Friday, March 20, 2009

Does Congress hate your investments?

The TARP Bonus tax bill that was rushed through the house apparently attached to pitchforks and torches is the height of foolishness.

If you are outraged at the TARP bonus pools (a justifiable outrage for the most part), then you should be equally upset with this bill. Like or not, we've made the decision as a country that Citigroup, AIG, etc were the financial version of Y2k. The world was going to end if they went under (not my opinion, but certainly the opinion of many). Now thanks to our many bailouts, we own huge chunks of these companies.

All of my years on Wall Street taught me one important lesson - a firm is only worth the sum of it's people and this bill passed by the house is almost certain to drive the best and brightest out of the TARP companies. So, we'll be left with a pool of zombie banks being run by the least qualified people. I'd say that's a recipe for disaster for our investment in these banks.

There is a caveat that apparently the 90% bonus tax only kicks in when a bonus is paid. It seems like it would take someone about 1.2 seconds to decide that instead of getting a $200k in salary and $500k in bonus, they'd like to take $700k in salary. Avoiding this tax by simply reclassifying the income might make this bill a joke.

I've already heard grumblings about smart people getting ready to launch a new investment bank to scoop up all of the best talent. If you had the capital this would be an amazing time to launch a new money center/investment bank.

Cheers!

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