Bank bonuses - a diversion maybe?

Why would the banks be giving out such huge bonuses to their executives?  Here are some possible reasons:

1.  They really think that these geniuses that got the banks into such trouble are needed to make money for the banks in these troubled times.
2.  They think that the banks will not be around in a few years so they are getting the money out now while they still can.
3.  The real story is far more odious than the fact that the banks are giving out billions in bonuses. 

If I had to guess, I would guess them in this order:  3,2,1.  For the first reason, if an executive drove my business into the ground the way these Wall Street executives did, I would get them out as quickly as I could.  The real puzzle is why the board of directors allows these geniuses to stay around. 

For the second reason, I would not be surprized.  That much in bonuses is not given out to businesses that think that they are hanging on by a thread.  And these banks are indeed hanging on by a thread.  There is a huge bow wave of foreclosures, both commercial and residential that is coming up through this year, 2010 and going on throughout 2011.  This bow wave dwarfs the foreclosures that almost sunk the banks and pushed congress to pass the bailout. I do not know if the top four banks will survive. 

The third reason is far more believable.  All you have to do is ask the question:  In this time of economic downturn, where did the banks get the money?  Where did they get the money to pay back the TARP?  Where did they get the money to pay the bonuses?  Where did they get the money to show such a huge profit.  Where did they get the money to accumulate such huge cash reserves?   This leads to the next question:  Are the executives being paid to keep quiet?

I do not have any proof for any of this except that the money involved is magical.  There is no visible source for it and yet there it is.  Based on the numbers, I would guess that the money is being lent to the big banks by the fed at 0.5-0.75%.  (The fed is printing this money on a hard drive.)  This money is being lent to the treasury at 3-4%.  This gives the top banks >10 billion each year in profit over and above what they made before.  More money is being lent to the banks so that they have cash on the balance sheet to handle this bow wave that is coming.  I just do not know if it will be enough.  Then again, the fed can always print more for them.

Let's ignore the constitution

I do not understand.  When I look in the constitution, I expected to see something in it that prohibited congress from making a sweetheart deal for one state at the expense of another.  I did.  It is in Article I, section 9, and reads as follows:

No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear or pay Duties in another.

The healthcare bill is a regulation of a major portion of the US commerce.  So what magic of wordsmithing has congress used to say that it is okay to make a sweetheart deal for Florida, Nebraska and Louisiana to get the health care bill to pass?

Have we the people gotten so indifferent to the constitution that our elected officials swore to uphold?  I hope that we would vote anyone who blatantly disregards the constitution out of office.  It should never be ignored for the convenience of the elite members of congress.

Nancy Pelosi, do you have anything to say about this?

A new economic rule: Save or go into debt

Governments try to maintain a state where all of the money taken in each year is spent and no more.  It will amaze you to see the lengths to which bureaucrats throughout the United States go to make sure that all of the money they have been budgeted gets spent and not a penny more.  This state of matching income to outgo is a metastable condition, just like balancing a broom on the end of a finger and requires continuous effort and vigilance.  It becomes impossible when economic forces beyond the control of the bureaucrat manifest.  Bureaucrats have attempted to correct this problem by hiding money in accounts that they maintain from one fiscal period to the next.  But these funds are called slush funds.  With the amount of money in these funds, many bureaucrats have fallen to the temptation to misuse them. 

Queueing theory:  What does that have to do with it?

Queueing theory says that if the number of people coming into a bank is constant, and the time required to service each of these people is constant and the teller time matches the rate of service then the line will not grow.  But if the rate of people coming into the bank is random with an average rate of entry equal to the rate of service then the line will grow infinite. 

What does that mean?  It means that randomness requires the ability to service to exceed the rate of required service or the queue grows. 

What does that mean for money?  It means that income has to exceed outgo or you have projects that will sit and wait and when they can't wait, you go into debt to pay for them.

Therefore, it applies to all including the government:  Save or go into debt.

These are economic rules that apply to the everyday. There are others and as they are needed, I will add them to the list.


1. A dollar spent is a dollar taxed
2. To consume you must produce
3. The law of supply and demand still applies even if you are the government
4. Education, infrastructure, production, efficiency, trust raise the economy. Burdens such as commitments, promises, debt, crime, security issues and overhead lower the economy
5. Savings takes money from the now and moves it into the future. Borrowing takes money from the future and moves it into the now.
6. Save or go into debt