G20 Consequences of a Salaries Cap on Your Nest Egg

This week the G20 are meeting in the UK to discuss global financial controls and regulations on almost every high finance activity performed today by the banking systems of the world. This includes some sort of regulations and limits on executive salaries it seems!

We just had a synchronised crash of the G8 countries mainly due to them all doing similarly stupid things at the same time, like allowing off-market trading in complex derivatives associated with sub prime mortgages. Prices were set inside the financial world of investment banking in secret and sold to unsuspecting client who trusted the advice they were given.

If the G20 think they are going to be able to control a bunch of incredibly talented financial people (good or evil) and limit their salaries and bonuses I think they are whistling Dixie…..

Monitoring them or what they do will not work. Governments always fall asleep at the wheel because they are not in the “markets”, don’t provide enough money to do the job, or eventually allow the “financial police” and the financial wizards to sleep with each other and even swap jobs. The financial wizards are the masters of their game. That’s why they are paid so much (present credit crisis accepted as an aberration and not “normal” market action). A humble public servant is no match for them.

If any financial wizards are found guilty of fraud or deception then they should go to jail. But many were just making money for their firms using standard operating procedures within the laws of the land.

Many Financial Institutions’ Senior Executives and Boards are guilty of not doing something about the credit crisis well before it became one. They knew what was going on and did nothing to curb their “young Turks” from generating obscene profits at extremely high risk to their firms. But I have already discussed this in a prior post entitled,  “We Need the Wall Street Risk Takers But….”

We need these financial wizards to make money for us all to maintain our lifestyles. If they don’t, Governments can’t. So we are all looking at a financial bleak future for a few years at least.

Governments have to work on ensuring transparency of transactions and ensure an orderly market for all financial derivative alongside other financial instruments. Then they need to encourage risk again under the new rules.

In a “Free World” the G20 really cannot control where these financial wizards go to work. I can see new financial centres in the emerging economies where these people would be welcomed with tax incentives, private planes, free housing, cars, trips home and the like.

The Dubai authorities have set up a new Dubai International Financial Centre and its filling up fast? They have built a whole new air-conditioned city to accommodate these people. It’s their Wall Street and they want it to be just like Wall Street or London.

The G20 want to beef up the IMF and the World Bank to have more control. The  German Chancellor Merkel suggested at the Davos Forum they should consider a UN Economic Council based on the UN Security Council.

“All of these issues … need to be enshrined in a charter for the global economic order,” she said.

“This may even lead to a U.N. Economic Council, just as the Security Council was created after the Second World War.”

I can see how well that will work with the G20 sitting around the table and the usual crowd (Russia, China etc.) vetoing any resolution from being passed that might actually fix a financial problem but that might adversely affect some political organisation or a country that might be doing mischief.

Do you believe your government is going to listen to a bunch of people in the World Bank, IMF or a UN Economic Council tell them how to run your country? More to the point will the people stand for it? I don’t think so.

And are they going to allow this global body to tell them how much they should pay their financial wizards too? No way!

The IMF Reported it’s concern with the Sub Prime Crisis in May of 2007 to the Association for Financial Professionals, Global Corporate Treasurers. it was spelled out in very clear terms. No one did anything then so what makes anyone think anything will change?

The IMF gets its information on which to base its reports on from the national governments. They don’t visit each country auditing their books!

A UN Economic Council will have to rely on national governments giving them the financial information on which they will be expected to act, including the salary caps I suspect. Will we be able to trust any government reporting honestly? Nothing will be done unless there is a world-wide financial crisis like now and and danger of a complete financial collapse. That’s the way it works.

It will be lie about salary caps and cover up financial problems until it all blows up. Then have world meetings to try and fix a crisis our governments created in the first place. Aren’t we doing that now?

If the G20 even try to regulate salaries they are doomed to failure or there could be the greatest migration of financial talent the world will ever see. The most talented financial wizards will go to a place where they are welcome and can weave their financial magic and once again create wealth. Only it won’t by in the USA or the G20.

Wall Street will echo with the sound of silence. They will do to the USA what Al Khaida can only dream about, bring down the only bastion of Capitalism, and the financial centre of the world and of wealth generation, and all without a single shot being fired.

So if you want to see your portfolio recover your losses in your life-time tell your congressman or MP to keep all financial controls within your national boundaries and make regulations that allow for risk and reward through transparency and sound banking and money management principles.

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