Friday, February 6, 2009

Short Takes: International Trade, Bank Executive Pay, and Mutual Funds

1. We had some good news about the “buy American” part of the U.S. stimulus package. U.S. legislation has been changed to include “a requirement that the U.S. not violate its international trade agreements” (the web page with the article quoted has disappeared since the time of writing). It’s not clear whether this will be enough to protect Canadian exports, but it’s a step in the right direction.

2. President Obama has capped executive pay at $500,000 per year at companies that accept government money. A Wall Street Journal video (that is no longer available online) explains some of the other measures designed to prevent executive excess.

3. Preet gives a good explanation of why the average active money manager must lose out to the index.

4. FrugalTrader explains how Canadians’ investments are protected by CDIC and CIPF.


  1. I am nervous about Obama's plan to limit CEO pay to $500k. Some of these banks are huge, and need excellent CEOs. If these superstars can find more money elsewhere, these companies could end up with some mediocre CEOs.

    Of course, Buffett has argued that CEO salaries are too high and that it's not as competitive an environment as we would think. He figures a lot of CEOs would have a tough time finding a similar position if they lost their jobs.

    Can you see any unintended consequences in Obama's plan?

  2. Gene: The most obvious unintended consequence of this plan is that executives will find some interesting way to compensate themselves that they believe isn't covered by the new rules. Another would be that some banks won't take any government money and risk failure rather than limit executive pay. On balance, though, I think the new rules are a good idea. I've interacted with enough CEOs to know that many are kept up nights trying to figure out how to get more money for themselves. Huge piles of government money would be very tempting.

  3. Thanks for the mention, limiting CEO compensation or at least making them Accountable to a large investor (i.e. the Government) is a good thing too.

  4. Thanks for the link Michael!

  5. I like your response. It would be tough deciding between refusing government money and a large pay cut.

    Seems there was a huge increase in stock option issuance when Bill Clinton introduced high taxes on incomes over $1 million. So your point in that regard is on the money.

  6. I'm a little late, but thanks for mentioning my article!