Due to the given financial crisis governments worldwide are busy to bundle up “care packages”. Oversimplifying a bit one can describe the current scenario as follows:
Banks lost trust among themselves, therefore they tend to cease lending out money, therefore capital flow is in danger, therefore economy is in danger. Hence governments put guarantees, buy up problematic assets etc., which in the turn buffer the risk for the banks, so that the banks will again have more confidence into themselves.
This would be funny if it wouldn’t be funny at all.
In particular the german government will issue a “stabilization law”, which is intended to be pushed through by the end of the week and which I find hard to accept. Why?
Lets first put together the main points of this law:
-the german government provides a fund with a volume of 500 billion Euros (operated by the ministry of finance and administered by Deutsche Bank) , with which “measurements” such as recapitalization (which means more or less bying parts of banks/sharevalues/etc.)(80 billion Euro) and putting guarantees (400 billion Euro + 20 billion security reserve) can be taken.
In exchange for this public donation one can read today on the webpage of the ministry of finance that:
Der Bundesregierung ist wichtig, dass Manager harte Auflagen in Kauf nehmen müssen, wenn sie unter diesen Absicherungsschirm wollen. Neben der angemessen Vergütung für die Hilfen wird es für jedes Unternehmen, das Unterstützung braucht:
* eine Höchstgrenze für Vorstandsbezüge von 500.000 Euro geben müssen
* einen Verzicht auf Bonuszahlungen geben müssen
* einen Verzicht auf Dividendenausschüttungen geben müssen.
(translation without guarantee)
It is important for the german government that managers have to accept firm obligations, if they want to be eligible for safeguarding measurements. Besides an adequate compensation for the help it will be necessary to demand for each corporation, which is in need that
*there exists an upper limit of 500000 Euro for remuneration of members of the management
*a disclaimer for bonuses
*a disclaimer for dividends
In their draft for the new law these obligations are not mentioned explicitly, but it is written (§ 10) that the obligations which have to be complied with (zu erfüllenden Anforderungen) can be later on specified in socalled Rechtsverordnungen.
The above described help package of the german government is valid until Dec. 31. 2009.
What are my main problems with this package?
Among others (i have not really time for going into detail) it is the term “zu erfüllende Anforderungen” (demands which have to be complied with). Given that I understood correctly -
this means that only corporations, which are already in big troubles have to comply to remuneration regulating means.
Given this is true, I find that quite unacceptable.
Or in other words:
Why does the german government not take the chance to impose more regulatory influence ?
This could be e.g. done by demanding that companies, which want to be eligible to this kind of generous risk buffering package have to comply to restructure their remuneration system from today on and not only from the date on, when they are in trouble!
It is fairly obvious that a big part of the current disaster is due to –yes one should call what it is — “profitable and riskless gambling with the ressources of others”. In other words most of the current remuneration systems reward those who are successfully pushing the limits without (almost) any personal consequences. In particular it does not reward those, who may step back e.g. for moral and other reasons.
In this statement by Hector Sants from FSA (UK Financial Services Authority) Criteria for good and bad renumeration policies are outlined.
They are a bit too weak for my taste, but well they give at least some indication on what is darned necessary.
see also article by Bettina Schulz (in german)