- Image via Wikipedia
As you’ve probably heard, Obama’s “pay czar” (seriously, czar is the best word for this?) has cut compensation for the top 25 executives at 10 firms who got substantial amounts of government money. The cuts were an average of 50%, with some as much as 90%-100%.
Treasury Secretary Tim Geithner says the Treasury has the authority to do this because these firms received substantial amounts of taxpayer money in the financial crisis.
Here’s the thing: “received” is a pretty audacious word for him to use. These companies were forced to take the money. They had no choice.
The Obama Administration, once they’d forced these firms to take this money, then turned around to their lap dogs, I mean the new media, and trumpeted how these firms had taken money from taxpayers and, boy, was Obama going to start telling them what to do.
Here are the actions the Obama Administration has taken since then:
- Treasury, in conjunction with the Fed, forced (literally, they threatened to have him fired) the Bank of America Chairman/CEO to buy Merrill Lynch, telling him to deceive his shareholders in the process. Once he did this, the shareholders found out and had him fired as Chairman. Then the Treasury forced him to retire. And then forced him to take $0 compensation for 2009.
- For the two auto firms who took money (GM, Chrysler), the Administration completely subverted existing bankruptcy law to literally steal from the secured creditors of these companies and give ownership of the companies to the unions. When these creditors filed lawsuits, they received threatening calls from the Treasury and subsequently all dropped their suits. Except one pension fund, I believe. I love that fund.
- And now, these 10 companies (8 banks, 2 auto companies) have had their top 25 executives get their pay hammered.
Now, if I’m a top executive at XYZ company and my pay just got cut by 50%, my thought is, polish up the resume. Find some other sucker to get paid half to deal with the government all day.
And, since the pay rate is half, how many other top-tier executives are going to come on board? Yeah, approximately 0. Which leaves these systemically important companies positioned to pick up the cast-offs and no-names that weren’t smart enough to run these companies WHEN THEY WERE HEALTHY. Much less when they need to recover from a crisis.
- Image via Cartoonstock
But wait, CNN thinks this isn’t a big deal:
“Who cares if Wall Street ‘talent’ leaves? If lower pay lures some of Wall Street’s finest away, so be it. It’s not as if the best and brightest were doing a good job to begin with.”
Because if even the best and brightest couldn’t avoid this mess, we should definitely put less intelligent/skilled/experienced people in charge.
It will be interesting to see if there’s an exodus of executive talent at these companies. I’m guessing it won’t happen en masse but if you look over the next two years, I’ll bet we see over 50% of these top 25 leaving these companies.
this is what happens when you make a deal with the devil
Hmm, I'm not sure I'm willing to make the leap from "well intentioned but fundamentally misguided and counterproductive policies" to "hates the U.S." Maybe it's just me, but plenty of the people I disagree with seem to like the country just fine.It's also worth noting that the cuts were agreed to by the companies, and companies can easily get out from under the requirements by just paying back the money they borrowed. That puts 'em back in the free market for talent.
@Brooks, I'm with you!
There's an old book that tells a story about the Gadianton Robbers. These guys (the current administration) are the modern day Gadianton Robbers. They were eventually defeated but not before they nearly ruined the industry and culture of the people upon whom they preyed.
@Richard, I'll believe that when I hear it at Conference. That just seems like an over reaction to me. Obama did NOT cause the economic crisis. Bankers did. Even if we disagree with what the political party we don't favor is doing, it's no excuse for name calling, in my opinion.
@Shirley. You missed the point! These "robbers" have been working away at this since the 1970's when they started community development grants to people who could never afford houses. They, and their acoytes (read AC0RN) forced banks to make loans. Then Freddie and Fannie packaged the "bogus" mortgages and sold them to banks who created swaps and traded them with the markets. Then the house of cards collapsed when the underlying mortgages defaulted. But none of the "robbers" accept responsibility for their actions. They are still sitting in the catbird seats in Congress (Barney Franks) and Senate (Chris Dodd). So, it really is not name calling, it is stating facts!
Please note we are not the only people describing this government in terms like the "Gadianton Robbers:" http://townhall.com/columnists/DavidHarsanyi/2009/10/23/the_rise_of_the_mob_economy#
@Shirley. Even if Obama didn't CAUSE the 'crisis', I certainly don't think that he's helping by spending more money that we don't have.
All of this "hope and change" malarky has the insurance industry (and me) in the cross hairs. These guys have absolutely no understanding of insurance and no respect for what the free market can do, with regulations, to right this ship. Seriously, if they get their way and abolish the insurance industry, they'll put another 2 million people out of work; mostly honest, hard working, ethical family men and women.
Which doesn't change the face that without the money Bank of America, Goldman Sachs, Wells Fargo, AIG, Citibank and most others on the list would be gone today. I wouldn't miss them, but the whole 'forced' statement is a farce. These companies wanted to be 'forced' or they would cease to exist. The whole thing is a giant game of make believe – a charade on the play of the American and world stage. The whole things stinks.
They remain insolvent and will continue to remain insolvent until accounting rules requiring assets to be honestly accounted for is reinstated and toxic assets are gone. The likelihood of that happening without a change in government is absolutely nil.
@Brooks: First, I don't mean hate America, as in he hates all of us individually. I mean he hates the way America is structured and wants to move us to a more European-style system.But, more to the point, I think he's way past the point of misguided. Misguided means you make an error here or there but are willing to be corrected. He has continually made big mistakes that have horrible consequences now and in the future. His ridiculous position in the health care debate (not to mention his plainly illegal subversion of bankruptcy law in re: Chrysler and GM) put him way onto the side, in my opinion, of treason (doing something that's clearly in the interest of his special interests (unions, party members) and in opposition to the good of the country). I hope to see him prosecuted one day.
@Shirley: He didn't cause the crisis, true. His party did, as Robert notes, helped in large part by the Republican party and Bush ("The American Dream"). My beef with him is how he's making it so much worse. In a time when we should be cutting the budget and shrinking deficits, he's exploding them. Even the CBO, appointed by his party, forecasted that the stimulus bill would do more harm than if we did nothing. At a cost of over $1 trillion, when you factor in the present value of interest.
@Michael: I'll give you AIG. They would have tanked in a big way. However, cutting the pay of most of the company and firing the CEO was a huge overreaction. The entire mess at AIG came out of one office: London. In fact, the CDO insurance idea was run by one guy.However, as I recall, Bank of American didn't need the money until they were forced to take on Merrill Lynch. Citigroup certainly didn't need the money. In fact, the reason most of these banks were forced to take it was because they didn't want the banks who did need the money (according to the regulators) stigmatized viz. their counterparts because it would have caused a run on the bank.The reason they don't pay it back is they have the money on very favorable terms, at least for a few more months. The penalties start ratcheting up soon, and I imagine we'll see a great deal more paybacks then.
@Michael: I assume you're talking about Fair Value accounting and IFRS standards. That's a tough issue. IFRS (and Fair Value) punish banks who are holding assets for the long term with no intention to sell. On the other hand, it may provide investors with better information. I'm torn as to whether that's a good idea.I don't believe these banks needed anywhere near the kind of money that was forced upon them. And, if they did need it, I say let them go under. The moral hazard is far to great when irresponsible people can expect a bailout. GM should have disappeared decades ago. Instead, they continue to proliferate brands and make cars nobody wants, thanks to Obama's love affair with their union.
Excuse me if I don’t shed a tear for these companies receiving a little payback through ruthless bullying from the government. I’m sure half of the executives will do just fine. Unless they spent all their money on hookers and cocaine and REALLY NEEDED that extra money.
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@Jim: I’m not worried about executives starving. I’m worried that Obama is doing the equivalent of outsourcing the leadership of one of our most critical industries to the lowest bidder.
I’m even more worried about the precendence of government intervening in private industry and forcing them to break contracts and cut pay against their will. It’s nothing less than socialism.