The executive pay at AIG, Merrill Lynch and other companies around the world in places such as TeliaSonera in Sweden and Valeo in France makes no sense at all. Executive have got paid well even as the companies they ran were running to the tax payers for help have got me wondering. In the hay days we didn’t mind that much of these payments to executives since we assumed they were been paid for the “good” job they did (so we thought) making profits for the companies. No public outrage was shown and if it was, it was kept at a minimum. Now the problem comes when they are losing money, I don’t buy even at a discount any of that contracts BS. How can a contract be written to the effect that there is no downside to whatever one does? If the is the case everyone should get a college degree with his/her acceptance letter in the mail and after four year a frame and a minor degree in another major. Once in college they should attend the classes they want, drink as much as they want, forget the repercussion, the “contract” degree is at home and you are waiting for the frame and the minor degree after four years. Oh yeah if you drink too much and you get caught by the campus police and they threaten to lock you up just request an early delivery of you frame and you can leave and head to another college. The only other person that gets paid even if he/she is wrong is the weatherman who by the way said that today was going to be sunny, but it is raining like hell. And I love it when they say “we have a 20% chance of rain or 75% or even 60%” but when they say “we have a 50% chance of rain” I have no idea what the means…it might rain or it might not rain? you pick.

When these companies made money they got rewarded but when they fail to make money they should be punished. Please don’t give me that rubbish that they need bonuses to perform, if that were the case then these are not the right people to do that kind of work. People should work because they love what they do and the bonuses should be extra icing on the cake. Take pilots for example, they do it because they love it and they do due diligence with a check list to make sure all they systems are working right.

Moral Hazard caused Global Imbalance thus leading to current Financial Crisis.

It is said that science is cumulative while business is cyclic. In other words the current financial crisis will happen again if capitalism doesn’t reinvent itself. The level of inequality in the current system is outrageous and the reason people haven’t noticed is because they are too busy working trying to pay for this inequality.

Take the case of “sir” Allen Stanford’s web of company that was doing billions of dollars of business, the bank’s assets had burgeoned from $1bn in 2000 to more than $8bn at the end of 2008. “sir” Allen had faced regulatory scrutiny before it all came falling. Financial Industry Regulatory Authority (Finra) had fined the Stanford Group a total of $70,000 in April 2007 for failing to adequately state the risks involved in the CD investments and to disclose that an affiliation between the broker-dealer and the bank could pose a conflict of interest. Stanford consented to the sanctions without admitting or denying wrongdoing (whatever that means), according to a file on Finra website. Assuming that in 2007 Stanford Group made $7bn and was fined just $70,000, that’s not even the cost of doing business. This form of punishment doesn’t deter a repeat of the same. Assuming someone is making $50,000 per year and has a speeding ticket he or she would have to pay 0.70 cent at this rate. That would not be a sufficient reason to deter the driver from speeding again. This is not akin to moral hazard but moral hazard in blight yellow colors. The only part that has tried to address moral hazard a bit is the tax code which is calculated in terms of a percentage. But the rich (e.g. Tim Geithner’s more than $34,000 tax bill, forget Tom Daschle) are able to circumvent this process with the help of offshore banking and tax attorneys there by leaving the poor citizens who can’t play this game since the taxes are withheld by the government. In order to address this moral hazard all fines should be paid as a percentage of one’s income.

If a company (or a person) is to be fined for any violation they should be fined as a percentage of their income. Thus a speeding ticket shouldn’t be a flat $100(an example) for a person making a quarter of a million dollars or one making $50,000 or minimum wage.
This global rate of high inequality and tax evasion has left the government with little income to depend on. The rich are getting richer (I have nothing against that) but they are evading tax thereby leaving the baggage to the poor who are getting poorer thus falling income hence falling taxes, but they are enjoying the protection if the government as citizens.