The proposed Emergency Economic Stabilization Act (aka, the bailout) contains pathetically weak limitations on executive compensation.
As indicated in Section 111 of the Act, for companies whose bad debt is acquired without an auction process, and for which the US government gets an equity position, and only for such companies, executive compensation is to exclude provisions that might encourage the executive to take unnecessary risks and prohibits golden parachutes.
You and I remain on the hook for basic salaries in the multimillions of dollars for people who brought us all to this precipice. And, the executives can receive stock options (or stock), but just not too much that could run afoul of the "incentives to take unnecessary risks".
Anyone wish to wager that there will be any grants of stock or other contingent compensation that will be found to be excessive? I would not bet your illiquid mortgage-based security on it.
You and I buy the assets, they can still get multimillion dollar salaries. If there ever was any doubt that Congress remains the captive of Wall Street, one need not look any further. I smelled a rat here when Henry Waxman, upon whom we depend to uncover the malfeasance of the Bush administration, proposed a limitation of $2 million. $2 million, at your expense and mine. Henry Waxman, say it ain't so!
If the government acquires at least $300,000,000 in an auctioned process, then only golden parachutes are prohibited.
With all the dire predictions of what is likely to remain a depressed financial sector (i.e., stocks of those companies not expected to rise to high levels) for the next few years, the options (or stock) they might have otherwise received are not likely to be very valuable anyhow. In this environment cash is king -- and that is exactly what the financial executives are left with that is totally unfettered.
Moreover, there is a lot of sleight-of-hand here. Whatever they do not get in stock that would not have appreciated much anyhow, whatever golden parachute no longer exists, they will just negotiate for more cash in salary to make up for it. Here's how it works: take an executive with a $5 million salary, if there were stock and golden parachute to accompany it. And, let us say that the parachute would have been a year's salary. So, they negotiate a salary of $6.7 million and in three years they have made what the golden parachute would have provided in cash.
That is, all these terms are fungible. If the entire package is not limited, there really is no restriction.
I do give Congress credit for including a "clawback" provision, to get back money paid in golden parachutes. it will be interesting to observe whether they ever try to enforce it. Again, I would not bet your illiquid mortgage-based security on it.
Knowing what they have not done, you will now be treated to their rationale, for which they will advance two reasons: these companies need talent. They are not going to be able to attract that talent if the salaries are restricted goes the argument. The second reason is that executives may not avail their companies of the bailout if there are too many restrictions on their compensation.
There is some truth to the first assertion if by talent the government means to recycle the executives who brought us this mess. But, there is always a pool of younger people who are at least as talented, whose jobs are either at smaller institutions or lower down the totem pole. They can be attracted by the challenge and the knowledge that, if they are successful, then after the government sells its positions, they would be leading reconstituted, profitable corporations that could then pay them more.
This is common practice in startup technology companies to attract such people to a promising enterprise. So, once again, the country has been treated to a convenient capitulation to conventional wisdom, and lack of imagination.
And, after all, are these financial institutions not "re-starts" if they are anything?
The second assertion -- that the executives would not avail their companies of the government money to maintain their salaries -- does not pass the laugh test. Any executive who did that would face gigantic shareholder lawsuits for not taking advantage of measures that could strengthen their companies' share prices. Boards of Directors who did not fire such executives would be first sued and then replaced. It would be one of the few examples of corporate democracy in history.
Congress capitulated. If only that were news.
either way, these people are smarter, more creative, and more talented than you and most everyone else could ever hope to be. stop being so jealous. if you were intelligent enough to be a CEO, you would also be worth millions.
I heard, late yesterday, that the executive compensation package was THE deciding factor -- not Nancy pelosi's speech -- that the Rethuglicans balked at, when refusing to pass the legislation.
Apparently, they wanted the CEOs to get everything they had coming to them, and didn't want any language or provisions in the bill that would deny them their obscene golden parachutes.
How "patriotic" of them!
Anyway, you're wrong, According to HMDA demographic data the government gathers from mortgage applications, whites comprise 72.5% of subprime borrowers with African-Americans and Latinos coming in at 16.2% and 6.2% respectively. So despite what FOXNews may be telling you, the overwhelming majority of subprime and other problematic borrowers are white and upper middle-class (and NOT undocumented workers).
(Or could it be those bonuses are safely tucked off-shore? Is that why our banks have no cash?)
Then, address the problem of the foreclosures-to-come. Congress could write legislation that would ultimately force the banks to refinance the majority of those at-risk mortgages into terms affordable to the primary homeowner.
Leave Mr. Goldman Sachs-of-Money out of the solution -- he's part of the problem. Congress should convene hearings and invite some of the 400-plus economists who told Pelosi in a letter that there were better solutions than Paulson's Plan.
Leave Paulson out, as well as Barney Frank and anyone else in Congress who has taken millions of campaign contribution from FIRE (finance, insurance, real estate industries).
You must have a really small mortgage. A really good dinner in New York should set you back between $50 and $200 (I have been there only once and even I know a couple of places where I would go any day to have some of the best stuff imaginable for closer to $50 than anything). If you spend more than that, you are crazy. Even as an exec and don't know where to find good food.
A vacation home in Montana, I am afraid, is not considered luxury these days. We have friends who are working people (white collar, but working), who have a vacation home themselves. It's not a minor investment for them, but compared to their primary mortgage it is trivial stuff.
All CEOs currently in place in these failed companies are to be fired with no severance package or any other compensation immediately. Even if the post is vacant for an extended period, less harm would likely be done than if we kept these jokers on.
If congress made a big show of throwing these crooks under the bus, they'd get a measure of public support.
We started paying our CEO's 300 & 400 times the shop floor wage and outlawed unions and we have going down hill ever since.
???
Hardly. The Japanese had a large scale corporate structure long before the US occupied the country. Most of the old industrial corporations are still there and I doubt they experienced as much as hitch after the war. See e.g. the history of
http://en.wikipedia.org/wiki/Mitsubishi
"We started paying our CEO's 300 & 400 times the shop floor wage and outlawed unions and we have going down hill ever since."
That is total nonsense. What, do you think, did this "CEO" paid himself while he was active?
http://en.wikipedia.org/wiki/Andrew_Carnegie
The man retired as the overall second richest man of the world with a net worth of almost $300 billion (Just shy of the $320 billion of Mr. Rockefeller). Of course, he only "paid" himself $50,000 per year! He must have had a savings account with a really good interest rate.
:-)
I can see why socialist in the US never got a foothold. They don't even know the history of capitalism.
That's probably more than what you find the CEO gets paid in most publicly traded companies. CEOs get paid about $300k-$500k in most places. Celebrity CEOs get paid more and there are golden parachutes, but the base pay for most executives is not nearly as high as you seem to think.
"All CEOs currently in place in these failed companies are to be fired with no severance package or any other compensation immediately."
That would violate the law. A contract is a contract and has to be honored.
"Even if the post is vacant for an extended period, less harm would likely be done than if we kept these jokers on."
There is no such thing as a truly vacant CEO position because the CEO has signing authority for daily business. You can not leave the position open without naming someone in place of the CEO who has the same authority or the place grinds to a halt.
You sound like you are seeking revenge. Sorry... that is not going to happen.
It really does not matter. Money is a zero-sum game for these purposes and in one way or another we are all going to pay for this.
KillTheMessenger - you may want to listen to the May 9, 2008 edition of This American Life. The whole hour is devoted to explaining the "crisis" and how it came about. While I am not in total disagreement with you about the people who bought houses they couldn't afford, they did not demand stated-income, stated-asset mortgages. The damage came, at least in part, from financial institutions that loaned money while demanding less and less proof of credit-worthiness so they could package and sell them to investors. At the bubble's peak, lenders were making loans with no proof of income or employment or assets.
Keep in mind the successful bailouts in the past have been loan-based, not public acquisition of failed assets. The bailout loans to Mexico returned $600 million in profits; the loans to Chrysler also generated profits. Heck, even Chile just completed a rescue based on this approach, and if they can do it, why in blazes can't we?
The reason, of course, is that doling out the cash makes these companies and executives wealthy, and the alternative doesn't provide the same guarantee.
So if you mess up at work and while doing your job you wreck e.g. a truck, does your boss expect you to pay for it? I don't think so. He might fire you for destroying his equipment, but he has no recourse to make you pay for his risk of being in business (that's why he makes the big bucks and you don't).
Same here. Management messes up, you can fire them. And that's all you can do.
:-)
Rounding up for easy math, each $1 trillion of TAXPAYER money gifted to the bank robbing cartel divided by 130 million TAXPAYERS equals $8,000 PER TAXPAYER.
So: we got the present bailout scheme at $1 trillion ($700 billion + $300 billion because we all know we're being lied to, again): $8,000 PER TAXPAYER. And we got this, just today: "Fed pumps another $650 billion into foreign banks...": that's $4,800 PER TAXPAYER.
Ya with me? We're at $12,800 PER TAXPAYER. Add in the $2 trillion in bailouts and cash-pumpings so far this year (that we're aware of,) for another $16,000 PER TAXPAYER. And, let's be conservative, another $2 trillion in "toxic" Freddie/Fannie "assets," for yet another $16,000 PER TAXPAYER.
That's $44,800 PER TAXPAYER, the average of whom nets $25,000/year.
IOW, the Fed is handing the bank robbing cartel about 2 years worth of the average taxpayer net income PER TAXPAYER.
Not a little pissed off yet? Then toss in another $24,000 PER TAXPAYER to cover the Iraq/Afghanistan illegal invasions/occupations (4700+ dead US soldiers, 300,000+ physically/mentally maimed, millions of dead/maimed innocent natives,) $8,000 for the just passed $1 trillion Pentagon budget, and - ta da! - $80,000 PER TAXPAYER to cover the National Debt.
Now go ahead, call Obama - and ask him if he's gonna give back the more than $21 million he received from the bank robber cartel. I'm sure you're call will be sooooo effective...