For Every Action ...

[This post originally appeared at The Epicurean Dealmaker on December 10, 2009. It is reproduced here in its entirety.]

Christopher Columbus: "Hello there, hello there. Heh, heh. Ahh ... We white men. Other side of ocean. My name ... Chris-to-pher Co-lum-bus."
Indian chief: "Oh? You over here on a Fulbright?"
Christopher Columbus: "Hah? Uh, no, no. I'm over here on an Isabella, as a matter of fact. Which reminds me: I wanna take a few of you guys back with me in the boat to prove I discovered you."
Indian chief: "What you mean, discover us? We discover you."
Christopher Columbus: "You discovered us?"
Indian chief: "Certainly. We discover you on beach here. Is all how you look at it."
Christopher Columbus: "Ah, I never thought of that."

— "Columbus Discovers America," Stan Freberg Presents the United States of America, Vol. 1: The Early Years

It looks like Alistair Darling is going to have a quiet Christmas.

The UK finance minister unveiled a nasty Christmas surprise for bankers in the City yesterday: a 50%, non-deductible tax on discretionary bonuses in excess of £25,000 (or $41,000), to be levied against their employers' net income. This scurrilous government attack against chalk stripe suits, Soho strip clubs, and London property values landed with a sickening thud in Old Blighty. Many a banker's wife summarily cancelled their holiday plans and started contacting real estate agents in Geneva.

Today, Nicolas Sarkozy of France had the unmitigated gall (Unmitigated Gaul?) to pile on with a parallel policy proposal for his country's budget and an editorial in The Wall Street Journal, co-authored with famously dyspeptic Scot Gordon Brown. The fact that France agrees with the UK and is proposing a similar policy is proof positive that either La Republique has been secretly taken over by a stunted Englishman pretending to be French or the UK's Labour government is so desperate to retain power that it's turning Gaullist. Probably both.

In any event, the policy—as do all new tax policies at the end of the day—has triggered a desperate surge of scurrying about by bankers and banks, as they attempt to discover ways out of the trap. Their prospects do not look good.

London contacts report senior investment bankers stacked three deep on the pavement outside advisory boutiques' offices this morning, banging on the custom paneled mahogany doors to get entrance for interviews. One Vice President remarked he hadn't seen that many bespoke suits in one place since he stumbled into Gieves and Hawkes' basement storeroom on Saville Row by mistake. I predict independent UK advisors will quintuple their headcount by Christmas.

Other Voices – December 8, 2009

Where else could Kashkari have gone?, Felix Salmon. Neel Kashkari flees the woods (literally) for PIMCO:

Now it’s entirely possible that Kashkari went to Treasury out of pure selflessness — but he’s blazed a trail now (or at least he would have done had he not been following in the footsteps of many who went before him) and in future anybody moving to Treasury can expect that doing so is liable to do wonders for their employability and their chances of ever making a seven-figure income.

Hmm. Jumping into the welcoming embrace of the private sector so soon after leaving one of the most powerful and undefined governmental roles in financial history does seem a little ... unseemly. Perhaps my suggestion for a merged SEC and CFTC that we should "[d]ouble or triple ... professionals' pay, and impose a minimum five-year ban on joining any financial services provider after leaving the agency" should apply to Treasury, too.

A Windfall Profits Tax for Goldman Sachs?, Steven Davidoff, The Deal Professor. Provocative, to say the least. I worry that I have become excessively attracted to punitive, one-off solutions to intransigent structural problems. Must be my inner Bolshevist asserting itself.

Compromising my values every day, for you., Ultimi Barbarorum. Baruch defends financial markets as excessively complicated and sensitive emergent phenomena unsuitable for clumsy tampering. I think he also argues against a transaction (or Tobin) tax in there somewhere, but I seem to have misplaced my extensive notes.

Punish the Monkey (and Let the Organ Grinder Go)

[Submitted by Josh Brown of The Reformed Broker]

The boss has hung you out to dry
And it looks as though
they'll punish the monkey
and let the organ grinder go

— Mark Knopfler, Punish the Monkey

When ex-Dire Straits frontman Mark Knopfler put the song "Punish the Monkey" on his 2007 masterpiece solo album, he probably had no idea how prescient its lyrics would soon become.

When I think about the next wave of regulation headed toward a brokerage firm or a bank near you, my main hope is that the rule-makers are focused on the "organ grinders" themselves rather than on the proverbial monkey. The monkey, who has merely been dancing to the only tune available, has the most to lose in a regulatory overhaul. It is the organ grinders who can usually find a way to keep the largest portion of the profits toward the top of the the organizational structure, even in restrictive environments.

While you cannot legislate every instance of unrestrained greed, avarice, recklessness and fecklessness out of existence on an individual basis, you can certainly make laws to prevent entire corporations and industries from the mass adoption of these non-virtues.

To single out one or two groups of the financial-industrial complex (say, traders or advisors) for extinction-level scrutiny would be to ensure that the next great scandal arises out of the intent of some to subvert the new rules.