohen]

I thought this overview of how the CPP invests was quite interesting

http://canadianfinancialdiy.blogspot.com/2008/06/investing-surprises-and-ideas-from-cpp.html

There's a link to their 2008 annual report about 1/3 of the way down.

I've helped CPPIB write their last three annual reports, but have not yet read what was actually published for 2008 because the hard copies are not yet available. This blogger does a pretty good job of summarizing a complex structure, but there are some major misunderstandings:

1. The benefits CPP pays out are currently funded by incoming contributions. Contributions not needed to pay benefits are invested by the CPPIB and now form one of the world's fastest growing single-purpose pools of capital. According to the acturarial projection, the plan will start tapping income -- not principal -- from this fund in 2020 but the bulk of the cost will still be covered by incoming contributions. IIRC, the income draw is expected to rise gradually to 2050 when it's expected to stabilize at about 50% of income. The function of the investment fund is not to pay benefits but to subsidize the pay-as-go-go contribution rate to keep it at what's called the "steady state rate" -- 9.9% of covered earnings, split between employers and employees. (CPP gets no govt funding.) The ongoing inflow of contributions creates a big difference between the CPP fund and an individual's RRSP.

2. CPPIB's investment strategy seeks to match risk-adjusted performance against the plan's inflation-indexed liabilities over the 75-year life of each actuarial projection. The goal is for the fund to equal 25% of liabilities by a date that escapes me.

3. As noted in the blog, CPPIB is a long-term investor and academic research has found that currency hedging adds cost without material gain for long-term investing. The real estate and infrastructure investments are currency-hedged because they are intended to be inflation-sensitive and their performance is benchmarked in relation to Canadian inflation as measured by the Consumer Price Index. So, hedging removes the impact of forex fluctuations and allows direct comparison to the CPI.

4. The blogger was surprised by the absence of corporate bonds. CPPIB, a young organization, is only now in the process of establishing a corporate bond trading team. Development of its fixed-income capabilities took a back seat to equity investing because CPPIB inherited a massive amount of provincial bonds but no equities. The pre-reform non-marketable provincial bonds now form the lion's share of the FI allocation but will be replaced over time. IIRC, the last one will mature in 2030. The blogger was surprised that there are more PEI bonds than Quebec bonds. Before reform, each province's borrowing limit reflected its level of contributions and Quebec hasn't been part of the CPP.

5. The blogger was surprised by the lack of a line item for cash. CPPIB doesn't have to hold cash because:
-- It gets a huge inflow of CPP contributions every month; and
-- During its early years it was required to index. So it now has a huge index-based equity component that acts as a liquidity reserve. CPPIB uses a complex "total portfolo management" approach that classifies investments not by conventional labels such as stock or bond, but rather by its risk-return-income characteristics. Private equity, real estate and infrastructure investments are funded by selling equivalent holdings from the public equities liquidity reserve.

6. The blogger expresses concern about the risk of CPPIB staff and directors not understanding the risk of the investments made and cites the sub-prime mess. So far, CPPIB's risk mgmt has worked -- it had no sub-prime exposure and, with pentiful cash, was able to move in as a buyer after prices plummeted. CPPIB has a "professional" board -- all directors are required to have some form of relevant financial expertise. Also, the finance ministers of all sponsoring govts get a say in selecting each board member, so it's hard for Ottawa or any one province to name a political hack.

7. The blogger ends by suggesting that retail investors be allowed to put money under CPPIB management. First, the governing legislation would have to be amended -- and, by design, doing that is harder than amending the constitution. Second, CPPIB is still young and faces a big challenge just in growing enough to meet its current mission. Third, as I've mentioned in other threads, Ottawa has a long history of not competing with Bay Street for retail money. I don't expect CPPIB to court retail money in my lifetime.

CPPIB's 2008 annual return is here

[Small Investor Activist]

Ottawa has a long history of not competing with Bay Street for retail money.

Why doesn't Ottawa the provinces compete with Bay Street for retail money.

[tidal]

Ottawa has a long history of not competing with Bay Street for retail money.

Why doesn't Ottawa the provinces compete with Bay Street for retail money.

Fwiw, probably worth tossing this into the mix given the current subject under discussion: Keith Ambachtsheer is calling for a "Canadian Supplementary Pension Plan (CSPP)" as a separate pension saving vehicle with complete workforce coverage for Canadians. Included in his proposals would be an investment management institution, which he suggests be modelled on the CPPIB.

[brucecohen]

Ottawa has a long history of not competing with Bay Street for retail money.

Why doesn't Ottawa the provinces compete with Bay Street for retail money.

Could be:
1. In the past, several finance ministers came from Bay Street and went back there

2. When Ottawa was a big-time borrower, it relied on Bay Street to move its less than hot bonds. The federal govt doesn't have to borrow much now, but you never know about the future. Also, the provinces are not yet out of the fiscal woods

3. Most retail Canadian investors prefer to use financial advisors. I doubt the govt would want all the hassle involved in dealing with that channel

[72offsuit]

Wow, thanks for the post brucecohen! Very informative.

The function of the investment fund is not to pay benefits but to subsidize the pay-as-go-go contribution rate to keep it at what's called the "steady state rate" -- 9.9% of covered earnings, split between employers and employees.

Thing is, that 9.9% rate has increased a lot over time. It was 3.6% until 1986. Of course, there are more retirees per worker than there were 40-50 years ago so given that the contributions are directly funding the benefits it's what has to happen.

I was quite surprised to see the breakdown of assets in the annual report. In 2000 they had 95% fixed income, 5% equities. Now they have 63% equities, 25% fixed income, 12% "inflation-sensitive assets".

[brucecohen]

I was quite surprised to see the breakdown of assets in the annual report. In 2000 they had 95% fixed income, 5% equities. Now they have 63% equities, 25% fixed income, 12% "inflation-sensitive assets".

CPPIB was created in 1998 and began investing only in 1999. Starting from 0%, they were able to build the equities allocation quickly because their mission for the first few years was simply to replicate major markets. So they just bought everything. In 2005 or 2206 the current management led by David Denison persuaded the directors to let them pursue a value-added active mgmt approach with accountability -- including compensation -- based on beating the indexed reference portfolio, which they've thus far been able to do. BTW, those benchmark comparisons are done after reducing annual performance by the cost of active mgmt. Executive compensation is based on performance over rolling 4-year periods -- the same structure used by Ontario Teachers'.

[parvus]

Link.

1. The economy depends on social relationships, not just technical relationships, and (like society) it evolves and changes over time. There is no “natural” order to the economy. There are no inherent, unchanging laws governing its behaviour. What we call the “economy” is simply the way human beings work together, to produce goods and services, and then decide what to do with what we produce. And there’s nothing permanent about it. Everything about the economy – technology, geography, social relationships – changes over time.

2. Economics is an inherently subjective, value-laden, political discipline. The economy is not natural, unchanging, or objective. And the study of the economy – what we call economics – is just as subjective and impermanent. The economy embodies conflicting interests between different groups, and economics closely reflects those conflicting interests. No school of economics can claim to be neutral or objective. Different approaches to economics rise and fall, depending on the course of economic (and political) debates and conflicts. Every approach to economics combines an analysis of how the economy works, with a set of values and assumptions regarding how it should work (and in whose interests). Beware of economists bearing free advice – especially if the economist claims to be “objective.”

3. Productive human activity is the only force that adds value to the resources we harvest from nature. “Work,” broadly defined, includes all forms of productive human effort – including paid employment, unpaid work within households, and the managerial work of business executives. Without work, nothing happens in the economy. There are a few goods which humans can consume directly from nature (like fresh air, peace and quiet, or wild berries plucked from a bush). Everything else requires the application of human effort to transform the resources and raw materials we get from nature into goods and services we can use.

4. Using tools makes work more productive. Humans discovered very early on that it is much better to use tools than our bare hands. The invention, production, and accumulation of “tools” (defined broadly to include machinery, structures, infrastructure, and other kinds of physical capital) has been the central feature of economic development through human history. Developing and accumulating more advanced tools, and training people to use them effectively, must occur at the same time. However, tools themselves are not productive: it is the know-how embodied in those tools (that is, knowing to make tools first, and then use them to produce the goods and services we actually want) that is productive. Merely owning a tool is not, in itself, a productive act.

5. In capitalism, most work consists of employment. Employment is work that is performed for someone else, in return for the payment of wages and salaries. About 85 percent of households in developed capitalist economies rely on employment as their dominant source of income. Managing the employment relationship is a central aspect of capitalism. Employers face a complicated challenge to try to minimize their labour costs, while simultaneously maximizing the effort and discipline of their employees. This relationship introduces an inherent conflict of interest between workers and capitalists. At the same time, there are times when workers and capitalists may choose to cooperate with each other.

6. Unpaid work is also important. A great deal of productive, necessary work occurs inside the household: out of sight, behind closed doors, and generally without pay. Most of that work is performed by women, whose opportunities in the “outside” economic world are constrained as a result. Remembering that this work needs to be performed, analyzing how and by whom it is performed, and making changes to it over time, are central issues in economics.

7. Competition is a central feature of capitalism, and forces companies to behave in certain ways. Capitalists aim to maximize the profits on their investments; one way to do that is by poaching customers, workers, resources, and capital from other capitalists. Competition therefore introduces a new constraint on the way that individual capitalists operate. It’s no longer just greed that motivates them, it’s also fear. That fear (of being driven from business by more successful competitors) forces executives to behave in certain ways, regardless of their personal preferences or values. Capitalism has become more competitive over time, not less (thanks to technology, globalization, privatization, and improved management skills). Even very large global companies face competition that is unforgiving and ruthless.

8. The condition of the natural environment is crucial to our prosperity. The environment is both a source of direct ecological benefits (fresh air, open spaces, recreation, and so on) and a source of raw materials for production. The economy cannot continually run down the quality of the environment without humans eventually paying an enormous economic price. Developing sustainable practices (to stabilize and preserve environmental quality) is an urgent economic priority.

9. The financial industry is not, in itself, productive. Financial institutions can play a useful role in facilitating investment and production by companies in the real economy. But this function may be overwhelmed by pointless, wasteful, or downright destructive financial activity. Speculators seek to profit from the purchase and resale of paper assets, rather than from the production of useful goods and services.

10. Government has played a central, supporting role since the beginning of capitalism. Government is not the “enemy” of free-market capitalism. In fact, without government capitalism wouldn’t exist at all. Government actions and programs have tended to reinforce and stabilize the basic relationships of capitalism: guaranteeing private property rights, supplying business with needed inputs (like reliable infrastructure and skilled, disciplined workers), expanding markets, and managing social relationships in a way that promotes both stability and profitability. At the same time, working people – thanks to their sheer numbers – can use democratic openings to force governments to respond to their needs and priorities, but only when they are sufficiently motivated and well-organized.

11. Globalization can strengthen an economy, or it can weaken an economy. Globalization is not new. But modern globalization is inherently biased in favour of corporations and investors. Free-trade agreements and other aspects of globalization give them more mobility and more power, while limiting the ability of national governments to regulate international flows of goods and capital. In contrast to free-trade theory (which claims globalization benefits everyone who participates), globalization may help or hurt a national economy. It can increase or decrease demand for a country’s products (via the trade balance), and it can strengthen or weaken investment (via capital flows). A country’s competitiveness determines whether globalization is helpful or harmful.

12. Workers and poor people get only as much from the economy as they are able to demand, fight for, and win. There is no reason to believe that the success of capitalists will ever naturally “trickle-down” into improved living standards for the bulk of humanity. Neoclassical theories which claim that everyone gets paid according to their productivity are theoretically inconsistent and empirically false. Income distribution is determined by power, more than markets. Demanding a fairer deal from the system, and building the organizational and political power to back-up that demand (through unions and other social justice movements), is the only way to redivide the pie. And if those demands come up against a hard limit in the form of the system’s willingness or ability to meet them, then the time will have come to look at alternatives.

On that note, this is a good time to put down this book, put on your boots – and go out to organize for a fairer share of the pie that you work so hard to produce.

Added: I'm welcome, thank you Augusta.

[augustabound]

That link doesn't work uncle parvus. lol

Hopefully this one does.

http://www.economicsforeveryone.ca/

[brucecohen]

I'm not sure this is the right thread for this, but don't know where else it would go.

Today OSFI released a set of slides that the Chief Actuary of Canada used in a presentation to the directors of the CPP Investment Board. It summarizes lots of key and interesting stuff that was in the CPP actuarial report that he released last Fall.

There are lot of stats and charts of interest to those interested in retirement and demographic trends as well as likely future performance for a balanced investment portfolio like the CPP's. In particular, I think there's a lot for George$, Georges and Keith to feast on.

There's no accompanying text but most of the slides are self-explanatory. A bonus: many of the slides contain a box summarizing the opinion of the independent panel that peer reviews the CPP actuarial report.

The slides are here.

[Bylo Selhi]

Casinos on Wall Street; Main Street Loses Big

Move over Las Vegas. The big time gamblers are on Wall Street and they are gambling with your money, your pensions, and your livelihoods... With each cycle of failure, the burden of government bailouts grows larger, meaning debt, deficit and your tax dollars... Why is it that these financial bosses never learn? Because they never pay for their gambling...

[ghariton]

The slides are here.

Thank you very much Bruce. The information is very useful, not just for pensions, but for individual financial planning as well.

George

[parvus]

Are Small-Cap Stocks Signaling a Recovery?

IN times of economic uncertainty, investors don’t usually flock to volatile assets like small-company stocks. Instead, they tend to favor havens like bonds or shares of stable, industry-leading blue-chip companies.

But have you seen how small-capitalization stocks have been performing lately?

Despite all the bad news surrounding record-high oil prices, mounting job losses, and continuing troubles in housing, the Russell 2000 index of small stocks has soared 12.7 percent since mid-March. By comparison, the Standard & Poor’s 500 index of large stocks is up by a more modest 3.5 percent.

For investors, this surprising situation raises an important question: Are small stocks signaling that the worst of the economic storm is behind us?

Historically, a small-stock rally during an economic slowdown has often foreshadowed better times ahead. Ned Davis Research of Venice, Fla., studied economic downturns since the end of World War II and found that large-cap stocks tended to lose their momentum to small stocks six months after the start of an official recession. The typical recession has lasted about 10 months, so these turns often take place during the economic slump — not after one.

[WishingWealth]

This could go in a number of threads.

How to achieve structured product accountability.
In the G&M.
http://www.globeinvestor.com/servlet/st ... 0/GIStory/

In economic parlance, the term is "moral hazard" — defined as the incentive for one party to act more aggressively, as others will bear the downside consequence. If there is no consequence of being imprudent, we may as well join the crowd and invest all our savings in the next hot stock tip we hear at a cocktail party. I love the Texas saying that goes as follows: "We don't hang people for stealing horses. We hang people so that horses won't be stolen."

The question of moral hazard has been largely ignored in the discussion of accountability for the problems in various fixed-income structured products. Whatever the names (third-party asset-backed commercial paper in Canada and residential mortgage-backed securities in the U.S. are well known examples), the similarities among most fixed-income structured products are quite extensive. The originator believes the risk has been passed on, the products are complex and they appear to have exposed the financial system to tremendous risk in the past year.

There has been some progress in dealing with the individual situations (mainly limited to attaching blame), but so far little has been done to deal with the broader issue. My suggestions involve better education for consumers, closer connection between regulation and product structure and better communication on the seller's commitment to the product. To do this, I think we should start at the best, highest quality products and work down.
...

WW

[Gus]

Overconfident Investing

OK, so we can conclusively demonstrate that active investing does not add value, but how about all those unintended beneficial side effects....

Clearly, biases can be helpful if looked at in a broader context, in this case, the belief in God is not evaluated based on evidence of God's existence, but rather, the effect it has on the believer.

....

But the idea is simple, that people often get into some field to find gold, but then make their fortune selling shovels.

....

Further, the act of investing can illuminate some parochial services where one does have an edge, and our specialized economy is based on a myriad of activities that are generally unknown until you get your hands dirty as a practitioner.

[skepticus]

Has anyone read the book The Taxman Is Watching: What Every Canadian Taxpayer Needs to Know and Fear.

Be afraid - very, very afraid. That's the message from tax lawyers Paul and Philippe DioGuardi, who have written a new book called The Taxman Is Watching: What Every Canadian Taxpayer Needs to Know and Fear.

---snip---

The father-and-son team say they hope to disabuse Canadians of the notion that the Canada Revenue Agency is on their side. Armed with horror stories about overzealous tax agents and naive taxpayers (or tax non-payers), they're on a mission to incite what they say is a healthy fear of the taxman.

Globe & Mail (ttp://www.theglobeandmail.com/servlet/s ... /lifeMain0


Is CRA really that scary? Opinions ?

[scomac]

Is CRA really that scary? Opinions ?

Oh, I think they can be especially if you're trying to beat the gov't out of a legitimate tax liability. I believe they are especially hard on cases of under-the-table unreported income and or padded business expenses. (These comments are based on a case that I know of from the past; not my own by the way).

I was audited for an annual GST return about three years ago. The agent that was on the case was fairly aggressive on the phone initially, but he cooled off after the initial conversation. I didn't even have a face-to-face with him, he simply requested I fax copies of some documents to him. He called with a couple of questions, but otherwise they were satisfactory and that was that. I might add that once you've been audited, it appears as though your account is more likely to be flagged in the future for anything that they might deem to be unusual. With that in mind, don't be late with filing, otherwise you'll hear from them right away!

[FinEcon]

I read the DioGuardis book a while back.

First, don't buy it unless you can get it used. Get a copy at the local library, it's not worth a cent more than $3 IMO.

Some good information, more so from the point of understanding the organization, it's mandate and the (alleged) ways in which it operates. As an employee basically summed up as don't work under the table (in whole or in part) for income, pay your taxes, and always, always file a return. The last one sounds hokey but apparently many people put it off for years at a time.

For business owners (corp, partnership, or sole proprietor), as it must, the book stops at 'you need professional advice'.

I'm going off memory here but IMO the main takeaways are:
1) accountant has no client priviledge, ie giving them your records is akin to giving them directly to the CRA
2) the CRA will often let delinquents go for a long time, essentially to make their case for them, ie you might think you're getting away with something but it's only because they are letting you do so for the time being.
3) nearly all people are caught because of being snitched on by disgruntled friend, neighbor, spouse, employee, etc.
4) a priori you have excellent odds for an amnesty deal, that all goes out the window once you have been served any notice(s) from the CRA.
5) the standard rule sthat apply to police officers also apply to the CRA and its agents, ie keep your mouth shut, don't allow them in your home without a warrant, they are not your friend they're trying to get you tom incriminate yourself, etc.
6) don't ever attempt amnesty witout counsel, CRA and it's agents are not bound by verbal agreement(s). See point 5.

Has anyone read the book The Taxman Is Watching: What Every Canadian Taxpayer Needs to Know and Fear.

Be afraid - very, very afraid. That's the message from tax lawyers Paul and Philippe DioGuardi, who have written a new book called The Taxman Is Watching: What Every Canadian Taxpayer Needs to Know and Fear.

---snip---

The father-and-son team say they hope to disabuse Canadians of the notion that the Canada Revenue Agency is on their side. Armed with horror stories about overzealous tax agents and naive taxpayers (or tax non-payers), they're on a mission to incite what they say is a healthy fear of the taxman.

Globe & Mail (ttp://www.theglobeandmail.com/servlet/s ... /lifeMain0


Is CRA really that scary? Opinions ?

[parvus]

[url=http://online.wsj.com/article/SB121642367125066615.html?mod=home_we_banner_left]Why No Outrage?
Through history, outrageous financial behavior has been met with outrage. But today Wall Street's damaging recklessness has been met with near-silence, from a too-tolerant populace, argues James Grant[/url]

The most blistering attack on the ancient target of American populism was served up last October by the then president of the Federal Reserve Bank of St. Louis, William Poole. "We are going to take it out of the hides of Wall Street," muttered Mr. Poole into an open microphone, apparently much to his own chagrin.

If by "we," Mr. Poole meant his employer, he was off the mark, for the Fed has burnished Wall Street's hide more than skinned it. The shareholders of Bear Stearns were ruined, it's true, but Wall Street called the loss a bargain in view of the risks that an insolvent Bear would have presented to the derivatives-laced financial system. To facilitate the rescue of that system, the Fed has sacrificed the quality of its own balance sheet. In June 2007, Treasury securities constituted 92% of the Fed's earning assets. Nowadays, they amount to just 54%. In their place are, among other things, loans to the nation's banks and brokerage firms, the very institutions whose share prices have been in a tailspin. Such lending has risen from no part of the Fed's assets on the eve of the crisis to 22% today. Once upon a time, economists taught that a currency draws its strength from the balance sheet of the central bank that issues it. I expect that this doctrine, which went out with the gold standard, will have its day again.

Wall Street is off the political agenda in 2008 for reasons we may only guess about. Possibly, in this time of widespread public participation in the stock market, "Wall Street" is really "Main Street." Or maybe Wall Street, its old self, owns both major political parties and their candidates. Or, possibly, the $4.50 gasoline price has absorbed every available erg of populist anger, or -- yet another possibility -- today's financial failures are too complex to stick in everyman's craw.

I have another theory, and that is that the old populists actually won. This is their financial system. They had demanded paper money, federally insured bank deposits and a heavy governmental hand in the distribution of credit, and now they have them. The Populist Party might have lost the elections in the hard times of the 1890s. But it won the future.

[Bylo Selhi]

Borrowers and Bankers: A Great Divide

HERE is a question: Might not the routs, which inevitably follow the manias, be less painful if things were not allowed to get wild and crazy on the upside? Might not the American people be better off with regulators who curb market enthusiasm — whether in the form of errant lending or voracious, ill-considered deal making — when it reaches manic levels, to protect against the free fall, and the bailouts, that ensue?

No, no, no — perish the thought, especially when the taxpayer is there to pick up the bill.

Which returns us to the dispiriting divide between those who receive help and those who don’t. “The banks are too big to fail and the man in the street is too small to bail,” said John C. Bogle, the founder of the Vanguard Group, the mutual funds giant, who is a philosopher of finance... “I predicted last summer that this would be my 10th bear market,” he said. “But this one is different. The others were more marketlike, reflecting problems in the market, not problems in the society and the economy as this one does. As a result, we’re in for a much more troublesome era than after the other big bear markets.”

[Bylo Selhi]

The smartest advice I ever got

From Bill Miller to Derek Jeter: 40 great minds share the best money lessons they ever learned... "Save your money first and get used to living on what's left over."... "Over 90% of performance is due to noise."... "Whoever cultivates the Golden Mean avoids both the poverty of a hovel and the envy of a palace."...

[skepticus]

For a clear and compelling explanation of how we got into our current financial crunch, try "This American Life on National Public Radio. A transcript is available, but the program is preferable.

http://www.thisamericanlife.org/Radio_E ... pisode=355

Here's a description of part-1:

Host Ira Glass talks with an NPR business and economics correspondent about two gatherings he attended—one at the Ritz Carlton and one at a community college in Brooklyn. The first was an awards dinner for finance professionals who created the mortgage-based financial instruments that nearly brought down the global economic system. The other was a non-profit conference for people facing foreclosure. Ira explains that today's show lays out how the finance guys and the people facing foreclosure are connected by a chain of middlemen, and that together, they all brought about the current housing and credit crisis.

[parvus]

Let's just call it revisiting moral hazard:
[url=http://www.nytimes.com/2008/09/07/business/07ltcm.html?em]Long-Term Capital: It’s a Short-Term Memory
By ROGER LOWENSTEIN
Published: September 6, 2008 [/url]

A FINANCIAL firm borrows billions of dollars to make big bets on esoteric securities. Markets turn and the bets go sour. Overnight, the firm loses most of its money, and Wall Street suddenly shuns it. Fearing that its collapse could set off a full-scale market meltdown, the government intervenes and encourages private interests to bail it out.
<snip>
But Long-Term Capital’s influence on regulatory practice is anything but forgotten. Alan Greenspan conceded at the time that the fund’s rescue could lead to “moral hazard,” meaning it could tempt financial players to take excessive risk. The warning was ignored. And the notion that a private hedge fund with but 16 partners and fewer than 200 employees could cause lasting harm was never truly examined. It was simply accepted.

The concept of too-big-to-fail, exceptional in 1998, is now a staple in the regulators’ playbook. Bear Stearns and, by implication, other troubled investment banks have been taken under Washington’s protective skirts; Fannie Mae and Freddie Mac, too. The Federal Deposit Insurance Corporation is pushing for easier terms for millions of homeowners; auto companies are demanding loan guarantees.

Where does it end? If individual responsibility is to be fully excised from American capitalism, the free-market enthusiasts who founded Long-Term Capital deserve no little credit.

[WishingWealth]

Rules rules everywhere a rule.
There's no end to the bothersome rules on the poor businessman trying to make an honest living.
G Morgenson in the NYTimes.
http://www.nytimes.com/2008/09/07/busin ... nted=print

If the Pay Fix Is in, Good Luck Finding It
TWO years ago, when the Securities and Exchange Commission began requiring companies to explain performance targets used to calculate incentive pay for executives, shareholders hoped that the rule would discourage fat compensation awards for thin results.

With two years of data in hand, how is the new rule working? In some cases, well — but in most, not at all.

Under the rule, companies were supposed to divulge performance benchmarks — growth in earnings per share, for example — and why they were chosen. Companies were also supposed to detail the range of performance under which incentive payouts would be made, and the corresponding payout percentages.

But many companies are simply not bothering to comply. At least that’s the conclusion of a study by James F. Reda & Associates, a compensation consulting firm in New York that analyzed a representative sample of the medium-size companies in the Standard & Poor’s MidCap 400-stock index.

According to the most recent proxy filings, which covered 2007 results, only 47 percent of the companies made the required disclosures concerning short-term incentive pay, like cash bonuses. While this figure is substantially higher than the 23 percent that complied with the rule in 2006, it is nonetheless distressing.

On long-term incentive pay, which typically includes grants of stock options or restricted shares, the compliance was a more robust 62 percent last year. In 2006, only 41 percent of companies adhered to the rule, the Reda study showed.

When it devised its disclosure rule, the S.E.C. gave companies a sizable loophole, excusing them from detailed disclosure of targets if they believed that publishing such figures would put them at a disadvantage in their industry. Many companies — no surprise — make this claim....

WW