Thursday, October 30, 2008

The "Bonus" letters from Waxman

I don't hear any investment banks telling us now that we should buy the material and commodity stocks, and now that it is apparent they are at multi-year bottoms, we get sell recommendations and commodity price projections that assume that all this liquidity being sloshed around by the Fed (now to Brazil, Mexico, Korea and Singapore!) won't have any effect on pricing or on economic growth.

But according to Waxman, $108 billion has been set aside on Wall Street for bonuses! Here's Waxman's letter to Goldman Sachs:

Earlier this month, the Treasury Department announced plans to invest $125 billion of taxpayer funds in nine major banks, including yours, as an emergency measure to rebuild depleted capital. According to recent public filings, these nine banks have spent or reserved $108 billion for employee compensation and bonuses in the first nine months of 2008, nearly the same amount as last year.

Some experts have suggested that a significant percentage of this compensation could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds. According to one analyst, "Had it not been for the government's help in refinancing their debt they may not have had the cash to pay bonuses..

If these letters get some traction, it would do a lot for helping confidence on Wall Street.

A couple of weeks back, when the market was down around 8,000 Buffett said he was buying stocks individually. That letter was looked at as just the musings of a senile old man.

Maybe it was the hedge funds selling that had the fit of dementia!

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