March madness -- the fiscal cliff and continuing resolution

Yesterday, the Washington Post carried a front-page article on the costs of preparing to "shut down" the government (something that actually can't be done; instead it just becomes even less efficient and responsive than usual).  The obvious costs are those associated with diverting slender staff resources from mission responsibilities toward shutdown preparations.  In the derivatives arena, those disappointed with the pace of regulation and the lack of "regulatory certainty" should be prepared for more of the same, as Congress buckles under its basic responsibility to "keep the lights on."

Operating under a continuing resolution -- which permits spending only at levels of the prior year -- for six months has been an effective across the board budget cut for federal agencies.  Even if Congress were to provide funding at levels near those requested by the agencies during the regular budget cycle -- something unlikely to occur at the end of March when the current CR expires -- the agencies could not possibly spend that funding in a rational and efficient way in the last six months of the fiscal year.  And, if funding above the CR level is not enacted in March, are we facing a full year of flat-lined appropriations?

A more subtle cost of CRs is that they are often "resolved" through passage of massive "omnibus" appropriations bills -- behemoth bills so large that nobody can read them critically before they are passed.  They therefore become laden with pork and bad initiatives that individually are not significant enough to justify delaying the omnibus bill but that are still bad law and collectively inflict a thousand wounds on the public. 

The second look over the fiscal cliff arrives earlier than the March 27 expiration of the CR -- on March 1, thus bracketing the month with a set of legislative spasms.  (The debt ceiling fiasco has been rescheduled for May.)  The ill effects of the cliff controversy are largely the same as those of the CR, only translated into areas of tax policy and other segments of the government not directly associated with the appropriations process.

Having seen Congress injure each foot with a fiscal bullet makes one shudder to think where the debt ceiling bullet may lodge.

Is the correlation between results and compensation tightening at big banks?

The announcement on Wednesday that JP Morgan CEO and Chair Jamie Dimon's compensation for 2012 will be $ 11.5 million -- roughly half of his compensation for 2010 -- may provide some hope that the big banks will begin to bring executive compensation into better alignment with results.  Although Mr. Dimon will not have to change his lifestyle because of his pay adjustment, it does show that JP Morgan is taking the "London Whale" fiasco and its continuing fall-out seriously.

But some commentators believe that the bank did not go far enough.  Slate's Agnes T. Crane argues that Dimon should have been relieved of his Chairmanship.  Whether this should have been done as an additional sanction or simply as a matter of sound management restructuring, the benefits of separating the two offices that Ms. Crane point out are real.  And Bloomberg's Jonathan Weil faults the Bank's report on the London trading scandal for not analyzing how the Bank's Chief Investment Office morphed from a risk management operation into a speculative powerhouse -- a transformation urged by Mr. Dimon.

Still, a journey of a thousand miles ... .  There are many chapters yet to written in this, and the many other, trading scandals that came to light last year.  It is difficult, however, for those who maintain even a shred of optimism about whether the US financial sector can be salvaged in its present form not to see this as a ray of hope -- dim and flickering, perhaps -- but still as step in the right direction.