If you're good, everyone knows, you get presents at Christmas. If you're bad (and Swiss) you get toxic waste.

Swiss bank Credit Suisse will link payouts for its top investment bankers to illiquid assets in an innovative new bonus system that may set an example for others in the industry. The new system will cut the bank's risk exposure by linking bonus payouts for 2,000 investment bankers to some $5 billion in illiquid and often opaque assets, which have tumbled in value and been blamed for deepening the credit crisis....

Words cannot describe how impressed I am by this. I hope it catches on.

No wonder so many bank executives have been so happy to waive their bonuses...

...possibly the greatest crime in history by a clear two orders of magnitude. To put it in terms that the previous record holder, the 17th century pirate Long Ben Every, would understand - $50 billion at current prices would get you 1500 tons of gold bullion. We'll have analysis of the implications tomorrow - in the meantime...

Brad Setser looks at the sovereign loss funds... a worthwhile reminder of just how much of global finance is still completely opaque (SWFs and the oil industry, for two.)

The mystery of Ecuador's idiotic default

Apparently, the Tarp's restrictions on executive pay have been carefully removed.

"Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said..."

Read the whole thing - it's a very neat piece of manoeuvering.

Morgan Stanley and Merrill chiefs forgo bonuses

And should the CDS markets be shut down? John Dizard thinks so. They aren't bad in themselves, but, like automatic weapons, they allow the foolish to amplify their folly very effectively...

From today's Wall Street Journal, triumphantly showing that bone-dry irony is no longer (if it ever was) a skill peculiar to the British:

Merrill Lynch & Co. chief John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million...
Merrill has suffered net losses of $11.67 billion this year and is about to complete its acquisition by Bank of America Corp. later this month. On Friday, shareholders of both companies separately approved the deal. Mr. Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, say people familiar with his thinking...

It would be interesting to know exactly what this much larger crisis would have been. If $10 million worth of John Thainery was only enough to dilute it to "massive unprecedented losses and the extinction of Merrill Lynch as an independent bank", how much worse would things have got without him? Plague? Flood? The bank's headquarters taken over by werewolves?

Now, it's true that Thain shouldn't take all or even most of the blame for Merrill's collapse - he only came on board a year ago, by which time much of the damage had already been done. But absence of blame is not evidence of merit...

News out from the FSA on how it plans to tighten up its liquidity requirements. As I noted in the writeup for Risk News, it's a bit cheeky of them to point out that "when a group gets into difficulty, liquidity which was believed to be available to the whole group can be ‘hoarded' by the parent or, in some cases, seized by local authorities intervening to protect their own depositors" ... without remarking that the biggest recent case of this involved the British government seizing assets of an Icelandic bank under anti-terrorism laws.

The Big Three US car manufacturers are appealling for a total of $34 billion in government aid. Via Calculated Risk come the reasons why they're so desperate:

When I first saw the figure for November sales of cars manufactured in North America-- 236,000 units-- I thought maybe somebody had mistyped the first digit. Even 336,000 would have been a very bad month. But 236,000 is 17% below the dreadful October figure and 40% below the number sold in November of 2007...

Chrysler today reported total November 2008 US sales of 85,260 units, down 10% versus October 2008, and down 47% from the same month last year...

GM U.S. November light vehicle sales drop 41.3%

Ford, Lincoln and Mercury combined car sales fell 31.5% to 37,272 units while truck sales slumped 29% to 81,546 units

What's the link between the credit crisis (rather than the recession more generally) and falling car sales? Read this.

A couple of disturbing stories today from the US...

The head of a new Congressional panel set up to monitor the gigantic federal bailout says the government still does not seem to have a coherent strategy for easing the financial crisis, despite the billions it has already spent in that effort.

Elizabeth Warren, the chairwoman of the oversight panel, said in an interview Monday that the government instead seemed to be lurching from one tactic to the next without clarifying how each step fits into an overall plan...

And this damning piece from the AP echoes some of Eliot Spitzer's concerns back at the start of the year.

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents...The administration's blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.
Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false...