Stock Lending Today: What Else Shall They Do?

I found this today while doing some Entrecard dropping:

I guess all of those reporters and commentators would rather have had AIG go into default and the bailout money going to lawyers rather than to continue to support AIG’s ongoing operations.  I assumed that the idea of the bailout was to assist AIG in carrying on its business.  Silly me. [emphasis added]

Stock Lending Today - An Industry Under Siege!, Mar 2009

Roy Zimmerhansl's blog, Stock Lending Today, is a blog I frequent as Roy and I trade Entrecards back and forth. However, unlike most blogs I visit following an author's Entrecard drop on my widget, I stick around and read Roy's.

I pulled this quote out of his posting today because it echos my thoughts on the recent press coverage of how bailed out institutions are behaving. The drive-by critics will always say "well, carrying on their business is how we got here in the first place!" This of course ignores the myriad ways government interference in various aspects of the economy contributed to the crisis (such as setting up government sponsored lending institutions that could drive the market toward risky lending via regulatory mandates that private institutions compete with the GSEs in the same field). It also brings up a question, that if these institutions don't carry on their business, then what business should they be in? What else do they do? More to the point, do we want to see this money paid back or not?

The wailing and moaning about bonuses paid to executives and others is much the same: the uproar is based on the ignorance of the broader public about how compensation works in such instutitions. Salaries are typically rather low and performance bonuses make up a major portion of what a lot of these people bring home. Granted, the institutions are losing money right now, but in this game, losing less than could have been lost otherwise, because someone with the know-how to limit the damage pulled some all-nighters to preserve capital, is just as valid a type of production as is producing positive returns (when the markets are in decline, that is, not just any time). Cut these people down to their base salary, and they take their know-how with them when they walk out the door. Could some stand to be gotten rid of? Absolutely. But the government, the media, and a whole bunch of you out there in the bewildered public are painting this one with a broad brush and not working on it with a fine scalpel. I ask again, do we want to see this money repaid, or not?