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February 2009

Don't miss this offer!

The heck with the Final Four. Visit Cuba for the 50th Anniversary of the Glorious Revolution!

Eight days to witness stellar cultural and social achievements and join with one million Cubans during their 50th Anniversary May Day Celebration in Havana

Meet Cubans from all walks of life: educators, unionists, equality and community activists, and health and cultural workers

Visit museums, architectural and historical sites, art and publishing houses, and legal and social justice organizations

Relish the island's best food and entertainment all in the five star comfort of the Hotel Habana Libre

As I've noted a number of times before, you can't make stuff like this up.

Link via Art Woolf.

So, how is the cap on pay for bank executives being received?

Not well.

Lucian Bebchuk:

While I have long been a critic of corporate compensation practices, these restrictions leave me concerned. They weaken executives' incentives to deliver the long-term performance that is needed to benefit banks, the economy, and taxpayers who have injected vast amounts of capital into these institutions.

Gary Becker:

Pay caps will encourage companies that take government aid to hire high priced lawyers and accountants to devote their expensive time trying to find loopholes in these caps. Loopholes include reclassifying some employees to positions below top executives so that their pay would not be subject to any government pay caps.

Richard Posner:

A compelling criticism of the bailout programs is that their erratic administration has left the banking industry uncertain as to what is coming next. Are the banks going to be taken over by the government? Or subjected to new forms of regulation? What strings will be attached if they need additional capital? Will they be forced to lend money even though they are undercapitalized? If so, and they get into trouble, will the government bail them out again? Will they be made scapegoats for lax regulation? All else aside, a firm operating in so uncertain an environment is apt to hunker down and hoard its cash, for it must be prepared for anything. The pay ceiling adds to the uncertainty of their environment by suggesting that they are to be subjected to populist regulation as well as to regulation singlemindedly concerned with getting us out of the depression as quickly as possible.

Graef Crystal:

Last week the Obama administration issued new regulations designed to curb executive pay while at the same time avoiding unnecessarily risky incentives.

Bottom line: The new rules do neither.

Jason Zweig, Wall Street Journal: "Pay Collars Won't Hold Back Wall Street's Big Dogs". 

LA Times story:

Over the last two decades, however, Wall Street and the rest of corporate America have skirted a series of rules that sought to rein in executive compensation. An attempt in 1993 to deal with such compensation is a textbook example.

With the country struggling economically, President Clinton signed a law limiting a company's ability to deduct more than $1 million in salary for top executives from their taxes.

It's widely believed to have backfired. Companies shifted to stock options, leading to an explosion in executive compensation through the rest of the 1990s and setting the stage for scandals over attempts to backdate the options to make them even more valuable.

Finally, it's that old devil, unintended consequences:

There is no surer way to create unintended economic consequences than to regulate compensation plans.  

"The Anti-Bono"

Zambian native, with advanced degrees in public policy and economics from Harvard and Oxford, argues that the West should cut aid to Africa:

What do you think has held back Africans?

I believe it’s largely aid. You get the corruption — historically, leaders have stolen the money without penalty — and you get the dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its people.

If people want to help out, what do you think they should do with their money if not make donations?

Microfinance. Give people jobs.