THAT IS THE BEST IDEA I HAVE EVER HEARD...EVER

I'm sorry about the caps, but it really was necessary.

@nataku83: Problem is though, if it goes up instead of down, they'll make a killing. Which is what they intended to do the whole time.

Awesome! I am assuming these upper level directors had their bonuses written into their contracts.

Thant you, Santa! THANK YOU!

Wow. I am impressed. I wonder if these funds lose money if the execs will end up owing money. That has the potential to be really funny.

@Oranges w/ Cheese: ummm... have you been living in a cave? The chances of these assets being valuable is pretty low. And if it turns out they are worth something, then the execs did the right thing all along, they didn't cause as big a mess as everyone today is presuming, and they deserve to be paid for a job well done.

but c'mon, this is the greatest idea ever, and it should be mandated accross the finacial and auto industries.

Ok, I'm not stupid but I know nothing about this and don't understand why it is good. Can someone give me the wikipedia-esque explanation? Thanks!

@stevejust: And by mandated, I mean mandated by the shareholders, not the gov't.

I don't need bladefist flaming me about my commie pinko ways.

Is it too late for shareholder resolutions before the end of the year bonuses? (Of course. Doesn't hurt to fantasize a bit, though.)

@Oranges w/ Cheese: I have no problem with executives making money if their company makes money (although I do feel that perhaps they shouldn't make quite as much as they do). Odds are pretty good that these assets are not going to make money, and I can only hope that they were assigned based on their hold to maturity value, rather than giving each executive a billion in bad loans knowing they'll probably only get a million out. (yes, i'm aware those numbers are embellished). In addition, this should hopefully give them a little more motivation to keep these loans from defaulting, as it seems like many banks are still engaging in self-destructive practices.

@startertan: I am not positive, but it sounds like they are pooling a bunch of crap things like mortgages. Example: they gave a $300K mortgage to a guy making $20K. They then give that mortgage to an exec and say, "You told US it was worth $600K ($300K princ + interest), so here's your $600K bonus. Have fun with that." Pool them together into a ginormous sh*t-ball and issue "shares" as the bonus.

I agree tho, anybody who understands this better, please give me the low-down.

Keikaku Doori.

If this is a pool of mortgages, and say if the people default, does that now mean that vacant homes are now owned by the Execs? I mean if thats the case sign me up for this pool cause Id like to have a few houses on the cheap...

@Keter: Like the stock market, you aren't on the hook if the fund goes negative, you just lose the value of the shares, which, in this case, were granted and thus have zero cost associated with them.

It's pretty much on par with other banks, where top execs have gotten zero bonuses. This is just a slowly-declining bonus that will eventually wind up at zero or nominal since there is absolutely no market.

@RevRagnarok: I think you have the process basically right. I doubt this is being done because someone thinks it is funny, so there is value to someone.

My best guess: they're distributing the 'losses' to execs to allow them to in some way offset other income in 2008. Or maybe they're loading up losses to carry forward into the years when times are better but the new administration has imposed higher tax rates.

@Ingram81: Maybe so, but the execs will have to get a team of lawyers to decompile the book of legal documents that comes with each security just to extract any value from it.

I find this very humorous.

This is awesome on so many levels. I doubt it will happen in the US, but I'll be elated if it does. I like the explanation of RevRagnarok, where the "$600K bonus" suddenly changes value very quickly. Happy feasting!

I'm thinking they'd probably opt for actual coal.
Of course, that's alot more expensive at this point.

@Ingram81:
Thing is it probably isn't really mortgages -- it's instruments related to derivatives of securities collateralized by obligations on pools of mortgage backed fribbles or something.

@copious28: I agree, it appears awesome. Sadly I think there has to be some catch here.

@ndonahue: Wouldn't these actually end up being a large tax burden for 2008 anyway? I believe these are loans that have not yet defaulted, so they are required to pay tax on the book value, and then they can write it off as the fund declines and they cash out, which gives them some flexibility at least.

@RevRagnarok: Pretty close. Investment banks coinvested a lot of their own capital in this "toxic" debt at the height of the subprime/Alt-A market. When the bottom fell out, they were just as screwed as the hedge funds, mutual funds, and institutional investors. Some banks, like CS' Swiss rival UBS, simply wrote off the value of these shares, removing the debt from their balance sheet (a financial snapshot of your standing) and taking a loss on their income statement (how much you made/lost over a period of time). CS wrote off comparatively little (a few billion vs something like 30 billion for UBS - not positive on the specifics), and what they have left it looks like they're paying out the executives.

They're basically worth zero, since no one will buy them (distressed debt funds might give this one preferential treatment due to the connections), but I think they are valued at book value or something higher. At issue, they might be worth, say 100 bucks a share, so for a million dollar bonus, they'll pay out 10,000 shares. The value of these will decline, so they'll be holding 10k shares at 90/share, then 80/share, etc. until they hit 0 or near 0.

It's win-win, the execs are basically paying for the write-off out of their own pocket, CS gets to remove toxic debt from their balance sheet, and execs still get paid, albeit in a currency akin to Monopoly money.

There has to be a catch. Who decided to do this? The Board of Directors? It says that managing directors are who gets it. I doubt they declared this kind of thing out of the goodness of their hearts.

@Oranges w/ Cheese: Correct. Obviously, the debt markets haven't been playing according to script of late - but "illiquid" does not equal "worthless" and no bids now does not equal no bids forever. Granted, if some guy needs the money NOW he's screwed, but those with a longer timeline have a fair shot at making out just fine. It ain't cash, but it ain't LOL, NOTHING either.

@stevejust: these securities absolutely will have value. the majority of subprime mortgages are being paid, and being paid on time. the only reason the value is low is because nobody wants to buy them and banks need to sell them to raise money(supply & demand), but most are still paying interest, and at maturity (30 years down the road) most of the securities will pay back well over 50% principle, most will be closer to 80%

you're all assuming these securities are worth zero, which is far from case. ultimately these securities are backed by real estate, and i have yet to hear of a real estate market that's lost 100% of it's value. the hardest hit markets are down 50%, most around 20%, some are up over the last year. Many of these securities still pay interest. the securities are down in value because of a supply/demand inbalance, but when all is said and done, most of these securities will end up being worth 80% face value, if not more when you include the interest payments that are made.

Sauce for the gander. Great.

Let's see how these guys like getting paid in the same funny money scrip that they cooked up and served to the world's banks,pension funds and insurance companies.

This should be REQUIRED to be the "retention payments" that AIG hands out at the end of the year....

@craptastico: Can you cite me to a source for "majority of subprime mortgages" being paid? And in addition, why focus on subprime? There's a lot of defaults coming down the pipeline in the next two or three years that have nothing to do with the (relatively small) subprime mortgage market.

It's not as wild as it sounds, and the catch is all in the rhetoric.

The securities will still be on Suisse's books, and they'll act on and react to them as usual. This is more like a way to manage a bonus crisis than executive punishment. When the securities fail, those lost assets are taken from the directors' bonuses and compensation packages.

What Credit Suisse gets is to avoid paying bonuses, which, on the books, shows up as a nice little pot of fresh assets to help deleverage themselves. On the other hand, if the management's decisions failed, they get little to nothing for it. If they were good, they get a tasty treat. Pretty close to justice.

@Snarkysnake: It could be the basis for a new law: All executive stock option compensation and all bonuses at financial services firms will now be paid in the lowest-rated, riskiest investment they sell. Imagine how fast Wall Street would clean up, especially if you mandated a certain portion of their compensation package had to come from options and bonuses ....

@stevejust:
[www.finfacts.com]
these stats are from April, so admittedly out of date but it's the newest i can find right now. it has the overall default rate of all mortgages at 2.87%. Even if it's higher now (although the last i've heard was still under 3%) the securities are worth something. Granted a lot of the securities awarded are backed by these defaulted mortgages, but you have to keep in mind, even a mortgage in default has some value as it's ultimately backed by the underlying real estate. I just want to make sure people understand they are getting something with some value

@Eyebrows McGee:

Believe it or not,a precedent already exists on Wall Street for this kind of payment- The so called PIK or "Payment In Kind" bonds that were popular in the 80's ,90's and earlier this decade.As the name implies,they paid interest "in kind" ie: More bonds. Those in turn paid interest in ...More bonds. It was ,(and is), No Tomorrow Credit, fit for a company that cannot raise capital any other way. I would love to see this toxic waste handed out as door prizes for the assholes that peddled it to trusting investors...

Frees up cash, disposes of bad assets. Genius.

Of course, employees are getting assets at an extremely steep discount. They could make out like pigs in the latter half of 2009 if the housing bottom doesn't kiss the X axis.

@RevRagnarok: Maybe the loss of value can be claimed on the individual executives' tax filings, while the company as a whole gets the benefit for showing a healtier investment profile for having offloaded its smelly securities?

These guys aren't going to lose any money. Wasn't the purpose of all that money to back/insure all this toxic mortgage debt?
They'll end up making exactly what they expected to make off of these bundled mortgages and, as expected, the press is eating it up and cheering.

The large public company I work for had booked a fancy corporate retreat and vacation package for top execs at the Ritz-Carlton before the crisis, and could not back out of the contract or get their deposit back.

After seeing the negative press on AIG execs for having plush retreats, they quickly decided to give the "vacations" to charity instead. Wounded soldiers and their families will now get trips to a tropical location and a fancy stay at the Ritz, the kids can do the dolphin swim program, and the parents can have spa treatments. They are also considering donating some of the "vacations" to children with cancer and their families.

I realize that it's not all mushy lovey goodness - they are getting great PR and a huge tax write off. But I think it was a great idea and I'm happy those more deserving will get the trips instead of wealthy execs. So a good shot of Christmas spirit from the execs. They could have just canceled the contract and written the deposit off as a loss.

@stevejust: Actually, Bladefist would say, "So long as the Wall Street execs said they were for strong, ethical self-regulation that justly rewards themselves and the public at large, who cares about what actually happens. Because, aren't we above partisan finger-pointing?" :P

@craptastico: yeah, see... I hate to get all factual on you by interjecting some reality into this internet discussion in comment thread no one will ever read, but you really haven't been following this closely have you? And while almost 1 in 10 does mean most people are paying their mortgages, it's still a mind boggling amount of people sliding towards default.

"WASHINGTON (AP) - A record 9 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June, as damage from the housing crisis continues to mount, the Mortgage Bankers Association said Friday.But the source of trouble in the mortgage market has shifted from subprime loans made to borrowers with poor credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments."

[www.usatoday.com]

Remember, 9% behind or in foreclosure. And more and more people losing their jobs every day. The mess is big and bad. Sure, over 30 years things might work out, and this picture might look way worse now than it will 30 years from now. But I have no problem saying that the people that got us into this mess should be the ones stuck holding the bag between now and 30 years from now.

@ADismalScience:

Yup - the incentives look pretty perfect to me - if the market's dumb, and these securities are actually worth good money (which means that they bonusees were actually doing their jobs properly), then the bonuses are valuable. If they're not, they're not.

As long American consumers don't demand action from Congress or complain to the companies in large numbers, they will continue to be screwed over and over. The populace has been well-trained to accept anything and not to think or stand up for themselves. We are so ill-educated we don't know when someone is stealing us blind and we are so lazy we don't get up from the recliner even if we notice we are being robbed.