Pay to Play

by Larry Levin

The first four HOURS of the day were a real snoozer - nothing happened. As I have said before, the market just doesn't want to sell off unless there is a surprise news event, or far - FAR - worse than expected economic data. Until then, data such as today's auto sales will have little impact on the market.

Considering that I am writing to you from Illinois and today's headline is Pay to Play, you are probably thinking that I'll discuss ex-Governor Blagojevich. Although Blago did demand pay to play for nearly everything, including payola for the Senate seat of Barack Obama, I'll be discussing Wall Street. Speaking of Blagojevich, where do you think he's hiding all of the details of what wasn't recorded during those phone calls? I say he has it written on his forehead. (Badda-boom!) That hair could hide a tank.

Today's press conference by President Obama (does he hold one every day?) was about Wall Street executive pay. He laid out his plan that says if a bank receives TARP money (and probably the soon to be announced CRAP plan) its senior executives will not be allowed to earn more than $500k per year. In essence, he told Wall Street if they want to play, they need to pay. In the spirit of ex-Governor's like Elliot Spitzer, I can hear the wailing and gnashing of teeth by the executive's private call girls now "How will you buy me a Porsche for my services now?" Looks like this will be one of those unintended consequences we hear about.

But don't feel too badly for the Wall Street executives and their "friends," surely they will weasel their way around any impediments thrown up by the White House. Well, eventually anyway. As for now, it sounds like the government has actually thought this one through: banks cannot pay executives any bonuses of ANY kind (including via stock) beyond the $500k - UNTIL the taxpayer is paid back in full.

"We're going to be demanding some restraint in exchange for federal aid -- so that when firms seek new federal dollars, we won't find them up to the same old tricks," Obama said in announcing the new limits at the White House.

The new restrictions, however, would not apply to most banks and other financial institutions that have already received capital under the TARP bank-bailout bill approved by Congress in October, unless they seek more funds.

I am not in favor of salary caps, especially caps imposed by the government. I am in favor of letting the free market work. What would happen under a free market approach is these executives would be in the unemployment line, their companies bankrupt, and then sold off in pieces thereby making a NEW and SOUNDER banking system.

Since the government is dedicated to creating Japanese-like zombie banks with pay restrictions on the CEOs rather than letting the free market work, I have a feeling that title will not exist for long. Today's CEOs will be known as a Junior VP or something and voila - no pay restrictions - even though they continue to play.

Previous Day's Trading Room Results:

Trade Date: 2/4/09

E-Mini S&P Trades*
(before fees and commissions):

1) Pivot (R1) sell @ 8:40am at 841.50 = -.75 (1 lot)

2) OTF buy @ 10:10am at 845.00 = b/e (1 lot)

3) *** Three short trades were (barely) not filled today - all big winners!

4) Algorithm positions (2)...combined SofT and Algo total...-2.00


Electronic (YM) Mini-Dow:


1) No trades today



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