Wait he used to work for aops? wow.

No, I mean AIG. That's our company now.

Wait as in AoPS?

Its not on wikipedia =o

No, I mean "our" as in "everyone's". Yours, too.

AoPS owning AIG... That's a funny thought.

OHHH I thought you meant that it was AoPS's company which made me sound like huh xD

You'd have to pay me a *lot* of money to take AIG. And then multiply that amount by 10, since the mob would want its 90% cut.

So are you siding with Mr. DeSantis then?

Absolutely, assuming he's not lying, which I have no reason to believe he is.

Care to take the other side? You need at least a few people around who know what they're doing to unwind the company's positions. That means keeping at least some heads of desks, who are usually people who are very good at what they do. 750K is way, way lower than what folks like him could command elsewhere -- 10+ years of experience is typically paid way more than that (heck, 5+ years of experience is often paid well more than that). And his thanks for sticking around -- the compensation may be confiscated and he's turned into a public pariah by stoking ignorant populist anger. Very, very ugly. You think you could replace him with five 125K people who wouldn't perform collectively 125K worse than he would? I sure don't. Not at all. All you could get for 125K is someone at the middle-bottom of their MBA class. Making that switch is like saying, "Oh no, my 747 is having trouble because some mechanics did something wrong; let's get rid of the pilot and replace him with 5 people who have passed a couple classes at the local flight school."

This is well known to most of us who have hired and managed people. We would rather pay a premium for one very good person than hire 5 mediocrities (who aren't only a waste of their own salaries but degrade the performance of the rest of the organization). The problem isn't too much income inequality in my book but too little.

Megan McArdle of The Atlantic had a couple of good blog entries yesterday that expanded on these points a bit:
http://meganmcardle.theatlantic.com/archives/2009/03/institutional_investment.php
http://meganmcardle.theatlantic.com/archives/2009/03/a_twice-told_tale_of_aig.php

And I love one of the comments from one of her posts, from a guy called "Tall Dave" (no, not me, even though I would somewhat fit that description):

It could be worse. Without serious reforms to placate the anger, it will be worse.

He quit? Well, at least he still had a job to quit from. The financial sector is going to shrink a whole lot by the time we sort this out, because we're not going back to the unsustainable levels of household debt of the 2000s bubble.
This is ridiculous by the standards of most professions. My mother's current position is in labor relations for the CSU system. It's a high-stress, high-responsibility post; the previous occupant was forced out after there was nearly a faculty strike. It's also the culmination of nearly 25 years of experience as a professor, gradually shifting into administration.
I don't know the actual pay, but 125K is at least in the ballpark.

It is not ridiculous by the standards of this one. After you work in the financial industry for a few years, come back, and we'll talk. It is very much like the 747 analogy I gave. There have to be *some* people present who know what's going on. You can't hire those people for 125K. Simply can't do it. Maybe after 2-3 years training they could. And then they'd be 750K people.

You don't need all the million-dollar people that were at AIG 2 years ago, to be sure. But you need *some* of them. That's my point.

Another question: would it be a good idea for the CSU system to replace you mom with 3 temps making 25K a year? I doubt it, but they sure would have no problem finding 3 temps who wanted the gig.

Now, if you're trying to say, "Man, the whole financial sector gets paid ridiculous sums of money," you won't get any arguments from me. I'm not sure how to address it, though. I think having the government set pay scales, for example, would be far worse than what we have.

And the pay scales may be a secondary issue -- you wouldn't be nuts to question the use of the corporate structure in banking and trading, I think. One could make the case that these huge banks were basically fleecing shareholders (and taxpayers, but that's another issue entirely).

As it happens, I'm reading this in another window right now. Historical evidence says that more regulation now leads to lower pay in a few years.
Of course, there will be a lot of screaming in the meantime.
I won't, because it doesn't fit my personality. Teaching, even with low pay, is far more rewarding to me- and once you get beyond the minimum for reasonable comfort, money basically ceases to be an incentive to me.
In looking at the world, I generally start with the assumption that other people aren't like me. That means I'm offering an outside perspective- but sometimes outsiders can see the big picture more clearly.

I think it's very much a fallacy to believe "outsider == can see things more clearly". It may be true in some instances. But the best bet is that it's false. I refer back to the 747. The plane is crashing -- should we trust you, an outsider to piloting, to land it? I think not. Just because you've never been part of the system doesn't give you any greater visibility of it. It may, to be sure, but the contrary is far more likely.

As for regulation leading to lower pay, there's also a wealth of history of increased regulation leading to lower economic performance. That is, "more regulation = lower pay (and lower quality of life) for *everyone*". These issues are much harder than simply "more regulation will fix everything." There's an enormous history of regulation making things worse. Ask Nixon. Go read about the great success of wage & price controls in the 70s. Or read about the Soviet Union. Or look at China in the last 60 years.

Sure, smart regulation would be best. It's the *smart* that's a problem here. Unless your regulators have a crystal ball, there's not much reason to believe a high amount of regulation will make things better. Note that the current crisis exploded in one of the most highly regulated areas of the financial markets, for example. Not in the little hedge funds. And with plenty of very highly regulated entities responsible, including two (Fannie and Freddie) that were quasi-government. Moreover, some of the riskiest behavior was encouraged and subsidized by the government.

Here's some history of regulation in the mortgage market:

http://business.theatlantic.com/2009/03/i_agree_with_paul_krugman.php

The regulators are not white knights. Never have been.

I don't see horror stories of more regulation crushing the system. I see a wealth of evidence that deregulation, as practiced mainly by Republicans, leads to people cheating the system and causing enormous harm. All those food safety problems? If you weaken the rules and don't bother to do the inspections, the plant will cut corners to save money, because it isn't their problem when people get sick.
In finance, those subprime loans that went bad the moment housing prices started falling were only a trigger. In a sane environment, a few small banks would have failed, and life goes on. Instead, we had giant banks holding huge quantities of something designed to escape regulations- which turned out to be garbage.

The "free market" doesn't work when everybody lies to each other and cheats. We need enough regulation and enforcement to keep that down, and we're far below that level now.

I think you're seeing what you want to see. This is not just a story of "Republicans did bad and we're all paying for it." Where did those subprime loans come from? People who had no business getting a loan got one. Why did they get one? In many cases, due to specific government policies designed to strongly incentivize (or require) lenders (Fannie and Freddie) to give these loans, as part of the government's ongoing crusade to subsidize homeownership. This isn't the whole story either, but it's just as big a part of the story as "greedy bankers doing stupid stuff".

I'm not saying the bankers are on the side of the angels. I'm just saying you're overlooking a great deal when you argue that the regulators (and the government) are.

I strongly agree with you that a better regulatory framework is needed. I'm just not as confident as you are that what we'll create will be by definition good. There are so many examples of bad regulation in so many markets --- I think economic history is firmly on my side in arguing that the default on regulation should be "no", not "yes."

A couple other notes: The "greedy Republican bankers" angle is tough to square with the amount of money Obama took in from the financial world, and the amount of money Fannie and Freddie put into Democrats. "Greedy politicians" I'll buy, but that's a bipartisan complaint, as are most of my complaints about government.

As for the food issues, I think there's much more to that story, too. Starting with the fact that the "decreased food regulation under Bush is killing people" is unsupported by facts:

http://www.uslaw.com/library/Legal_Commentary/Krugman_Food_Safety.php?item=172112

Also, I'll argue that many of the regulations are put in place at the behest of the large companies to keep little companies out. At least, that's what they end up doing in practice.

More unintended effects of regulation:

http://business.theatlantic.com/2009/03/why_cds_are_not_good_for_you.php

Indeed, as with all of these stories, there's a hefty amount of stereotypical Wall Street greed and what I would call rating agency malfeasance mixed in, but the market for CDS grew up in part in response to the demand for AAA securities, which came from regulation. It's very hard to manufacture a system that cannot be gamed. I wonder if it's the case that the harder you try, the bigger the mess when it collapses... So, I wonder if there's a better approach to the problem? I'd say much greater transparency, but there were still tens of thousands of people who walked into mortgage quicksand that was clearly marked as such right in front of their eyes.

Another of my favorite recent regulation stories: research what happened to the convertible bond market when the government went on its moronic witch-hunt against short-sellers. That's a good one -- in the name of saving companies from evil short-sellers, the government destroyed one of the main avenues companies have for raising funds. (I'm still rather stunned no one stopped this from happening. Just stunned.)

Ban short selling. Even the five 125K people they'll fill that AIG guy's shoes with would know better than to do that. I would hope.

Ironic isn't it that Geithner was the indispensable man whose tax fraud had to be ignored so he could be confirmed and save us all (despite his part in the current problems while under the last administration).

And yet these Wall Street veterans who have created real wealth in their careers are deemed commodities and easily interchangeable.

Such conclusions can only be drawn by people whose view of work have been shaped by a career like this:

http://www.chicagotribune.com/news/politics/obama/chi-rahm-emanuel-profit-26-mar26,0,5682373.story?page=1

To be fair, the short-selling ban happened under Paulson and Bush. I think I can forgive Bush for not seeing the effects on converts (heck, he probably didn't even know they were going to ban short selling), but Paulson certainly knew. I wonder if Goldman got out of their convert positions before the ban?