Nicolas Sarkozy

France has recently announced new policies that will curb the excessive compensation in the Banking industry including how bonuses are paid out. This was done in response to a challenge laid out by G-20 leaders in April. French President Nicolas Sarkozy also plans to push for tighter international rules at a meeting of global leaders next month.

I applaud the leadership taken by France, not only to tie bonuses to a 3-year performance plan (thus eliminating the short-term focus) but also challenge the G-20 leaders to take action. When you look at the amount of monies paid out in bonuses by Banks, the average person on the street can’t relate. How did Banks bonuses get to be so large? One reason is the Banks fear of losing top talent…so the bonuses get going higher. The Banks have lost sight in why bonuses exist in the first place. This misplaced use of bonuses has fueled the short-term focus and the general “greed” prevalent in the Banking industry. This greed is what caused this global recession in the first place. So, now that we’ve bailed out the Banks, they want to go back to status quo. I don’t think so and neither does France and Germany. If we’re going to learn anything from the banking crisis, we can’t incent the Banks to focus on short-term gains. France’s approach seems right on by tying bonuses to performance over a 3-year window...poor performance?, no bonus. Do you think Obama and the Federal regulators get this? I’ll be watching the results of next month’s meeting. I hope the US has the same passion to eliminate “greed” as it did to eliminate “clunkers”!

The Federal Reserve

In a recent announcement, the Federal Reserve has extended a program intended to spur lending to consumers and small businesses. This program, which was scheduled to end on Dec 31, will now be extended through March 31. The TALF program is seen as a key plank in helping to ease credit, stabilize the financial system and leading the US to an end of the recession.

While I’m normally not in favor of the government trying to stimulate anything, I believe the Obama administration got this one right. The severity of this recession and the impact to the financial markets has required an “all hands on deck” approach. Getting the credit markets going again and making loans available is necessary to get this economy going, which is the focus of the TALF program. Given it’s slow start, this program hasn’t gained the traction the administration wanted. By extending this program an additional three months, consumers and small business will hopefully get the loans they need, which in turn will fuel the economy. However, I hope the government doesn’t just extend the program and call it a day. Let us hope they are reviewing why this program has been slow in getting loans to the right people. A program is only as good as its execution. Extending a poorly run program doesn’t really do anything but reinforce people’s perception that the government can’t really run anything. The government has the opportunity to get this one right.

July retail sales

The report that July retail sales fell 5.1% has a number of economists doubting that the economy is poised for a recovery any time soon. After all, consumer spending accounts for 70% of the economic growth in this country. While there are positive signs that the recession has bottomed out, improved consumer spending is what will lead this economy back.

However, before we discount the consumer and paint a doomed economic future, lets see what the next two months bring. While the impact of job losses and housing woes have clearly influenced the spending patterns of todays consumers, the retailers have also contributed through their deep discounting approach. Earlier this year, deep discounts on many items were the norm. Retailers have trained the consumer to be on the lookout for the next big deal. Even consumers with money to spend have become more discount focused. As for the next two months, I believe you will see spending pick up as consumers realize that the real deep discounts are gone. I also believe you will see consumer-spending pick up especially in teen apparel as one of the greatest economic growth drivers kicks into full gear….Peer pressure. Lets hope we can count on this!