Goldman chief took home $18.6 million
Goldman Sachs didn't have its best year, but CEO Lloyd Blankfein still managed to walk away with $18.6 million.
Blankfein and each of his top four lieutenants made that sum last year, Goldman (GS) said in its annual proxy statement filed Friday afternoon. Each man received $600,000 in salary, a $5.4 million cash bonus and $12.6 million in restricted stock that can't be sold immediately.
Execs getting crushed by inflation
That compares with $9.6 million in salary and restricted stock granted each man in 2009. The other top executives are President Gary Cohn, finance chief David Viniar and vice chairmen Michael Evans and John Weinberg.
Why the big raises in a year that saw profits fall 37% and the stock go nowhere? Easy comparisons surely don't hurt:
"Our performance over the last three-year period was strong, particularly in relation to our core competitors: Bank of America Corporation, Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley," Goldman said. "While our performance in 2010 was not as strong as in 2009 due to difficult market conditions for much of the year, we continued to create value for our shareholders and prudently manage our firm from a risk perspective."
And there is more where that came from. Goldman said in January it would raise its top executives' base salaries in order to reduce their focus on incentives – a move regulators have made approving noises about.
But no one should labor for a moment under the mistaken notion that Goldman execs are overpaid. As a chart (see right) in the proxy statement shows, Goldman's per-share book value has expanded at an 18% annual clip since the firm went public in 1999.
Meanwhile, in a heartrending twist, compensation for the firm's named executive officers, or NEOs, hasn't even kept up with inflation over the past decade. Yet another example of how it isn't easy being rich.
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Private equity should share its plans
I often get asked for my thoughts on what private equity firms can do to improve both their individual image and that of the larger industry. Here's something: Tell us your general plans for improving portfolio companies.
Here's what I mean: When PE firms buy a company, they often are willing to talk about why they like the sector and/or the particular company. They'll often discuss the deal-sourcing (proprietary, bank-run process, etc.), and maybe even some of the deal terms. But almost never will they explain their actual investment thesis.
I'm not saying that you should violate trade secret or put your companies at a competitive disadvantage. Or let Johnny in shipping know he's being laid off via a media report. But every private equity firm has a top-level plan on Day 1, even if it doesn't survive intact on Day 30. Get that story out to reporters covering the original transaction. It's too late to make your case at exit, because by then we care about the new buyer more than the old seller.
If you truly want to be considered "value-add" – then let us know your plans for creating value (while we're still paying attention).
Job seekers' lost decade
A solid jobs report is nothing to scoff at nowadays, but here goes.
The economy added 216,000 jobs last month, and the unemployment rate fell to 8.8%. Even the leading bearish economic forecaster, David Rosenberg of Gluskin Sheff, concedes that the numbers were "firm."
The lost decade: Not just for Japan anymore
But it wouldn't be a rainy Friday in New York without a dose of economic gloom. Take a look at the above chart, inspired by Rosenberg's comment that U.S. payrolls remain below their level of January 2000 -- and 7 million south of their peak levels reached in the late stages of the housing bubble.
Slicing it up another way, over the past decade the United States has added 30 million residents, without making any accommodation for how they might earn their way in the world. No wonder the Fed thinks we have bigger worries than inflation.
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How to sell your state to Corporate America
Caterpillar is frustrated by Illinois taxes, so other states are scrambling to get the machinery giant's attention. But not every state with low taxes makes for a great place to park your headquarters.
Would Caterpillar ever consider Sioux Falls?
FORTUNE - During what's poised to be one of the toughest budget seasons for state and local governments, locations that were once brushed off by some of America's biggest corporations might just have found a new comparative advantage for attracting business.
Indeed, assets like good schools, adequate infrastructure, affordable neighborhoods and mild weather are attractive to corporations looking to expand or relocate. But so are taxes. And as many states grapple with troubled public finances, the few that say they're in relatively better fiscal positions will increasingly turn to a newfound weapon of choice in the battle for corporate America: the health of their balance sheets.
In the latest example, Caterpillar (CAT) CEO Doug Oberhelman has taken notice of states like Nebraska and South Dakota, whose governors have ramped up efforts to get the Peoria, Illinois-based maker of bulldozers and excavators to relocate. In a March 21 letter to Illinois Gov. Pat Quinn, Oberhelman says he's unhappy with the state's business climate and points to "several letters" he's received from other states welcoming Caterpillar.
While he didn't say exactly what bothered him, his letter comes a little over two months after Illinois significantly raised individual income and corporate taxes to deal with its desperate budget crisis. The state's corporate income tax will rise by 30%, from 7.3% to 9.5%, becoming the fourth-highest state corporate income tax in the United States, according to the Tax Foundation, a Washington-based think tank. It also increased its individual income tax by 67%, from 3% to 5%.
"Before, I never really considered living anywhere else, and certainly never considered the possibility of Caterpillar relocating," Oberhelman writes, adding that his company isn't threatening to leave Illinois. "But I have to admit, the policymakers in Springfield [Illinois] seem to make it harder by the day."
Oberhelman's letter highlights a growing Darwinian mentality among some governors trying to take advantage of fiscally weaker states. Governments commonly wine and dine major companies into relocating or expanding into their areas. But those efforts, as even a Caterpillar spokesman acknowledged, appear to have intensified in recent months as many governments struggle to balance budgets. Quinn could not be reached for comment, but his office says the state is working with Caterpillar about their concerns.
It's anyone's guess as to how this game of survival of the fittest could play out. But Nebraska Governor Dave Heineman bets that oft-overlooked states like his will start getting some serious notice from corporate America. Home to the creation of Kool-Aid and billionaire investor Warren Buffett's Berkshire Hathaway (BRKA), Nebraska is one of several states that recently asked Caterpillar to consider for its business.
In an interview with Fortune, the Nebraska governor says he sees Illinois' financial woes as an opportunity. After all, he says, Caterpillar isn't the only company unhappy with the state's higher taxes. Heineman adds that Nebraska is talking to other companies that have been looking to expand or relocate elsewhere, but he declined to give names.
"We have a target-rich opportunity right now," he says.
Before Illinois raised taxes, Nebraska ranked close to Illinois in the Tax Foundation's Business Tax Climate Index, which compares how corporate, individual income and other taxes impact businesses. Higher taxes may have downgraded Illinois' ranking from 23 to 36 on the index, but Nebraska's 29 ranking means it still has plenty of others to compete with -- one being South Dakota.
The sparsely populated state of about 812,383 -- slightly less than the city of Jacksonville, Florida -- ranks highest in the foundation's business tax climate index. Unlike most other states, South Dakota has no corporate income tax, personal income tax, business inventory tax or personal property tax. But while low taxes might be appealing, the relatively rural state has struggled to secure many large companies.
Governor Dennis Daugaard, echoing a Feb. 3 letter his office sent to Caterpillar, believes things could change as the state has balanced its budget for the year without having to raise taxes or dip into reserves. To be sure, South Dakota has a much smaller population than Illinois or Nebraska, so it's hard to compare the taxing and spending climate of the three. Daugaard says that while South Dakota's budget had to endure some major cuts, it's better off than many others.
"There are many states whose financial difficulties are more than short term," Daugaard told Fortune this week. "It's so much easier in some cases to raise taxes than it is to make cuts. So I think some of these tax environments will be too burdensome for the household names and they'll start looking."
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Jilted NYSE execs could score $95 million
NYSE chief Duncan Niederauer and his top aides could soon be crying all the way to the bank.
Niederauer (right) will walk away with $34 million in change-of-control payments should the Nasdaq (NDAQ) and the Intercontinental Exchange (ICE) succeed in wresting Niederauer's NYSE Group (NYX) from the arms of its chosen suitor, Germany's Deutsche Boerse.
Good walking away money
His top five lieutenants will make $61 million if they depart under a Nasdaq takeover – including a $17 million check for general counsel John Halvey.
The payments are outlined in proxy materials the NYSE filed this month in the wake of its agreement to be acquired by Deutsche Borse for $10 billion in stock. Nasdaq and ICE said Friday they will offer $11.3 billion in stock and cash to undo that merger and replace it with one that would create a giant exchange company based in New York, not overseas.
The sum due Niederauer comprises $12 million in severance pay, $11.2 million in immediate vesting of restricted stock awards, $6.2 million in excise tax protection and a $4.8 million bonus (that's two years' worth, for those keeping score at home).
He gets that sum in case his employment is terminated because control of the company changes. He gets all but the excise tax break if he leaves of his own accord or is fired by the NYSE without cause.
Getting a $34 million check can't be a bad feeling, but it can't be a bonanza Niederauer is looking forward to. He spent February stumping for the Deutsche takeover, not altogether effectively, before a skeptical public and a posturing Congress. He warned those who focused on planned job cuts that doing so was "a negative, pessimistic way of looking at this merger."
Of course, Niederauer has millions of reasons to be more optimistic. He made $25 million running the NYSE over the past three years, and the Big Board said in February that Niederauer was in the process of negotiating a new compensation agreement that would no doubt give him a long overdue raise should the Deutsche deal survive.
But it's not easy to make the political case for selling a 200-year-old New York company to an overseas buyer at a time when U.S. competitiveness is being widely questioned. Niederauer probably hasn't helped his case by admitting that stock trading, the NYSE business that people identify with, is "challenged" economically.
The failure of the NYSE and Deutsche Boerse to come up with a name for the merged entity showed the deal Niederauer wanted was never going to be easy, and the Nasdaq-ICE bid only adds to that discomfort.
There are ample signs Friday NYSE shareholders aren't all that attached to the Deutsche deal: Despite the NYSE's warning that shareholders shouldn't act on the Nasdaq bid without first getting word of the NYSE board's response, NYSE shares are up 11%.
Like stock trading on the exchange floor, Niederauer's reign as CEO looks headed for the history books. Not that you'll be able to tell to look at his wallet.
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Pre-Marketing 4.1.11
* Not an April 1 prank: Subprime bonds are back... and popular
* William Pesek: "Lehman Shock" is kid stuff next to Fukushima
* Ronald Barusch: Does Buffett's defense of David Sokol make sense?
* Morning Call: U.S. futures point higher ahead of jobs data, London rises early on banks, European shares climb on tech and the Nikkei slips.
* Despicable them: CEO pay soars while workers' pay stalls
* Bob Pavey: VCs need to celebrate angels, not denigrate them
* TechCrunch is tracking the Web's best April Fool's Day pranks
* Richard Florida: The broken U.S. jobs factory has too many athletes, too few scientists
* MySpace CEO Mike Jones swears there's a growing product amid his social network's rubble
* Christine Harper: The future of Goldman's special situations group hinges on the Volcker Rule
* Connie Loizos: One startup is counting on VC willingness to give up their spreadsheets
* Gluttony milestone: Americans are now fat enough to need bigger busses (h/t Kedrosky)
* John Melloy: Traders say the quarter's scariest day will be April 27, when Ben Bernanke holds his first press conference
* The big deal: Nasdaq (NDAQ) and Intercontinental Exchange (ICE) offer $11.3 billion for NYSE Euronext (NYX), which represents a 19% premium to Deutsche Boerse proposal.
Fed lent to all comers in crisis
Banks weak and strong from all over the world flocked to the Fed's discount window during the financial crisis.
Among two of the biggest emergency borrowers were Germany's Depfa and Belgium's Dexia, with loans totaling $51 billion at the end of October 2008. U.S. banks hit up the window as well, with Washington Mutual borrowing billions in the week before its collapse.
Banks are open
Documents released Thursday show that supposedly healthy banks were leaning heavily on emergency loans during the crisis. Three big banks – two of them among the supposedly healthier players on Wall Street heading into the financial crisis – were the biggest users of various emergency lending programs during a six-month stretch in the fall of 2008 and winter of 2009.
The Fed has long resisted disclosing the details of loans made at its so-called discount window, but it released thousands of pages of documents Thursday after the courts sided with Bloomberg and Fox in lawsuits seeking access to the information.
The Fed's primary dealer tri-party collateral report documents the securities that various banks pledged in exchange for emergency loans, under the Primary Dealer Credit Facility, Term Securities Loan Facility and Fed open market operations. The PDCF and TSLF were created in 2008 to ensure investment banks could keep borrowing from the Fed when debt markets dried up, but loans under those facilities were classified as discount window borrowings.
The borrowings have since been repaid and the Fed didn't lose money on the loans, but anger over the bailout of risk-taking, well-compensated bankers continues to put the Fed's actions under a less than flattering light.
Weekly reports filed between November 2008, two months after the collapse of Lehman Brothers, and January 2009, when Citi (C) and Bank of America (BAC) each received special assistance, show which firms were thirstiest for Fed liquidity at various times. The biggest borrowers include not only Citi but also two healthier banks, Goldman Sachs (GS) and Credit Suisse.
In November 2008, the biggest user of Fed emergency loans was Credit Suisse. It had $62 billion worth of collateral pledged with the Fed as of Nov. 7, 2008, $68 billion worth two weeks later and $63 billion worth at the end of the month. Most of the collateral the firm pledged was in the form of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.
By the middle of the next month, the biggest user was Goldman, the Wall Street titan that got $5 billion in assistance from Warren Buffett at the height of the crisis in September and was a big beneficiary of the AIG (AIG) bailout that month. Goldman had pledged $64 billion of securities as of Dec. 19, $81 billion on Dec. 29 and $74 billion in the first week of January.
Goldman also borrowed relatively small sums five times at the conventional discount window between 2008 and 2010 -- apparently contradicting its claims to the contrary, Bloomberg reported.
And soon thereafter, the demands started coming from Citi, the bank that received the most government capital and loan guarantee assistance during the meltdown. It had $59 billion in collateral pledged at the Fed as of Jan. 16, 2009, $58 billion the next week and $57 billion the week after that.
The Fed's outstanding lending under these programs ranged between $200 billion and $400 billion during the period cited. As the financial system stabilized, most banks pulled back from the facilities, and total loans outstanding declined to $96 billion in the first week of April 2009 and $83 billion the week after.
But Citi was still at it, borrowing $44 billion in the week ended April 3 and $36 billion the next week. Every little bit helps.
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Ben Franklin and the art of business development
What today's Internet entrepreneurs can learn from one of America's original founders
By Mike Volpi, contributor
In the late 1770s, America was a start-up nation that had declared war against the Microsoft or Google of its time. While the American entrepreneurs were courageous, industrious and intelligent, they were facing a formidable foe – England had the most powerful military and sophisticated technology of the day. Amongst the leaders of the newly-founded nation, there was a realization that the United States could not have prevailed over England alone. It needed an ally.
For the 100 years leading up to American independence, the rivaling superpowers of the day were England and France. But, France had recently faced scarring defeats at the hands of the English in the Seven Years' War, so American leaders needed a great envoy to convince King Louis XVI to join forces with them. They chose Benjamin Franklin, who got on a ship bound for Pairs... to do some Business Development work.
Much has been written about Benjamin Franklin and his effort to convince the French to partner with fledgling United States. Interestingly, so many of the concepts apply to today's Internet world. By observing the circumstances of the time, entrepreneurs can learn what are the best practices in Business Development which are still applicable today.
Lesson 1: Who to partner with
France, the "Number 2" power at the time, had a healthy dislike and animosity toward the top power. With a 440-year history of wars with England and reeling from the recent loss to the English, the French were intrigued by the idea of getting back at their rival. They were the obvious ally for the Americans.
Here is the first lesson of Business Development. A start-up's natural partners are not the market leaders. Generally, market leaders enjoy the inherent advantages of being the biggest and most powerful player. They may have weak spots here and there, but, the natural momentum is to maintain the current state of affairs. Hence, working with start-ups who have a disruptive agenda is generally not the obvious course of action. The more natural ally of the start-up is the second- or third-place player who still has scale and power, but has an interest in changing the current order of things.
Take the example of Zynga in its early days with Facebook and MySpace. While the two social networking superpowers were at war with each other, when Zynga started, it decided to put its eggs in Facebook's basket. Why? Because, Facebook was the number 2 player. They wanted to use the eco-systems forces to continue their growth and surpass MySpace – which was the leader in social networking at the time. The partnership ultimately yielded big dividends for both, propelling the companies to leadership positions in the respective markets.
Lesson 2: How to work you partner's organization
While France seemed like the obvious partner, it was actually rather difficult to convince them to join in the cause. The French were ostensibly at peace with Britain and were reticent to make a bet on a start-up nation. The idea of supporting an uprising against a monarchy did not resonate well with King Louis XVI. Franklin began by finding an advocate within the French court. He found it in France's foreign minister: Comte de Vergennes. Franklin saw that Vergennes had a streak of independence in him and a love for the middle-class qualities of the Americans.
Lesson two in Business Development is to find your advocate in your partner's organization. As a board member, all too often I get the request from entrepreneurs to get an introduction to the most senior person I know in a powerful organization. Entrepreneurs want to meet Larry Page, Steve Ballmer or Mark Zuckerberg. With their natural conviction and will power, founders believe they can convince anyone of how significant their company is going to be. They often forget that these big-time leaders are awfully busy and have a few other things to worry about: like running their own company. Not that meeting with these celebrity figures is the wrong move – it can work. But, it is a low-probability option and one that can backfire by alienating the business development leader of the partners' organization.
A better path is to cultivate a relationship with the right person in your ally's organization. Sell them, dine them, and allow them to be the hero by having discovered you. Understand what their agenda is within their own company and help them become successful. It is much easier for CEOs in large organizations to follow their own team's recommendations, rather than to push down an unpopular view into the rank and file.
When I was responsible for business development at Cisco, many companies would sweet-talk John Chambers' admin staff to have a meeting with him and pitch their company. Inevitably, he would walk down the hall with Diet Coke and presentation in hand and ask me to have a look. Sometimes, these were start-ups that we had already decided not work with (and had now managed to turn us off for a second time….). Even if the idea was interesting, the fact that these companies had completely skipped the process and gone straight to the top did not ingratiate them with Cisco's bus dev team, who now had to act as their shepherd through the complex organization. The entrepreneurs that we got most excited about were the ones that came to us through recommendations of people we knew or that we somehow discovered. The really good ones, allowed themselves to be discovered.
Lesson 3: Convincing your partner
Vergennes was a great ally for Franklin and the Americans. He advocated supporting the United States to the French court. He made the case that England was an aggressive and unjust enemy and that it was in France's political and economic interest that England be crippled in this "divorce" from America. Franklin employed one of the best strategies in Business Development to convince Vergennes and, ultimately, Louis XVI to support the US. He appealed simultaneously to both their realism and their idealism.
The realism was a pragmatic thread of logic: It was in France's best interest to have the English face defeat in this conflict. Plus, the US was willing to give up a significant geographic slice (the Louisiana Territory) in return. The French clearly wanted to beat the English and the Louisiana Territory was like an interesting option for future value.
The idealism was really an appeal to the fact that America's independence movement was one based on the moral virtuousness of freedom. Why should America be bound by obsolete rules from a King from across the Atlantic Ocean. How could France not join in this movement? It was an appeal to the heart of the French rather than the mind.
In today's world a similar strategy can work brilliantly. Good business development deals have certainly elements of both realism and idealism. Realism is about alignment of economic interest between two organizations. Companies have goals they want to achieve: Reach new customers, secure resources, tackle competition, ultimately creating more value of their stakeholders.
In the case of entrepreneurial ventures, the smaller company will often have a technology or other asset that the bigger company can use to its benefit. In addition, the start-up has "option" value: An unknown economic benefit that could reward the stakeholder when exercised at a later date. Not surprisingly, many of the more interesting business development deals involve the larger company taking an equity stake in the entrepreneurial venture. The alignment of economic interests can be permanent or temporal – it is not mandatory that a business development deal last a prolonged period of time. The parties involved can definitely strike an accord that is short-lived, but mutually beneficial.
Franklin appealed to the "heart" of the French in his negotiations. This is a much more subtle and delicate strategy. In today's context, this is about selling the vision of the new venture to the partner organization. Visions are amazingly appealing concepts. Even the most pragmatic of gatekeepers want to be part of the creation of something significant. It appeals to the human desire to aspire and the affinity to the "cool new thing." The vision can also be fortified with indicators of early success. When you are small, it doesn't take much to show 100% growth. While, the numbers can still be small in an objective sense, growth and early adoption can be powerful reinforcements to a vision. Faced with a compelling vision, early success and a sense of destiny, entrepreneurs can convince larger partners to embrace them as partners.
Lesson 4: Managing your partner
In 1777, the French were convinced. They initially provided funds and weapons to the Americans, but gradually increased their support to their full troops. America had acquired its powerful ally. But, Ben Franklin did not turn around and come home. In fact, he resided in Paris from 1778-1785. While there, Franklin wove himself into the French high court and continued to maintain a high fidelity communication line. Many historians attribute this continued presence as the secret to a successful partnership between the U.S. and France.
Business development professionals in today's Internet era often forget the importance of relationship management that begins once the legals of an alliance are signed. The agreement between two companies is just a starting point. Relationship management ensures the coordination of efforts between the two parties; smooths out misunderstandings and miscommunications; and re-arranges the agreement as the context of the partnership changes over time. In an ideal situation, it is best if the same person who originally architected the agreement also play the role of managing the relationship.
This was the case with Franklin and the French. The power of this arrangement is that the authors of the partnership have the original context and principles under which the agreement was drafted, hence they can often overcome difficulties much more easily. In the event that is not possible, however, it is still important that the two parties assign specific people to manage the relationship manage and maintain those resources in place for as long as possible.
There are often two problems with this: resource limitations (especially for a small company) and the fact that "deals" are organizationally rewarded, but relationship management is not. On the resource limitation issue, the only answer is that this is an prioritization issue – how complex is the relationship to manage and how important is it. The higher the complexity and the importance, the more critical the need to apply resources to it. On the rewards issue, it is best to apply metrics or performance indicators to an alliance and reward both architects and managers of that deal when it is successful. If those rewards don't exist, the job of the relationship management becomes just a chore all too often.
We often pride ourselves for having tackled issues that no one else in the past has seen. In reality, history often teaches us tremendous lessons that apply even in today's world. Emails have replaced messengers traveling on ships, encrypted keys have replaced waxed seals. But, the principles of deal-making and relationship management in complex organizational contexts are very much the same. It takes a lot of acumen and good process to get a business development deal done. It takes patience and persistence to manage relationships. Today's Vice Presidents of Business Development can learn a lot from a man who flew a kite with a key on it 250 years ago.
A special note of recognition to Walter Isaacson and his book, Benjamin Franklin: An American Life, which served as an inspiration for this post.
Mike Volpi has been a partner with Index Ventures since 2009, before which he served in several executive roles for Cisco Systems, including chief strategy officer. This post first appeared on the firm's blog.
S&P's Bernanke moment?
Don't look now, but the rating agency just issued a report with this headline:
Municipal Risk For Rated U.S. Banks Appears To Be Contained
You might have thought no one in the financial markets would ever use that word with a straight face after Fed chief Ben Bernanke's March 2007 testimony before Congress on the subprime crisis. As you may recall, he said [emphasis is mine]:
Contain your subprime enthusiasm
Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear. The ongoing tightening of lending standards, although an appropriate market response, will reduce somewhat the effective demand for housing, and foreclosed properties will add to the inventories of unsold homes. At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.
Or not, as the case may be. We shall see how S&P, which is if anything a less sympathetic character than Bernanke, fares this time around. Sticks to beat the rating agencies with are not exactly in short supply nowadays, but hey, another one is always handy.
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Irish bank bailout hits $99 billion
Ireland's banking crisis took yet another turn for the worse Thursday.
The government said its latest effort to purge lenders that gorged themselves on inflated property loans during the bubble will set taxpayers back 24 billion euros ($34 billion).
The announcement by finance minister Michael Noonan brings the tab for public support of the country's banks to $99 billion. That's a staggering 40% of annual economic output. A comparable figure in the United States would run above $5 trillion.
That explains Noonan's comment Thursday that the previous government's September 2008 decision to stand behind the teetering Irish banks "will go down in history as the blackest day in Ireland since the Civil War broke out."
Under the plan announced Thursday, two of the loss-soaked banks will be combined and a third will be forced to divest itself of insurance and asset management businesses.
The good news about Thursday's plan is that it won't force the government to go back to its lenders at the European Union and the International Monetary Fund to ask for more money. Ireland took $115 billion in bailout promises from the EU and IMF last year.
But the plan does contain some elements of wishful thinking that could yet again raise the tab if things don't work out, as has happened once or twice.
While Noonan acknowledged that taxpayers will once more be left holding the tab, he stressed that "significant contributions from other sources including from subordinated debt holders, by the sale of assets to generate capital and where possible by seeking private sector investors" would help to defray the cost.
But European leaders have been dodging and weaving around the question of when they should try soaking bondholders to recoup some of taxpayers' losses. Some leading central bankers have been calling for Europe to impose losses on lenders in a bid to share the pain borne so far largely by taxpayers, but policymakers fear doing so will precipitate a bank funding crisis that could unravel the Continent's delicate recovery.
The other top worry in Europe – that a possible debt default in strapped Portugal could undermine the health of banks in Germany, France and Spain – got a little more acute Thursday as Portuguese bond yields surged above 8.5%. The country is without a prime minister following the fall of the government last week, and now the question is whether the European Central Bank can keep the country afloat for two months until elections are held.
In what is becoming all too familiar a refrain, it's the central bankers, for all their flaws, who stand between us and the reckoning.
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