Risk vs, Reward

Hi All,
Wow, what a crazy few weeks it has been! Let's get to the point of what is really a risk vs. a reward in 3 parts. Today's finance article says it best, but first let's start with with a picture that is worth a million words.

That is a number only good for today, remember that interest is added daily.

-----Reward, part 1
from yahoo finance:

ap
UK plans to scrap annual bonuses for bankers
Britain's Treasury chief pledges to scrap automatic annual bonuses for bankers

* By David Stringer, Associated Press Writer
* On Monday September 28, 2009, 8:26 am EDT

BRIGHTON, England (AP) -- British Treasury chief Alistair Darling said Monday that automatic annual bonuses for banking executives will be outlawed in an attempt to curb excessive risk taking in the country's huge financial sector. (ed comment - actually if they would tie reward to risk and success, that would be smarter.)

Darling told the governing Labour Party's annual conference that new legislation to scrap the payments will be put to Parliament within weeks.

Leaders of the G-20 rich and developing countries agreed last week to limit executive bonuses, but didn't set specific caps. Darling said bankers in Britain will in future be offered bonuses for their performance over several years, rather than over 12 months. (Editorial comment - it's about time! how about a clawback for negative performance?)

"We won't allow greed and recklessness to ever again endanger the whole global economy and the lives of millions of people," Darling said. (That right will be reserved only for the politicians! - my editorial comment)

He told the rally that new laws would include a claw-back provision and help to "end the reckless culture that puts short term profits over long term success." (spoke too soon)

"It will mean an immediate end to automatic bank bonuses year after year, it will mean an end to immediate payouts for top management," Darling said. (ed comment - now if only we could get a shareholder's and US voter's Bill of Rights! Oops,never mind, we have one, sorry, forgot)

The plans, to be included in a new Business and Financial Services Bill, will be proposed formally in the Queen's Speech in December, the annual announcement of the government's legislative program. (December - wow, what speed!)

Darling told the rally that Britain's economy has not yet recovered from the financial crisis, but predicted the U.K. is likely to come out of recession by the end of the year.

"Germany, France and Japan are showing signs of growth. There are many independent forecasters now believing too that the U.K. is coming out of recession," he said. "I think it is too early to say so with total confidence."

Prime Minister Gordon Brown's Labour Party trails badly in opinion polls ahead of a national election that must be called by next June. (ed comment, by the way, their average citizen trails badly in prosperity...)

Brown said Sunday that his party could recover if the economy rallies and the public give him credit for averting a worse financial crisis. ( - who cares if the citizens recover?)

"When the history of this period is written, this country and this party will be proud. Proud that the people who led the way in stopping recession turning into global depression were our government and our Prime Minister Gordon Brown," Darling told delegates.

In recent weeks Brown has acknowledged that the government will need to cut public spending to reduce mounting government debts -- but insists his Labour Party would protect key services. (and I have lovely lake front property in Arizona..)

Darling said the main opposition Conservative Party -- which is widely tipped to win Britain's next election -- would put the country's economic recovery at risk by making fast and sweeping cuts to spending. (only a pol would think that cuts in gov't spending are "risky".)

"If we followed the Tory route now, recovery would be put at risk, prospects for growth damaged, borrowing would in the long run be greater. We cannot and must not let that happen," Darling said.

-----Reward, Part 2
OK, back to reality - Reward is defined as follows: as a verb - "to recompense or requite (a person or animal) for service, merit, achievement, etc."

Wall St and execs in general forgot the "merit" or "achievement" part. "achievement, noun, defined as "something accomplished, esp. by superior ability, special effort, great courage, etc.; a great or heroic deed: his remarkable achievements in art. act of achieving; attainment or accomplishment: the achievement of one's object."

contrast this with the word accomplishment - "an act or instance of carrying into effect; fulfillment" curiously, there is only one antonym word - "failure".

Unless I am wrong, losing billions of dollars is an "accomplishment" at best, not an "achievement". Just because the firm closed its books does not justify an automatic reward for anyone. Survival may be an accomplishment, but it is not an achievement. The reward is you keep your job until tomorrow.

Fortunately, there is hope. last month, very quietly, Shell Oil Netherlands FIRED its top exec compensation officer because of many shareholder complaints! He recommended a full bonus plan to all execs even though they FAILED to meet their performance goals. What evil shareholders they are. It's a start, now if we can only fire the failed execs.....

------Reward, Part 3
The US taxpayer "reward" for Cash for Clunkers is now calculated - pass it along to all you know-

A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.
A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.
So, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year.

They claim 700,000 vehicles – so that's 224 million gallons / year. That equates to a bit over 5 million barrels of oil.

5 million barrels of oil is about ¼ of one day's US consumption. And, 5 million barrels of oil costs about $350 million dollars at $75/bbl.

So, we all contributed to spending $3 billion to save $350 million (one year). The payback period is roughly 10 years, which by gov't standards is actually good.

How good a deal was that ??? Do you feel rewarded yet?