Editore"s Note
Tilting at Windmills

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December 22, 2008
By: Hilzoy

No More Double Standards

I've been wondering why such different standards are applied to financial executives and Detroit's auto workers. Consider:

* The financial executives helped cause the present meltdown. Auto workers did not.

* The financial executives run their firms, and are responsible for their troubles. Auto workers and their union, by contrast, just got themselves a good deal by bargaining with management. That's their prerogative. I don't see that they're any more to blame for the problems of the Big Three than people who accept unduly large cash back bonuses on their new cars would be, had the Big Three miscalculated and given away more in cash-back bonuses than they could afford.

* Financial executives have just destroyed a tremendous amount of value and ruined the global economy. Auto workers have been busy creating useful things.

* In exchange for destroying value, financial executives get paid a whole lot more than auto workers. Orders of magnitude more. They even get multi-million dollar performance bonuses when their firms lose money! And their benefits are a lot more cushy: not just good health care but private jets and chauffeurs!

* Punishing financial executives helps reduce moral hazard. Punishing auto workers does not.

Honestly: what sense does it make to stick it to a bunch of auto workers while letting the financial executives off scot-free? How can Richard Shelby get all upset about the fact that some blue-collar workers have, gasp, health care, and not about the fact that financial executives, on whom we have spent a lot more money than the Big Three ever asked for, get financial planners and chauffeurs? Just imagine the furious oratory we might have heard had the UAW succeeded in negotiating benefits like the ones people get at Goldman Sachs. (I'll bet chauffeurs would help auto workers concentrate more on their jobs...)

For the reasons given above, I think that we should stick it to the bankers and hedge fund managers, and not to the UAW. However, I'd be happy with a single standard uniformly applied. rok for dean at dKos has a good idea:

"In 1950, the average pay of an S&P 500 CEO was less than 30 times that of an average U.S. worker; by 1980, prior to the "Reagan Revolution, the average pay of the S&P 500 CEO was approximately 50 times higher than that of an average U.S worker. But by 2007, the average pay of an S&P 500 CEO had soared to more than 350 times as much as that of an average U.S. worker.

This is both immoral and unsustainable in a democracy. By way of comparison, in Europe, an average CEO only makes 22 times as much as an average worker, and in Japan, only 17 times as much.

If America wants to be competitive again, we need to reduce CEO pay to a level comparable to CEO pay in Europe and Japan. I know exactly how to accomplish this feat. The UAW should agree to immediately lower U.S. union worker pay to a level equal to the level paid by their non-union, non-American competitors. In return, auto CEO's must agree to permanently lower their compensation to only 20 times that of an average union worker.

Once this has been accomplished, Congress must move to apply the same pay standards to AIG and all of the financial institutions that took one penny of taxpayer money from the TARP fund."

Amen. Only one addition: this has to include not just salary but benefits, and benefits should be equal to (not greater than) those enjoyed by the average American worker. Until the average worker's employer pays for his or her home security system or chauffeur, those multimillionaires on Wall Street can pay for those things out of their salaries.

Hilzoy 12:03 AM Permalink | Trackbacks | Comments (40)

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Comments

Nobody ever seems to mention the fact that congress had a hand in the auto meltdown. They're the ones who pushed SUVs by exempting them from fuel efficiency standards and by making them attractive to small business owners through tax policies. If it weren't for the giant loopholes in the law crafted just for gas guzzlers, the industry would have had to be more innovative in designing cars that would sell in the 21st century. Another thing I never hear anyone mention is the discrepancy between imports and domestic cars on warranty coverage. In 2005 I needed a new car and as always, I searched for a high gas mileage subcompact. I was hoping to buy American, having heard of the "legacy cost" crisis Detroit was experiencing, so I looked at the Cherolet Aveo and was reasonably impressed. But it had a 3 year bumper to bumper warranty and I was going to have to take a 5 year loan to buy it. The Hyundai Accent cost about the same and was similar to the Aveo, but had a 5 year b-t-b warranty. As a retiree on a low fixed income, I made the obvious choice.

Posted by: Judy in Ohio on December 22, 2008 at 12:43 AM | PERMALINK

one aspect of all this that surprises me is the reluctance to follow the money.

it is just not from you folks, it is from the cnbc muppets, and the financial press. and the congress of the usa.

the story that goes undiscussed is the spin off of gm assets to delphi, ford assets to visteon.

now, the visteon story has been more obscured than the delphi story. but i think it has the same theme.

gm spun off manufacturing assets to make its financials look better. and it called the baseball glove that caught those assets delphi. just as ford spun off assets into an entity known as visteon.

the purpose of these magical spin-offs was to make the parent spinner appear financially sound.

when richard shelby and the other reptillian gangsters[and demtillian gangsters by the way] avoid the story of delphi/visteon, then you should recognize that the gangsters are running the show. and larry kudlow and all the jack welch myrmidons are parties to the confusing of the electorate.

here is how it worked....

and this even appeared in the wsj. since rupert acquired it, important truths have been erased.

but, shortly after delphi filed for bankruptcy/reorganisation, the wsj asked the delphi principal what the post-bankruptcy delphi would look like.

his answer, [to paraphrase ]"i don't know how the final structure will appear, but i can tell you this, we are not keeping the AC spark plug operations."

how come, he was asked.

his reply...." when GM owned and operated this spark plug manufacturing operation, the average variable cost for a spark plug for original equipment installation was $2.57. this is the cost that GM had to eat when it built an engine for a car.....

but, after this AC spark plug operation was spun-off into Delphi, we were coerced to sell spark plugs to GM for $1.57."

so, Delphi was forced to take a dollar loss for each spark plug sold to GM.

spark plugs were not the only components spun-off into delphi that GM[rick wagoner and his board of directors] mandated to be sold to GM at a loss[i.e., below average variable cost].

as you may recognize, this strategy allowed GM to then claim manufacturing cost reductions, based on a falsehood.

eventually, this scheme forced delphi into bankruptcy. it is still in bankruptcy.

because it wasn't just spark plugs that were folded into delphi by
GM that delphi had to sell back into GM below avc. it was virtually every component GM forced into the delphi spin-off.

ford did the same thing with visteon.

all a financial charade. that goes undiscussed.

what makes this very nasty is that the uaw knew of this scam. and kept its mouth shut. i suppose it was hoping that the scam would succeed.

over the last several years, many of the gm assets that were spun-off into delphi have been returned to GM secretly. the AC spark plug operations for instance, after a secret bankruptcy court hearing, were returned to GM[they were then hidden in an entity known as Delco Logistics].

no periodical will discuss this story. the wsj shuns it. as do the nyt, the wapo.

but it is the real story of how gm/ford worked to hide their mismanagement.

mismangement at the highest levels.

no uaw had anything to do with this bit of chicanery.

on the other hand, the uaw knows of this bit of financial skullduggery. yet refrains from telling this story.
.
some would ask why. don't you know? to tell this truth might bring down their sinecures...the entirety of the very corrupt us auto industry.

anyway, all the stockholders of delphi got a big haircut. and the barber was rick wagoner and all the members of the GM board of directors.

this is a story that should not escape the public's attention.

Posted by: albertchampion on December 22, 2008 at 12:43 AM | PERMALINK

How can Richard Shelby get all upset about the fact that some blue-collar workers have, gasp, health care, and not about the fact that financial executives, on whom we have spent a lot more money than the Big Three ever asked for, get financial planners and chauffeurs?

To be fair to Shelby -- which doesn't come easily, since I resent that my home state keeps voting for him -- I believe he opposed the financial bailouts too. Not sure about the level of vehemence, but I thought he was pretty agitated about "saving" Wall Street.

Posted by: Equal Opportunity Cynic on December 22, 2008 at 12:46 AM | PERMALINK

Funny, but I do not remember the same Senate tactics used by Senator Shelby to stop the bail out of Wall St firms yet they were successful with nailing auto workers. Nor do I even remember the Senator as even irate at how overpaid Wall St workers were even though I'm sure they make much more on average than autoworkers.

I'm sure they view low paid workers as an easy target. It's even easier to nail low paid non-union workers. And you better believe that as soon as the union jobs are gone, those $28 to $30 dollar an hour non-union jobs are going to disappear very quick.

Posted by: Glen on December 22, 2008 at 1:09 AM | PERMALINK

I recall reading somewhere else that if the UAW workers are forced to lower wages to parity with non-union U.S. workers for the foreign automakers then the management and executives should follow suit.

I couldn't agree more.

Posted by: Mr Furious on December 22, 2008 at 1:53 AM | PERMALINK

http://online.wsj.com/article/SB122221038063668953.html?mod=googlenews_wsj - GOP's Shelby Leads Conservatives Against Bailout

Look, if you want to be as postmodern and own-reality-shaping as the GOP has been the past 8 years, then make up whatever you want. Richard Shelby hand-delivered bags of $100,000 bills to Wall Street CEOs while kissing them on the arse. Facts, shmacks, as long as it's in the service of liberal rhetoric, right?

Now, back in reality, that article actually mentions the area where Sen. Shelby LOVES him some big government -- in the defense industry. The state's 4th largest city exists almost solely at the federal government's teat, so he certainly knows where his bread is buttered.

Posted by: Equal Opportunity Cynic on December 22, 2008 at 2:18 AM | PERMALINK

The financial executives helped cause the present meltdown. Auto workers did not.

The financial executive had strong encouragement, not to say coercion, from Congress, especially the Democratic side.

Unionized auto workers played a strong role in the demise of their companies. Autoworkers who are in the non-unionized factories are not asking for a bailout, and shouldn't be required to pay for one.

Most Republicans in Congress opposed the bailouts of the financial companies and the bailouts of the auto companies. If there is a partisan angle to this debate, you need to pose these questions to the Democratic leadership of the Congress.

And the Democratic members of Congress received large contributions from the financial industries and from the unions. The Democrats are bailing out their contributors. The Republicans are as partisan, attempting to protect their contributors and their constituents from the requirement of paying for the bailouts.

I believe that the bailouts of the financial and auto industries will prolong the negative consequences of those business failures. I opposed both bailouts. Credit Suisse had a good idea: paying bonuses to its top executives in the form of shares of the toxic assets that they purchased; that way the costs of the toxic assets, or their rewards, are distributed to the people who made the purchases.

I think you are mistaken about the pay ratios in the other capitalist countries, but that will have to wait for another day. For now, the ratios are even higher in the fastest growing economies, like India and China.

Posted by: marketeer on December 22, 2008 at 2:27 AM | PERMALINK

I've been wondering why such different standards are applied to financial executives and Detroit's auto workers.
Comes from deferring to economists. Initially the public and Congress were outraged at the bank bailouts, but Paulson and Bernanke declared it was an "emergency," and of course Bush took Econ 101 and swallows all the ideology. In a confused environment, people tend to follow anyone who sounds confident and acts like he knows what he is doing no matter how wrong they might be.

Basically I think economists are in familiar territory with monetary policy and banking and have little or no understanding of industry, manufacturing, and technology. Recall Milton Friedman's exhortation that "if the people don't have manufacturing, then let them eat on service jobs." Such contempt.

Posted by: Luther on December 22, 2008 at 2:46 AM | PERMALINK

Ugh. The problem with Washington Monthly is that both Hilzoy and Benen have politics that I support, but Hilzoy posts crap like this that makes me want to repudiate my own views because the logic is so twisted and nonsensical. Ouch.

Ok: Yes, CEOs make too much. We can all agree on that point.

But reducing CEO pay will make the US auto industry competitive again? What? We've moved from a legitimate point to nonsensical rambling. The difference between paying Wagoner $1/year and $500M/year is statistical noise in the scheme of things. Yes, that money should go to autoworkers. No, reducing is pay will not have any material impact on the state of the industry.

And what's this bizarre crap about how autoworkers are only exercising their prerogative in negotiating contracts that put the companies they work for at a competitive disadvantage while financial executives are... um, I'm not sure, evil? It's a non-sequitor on top of sophistry.

I support unions, really I do, and I dislike the disparity in executive pay. But the sheer inanity of Hilzoy's post here makes me want to reconsider those positions.

Obama's not even in office yet. Is the left really ready to abandon reality-based politics?

Posted by: Brooks on December 22, 2008 at 3:09 AM | PERMALINK

I am also outraged at what the CEO's, CFO's, Board Members have done to the financial industry.

These people should have their licenses & bonds revoked. It's a fact, before you can sell insurance and/or investments you have to be licensed & bonded - it used to be through the NASD (National Association of Securities Dealers), with a thorough background check, and testing. ***Sometimes brokers fail these simple tests multiple times.

Due to deregulation, checks and balances just didn't apply. The companies have their own accountants, and audit committees that are like board members - in a sense, they meet from 3-6x's a year and are paid retainers of a minimum of $50k

On top of that, an outside auditor is paid to audit the financial activities of the company.

As far as investment brokerage firms, or banks that are allowed to sell or refer customers (clients)- due dillegence/fiduciary duties requires them to do a financial workup of each client. You must list your pay, assets, and most of all risk-tolerance. e.g. what is your age - someone nearing retirement should not put all their money in stocks, options, calls.

Someone needing their money soon, like maybe trying to buy a house, should not be put in the stock market. Someone that doesn't want to lose their initial investment should not be put in high-risk hedge funds, puts-calls, stocks.

A person that stress they don't want to lose their initial investment is normally evaluated for Money Market (although now they have lost the NAV of $1) Treasuries and CD's, maybe some utilities stocks/funds or municipal bonds/funds.

As far as the audit committee, someone should have noticed, they are like the inside regulators. If they tried to notify the SEC and nothing was done, then they should have went to the SIPC and any other insurance company that have a bond on these brokers - no insurance company wants to pay claims, and they would have lost their bonds.

Once you have a bond revoked - sometimes you're just not bondable anymore!

Posted by: annjell on December 22, 2008 at 4:34 AM | PERMALINK

No point in crying in our beer over this folks. This is a direct outcome of worshipping at the alter of free enterprise and capitalism all these years. In europe, and especially in scandinavia, people (so far) are much more sceptical of the pristine motivations of human beings involved in business enterprises, and have taken governmental measures to try to protect people who work for a living from the predators in suits and ties who suck on the national wealth. The fact remains and will remain, that although you can dress a monkey up in a suit, it's still a monkey.

Posted by: rbe1 on December 22, 2008 at 4:41 AM | PERMALINK

But...but...autoworkers are UNIONIZED! They have to be destroyed!!!

Posted by: Martin on December 22, 2008 at 6:35 AM | PERMALINK

Most Republicans in Congress opposed the bailouts of the financial companies and the bailouts of the auto companies.

The ideology of free market economics with few regulations, and fewer acts of enforcement has been the very core of Republican dogma for the last 25 years. The Republicans knew that if they continued to do nothing, money flow would freeze, and American industry would die. The NEEDED both bailouts in order to be able to continue their disingenuous push for Darwinian capitalism.

Nancy Pelosi said she was not going to pass the Wall Street bailout without Republican support, and I suspect she (and others) specifically decided how many Dems would vote for it. The Republicans absolutely had to sacrifice a few votes in order to pass it. As Bush said the other day, "I’ve abandoned free-market principles to save the free market." But he wasn't the only one.

Shelby was one of the worst hypocrites. When Paulson came out with his 2 1/2 page proposal that would essentially make him sole decider, every economist and congressman demanded more specifics and more oversight. Yet, after Dems and Reps compromised to rewrite it, Shelby went public holding a petition from a "hundred economists" saying it was a terrible idea. But the petition was posted on line, and what it railed against was Paulson's original request.

I suspect Republicans will try to kill the US Auto industry in a couple months, but only if they think they can blame it on Dems, since Obama will be in power then. There is a frigid place in hell for these people.

Posted by: Danp on December 22, 2008 at 6:41 AM | PERMALINK

Hilzoy,

This is the closest I could get
http://www.usatoday.com/news/washington/2004-06-14-senate-disclosure-list_x.htm

Shelby in 2004
income:$154,700
assets:apt complex $5-25 million
stocks $1-5 million
house $500k-$1 million
townhouse $500k-$1 million
office bldg $250-500k
ckg acct $250-500k
unearn income: rents $100k-1 million
dividends $100k-$1 million from Tuscaloosa Title **he's been on board for 30 yrs.
rent from office:$15k-15k
**sold stock shares of Global Crossing-they filed on of the biggest bankruptcy cases in U.S. history.

Mitch McConnell, wife is labor secretary Elaine Chao

Frist - blind trusts $7 million - $35 million

Reid = multi-millionaire
Hatch = multi-millionaire
Snowe = multi-millionaire, husband is former gov of Maine, John R. McKernan Jr. stocks = $5mil-25mil

check this site out for info on senate disclosures
info on McCain, Kerry.....

Posted by: annjell on December 22, 2008 at 6:43 AM | PERMALINK

Is it me or isn't it strange that the big cheeses apparently decided about twenty years ago that the best way to sustain the consumer economy was to stiff as many consumers as possible?

Posted by: Hieronymus Braintree on December 22, 2008 at 7:09 AM | PERMALINK

It isn't the huge pay I object to as much as the lack of accountability. Your company fails and you make huge bonuses??? Why not be fired? Paying for innovative thinking is not a bad thing but tying bonuses to the stock market guarantees that no one thinks long term.

Posted by: jen f on December 22, 2008 at 9:01 AM | PERMALINK

When a company decides that U.S. labor is too expensive, they find overseas labor to do the job. Perhaps is can work both ways? When U.S. management is too expensive, then management should be outsourced to countries with more affordable CEO compensation.

Oh, actually that has happened. When Honda opens a factory in the U.S., we have an auto company whose CEO salary is only 17 times that of the average worker's.

Sauce for the goose . . .

Posted by: Daniel Kim on December 22, 2008 at 9:02 AM | PERMALINK

While we're tying compensations together, I still want to see the minimum wage pegged to another set of salaries: Congressional ones.

It'd be great - automatic increases, but if the Republicans (or Dems) really feel so strongly that cost of living isn't increasing and there's no need for a minimum wage increase, then all they have to do is vote not to accept the automatic pay raise.

Posted by: Alan on December 22, 2008 at 9:14 AM | PERMALINK

Marketeer writes: "Autoworkers who are in the non-unionized factories are not asking for a bailout"

The nonunion Mercedes factory in Richard Shelby's home town was given enormous subsidies from state and local taxpayers.

Posted by: Colin Laney on December 22, 2008 at 9:41 AM | PERMALINK

Honestly: what sense does it make to stick it to a bunch of auto workers while letting the financial executives off scot-free?

It doesn't have to make sense; it's about power. Americans have been conditioned to hate unions and now that hate is being mobilized. To wit:

Unionized auto workers played a strong role in the demise of their companies.

No. It's the product, stupid. GM was profitable when it launched the Pontiac Aztek. Union workers didn't design that heap of garbage, and executives had cash available to do a better job. Same goes for the rest of the lineup for the past 30 years.

Posted by: non-hater on December 22, 2008 at 9:46 AM | PERMALINK

With all the bad publicity which followed the financial sector bailout - with parties and bonuses - I bet that if the same bailout was given today, the financials would be put under some fairly strict provisions on the use of bailout money.

At least I hope so.

And, as far as I am concerned, there should be NO executive bonuses in any of the troubled industries.

Posted by: phoebes in santa fe on December 22, 2008 at 10:23 AM | PERMALINK

Ok, maybe someone has a link to something about the specifics, but as Colin above referred to, it seems like all those wonderful nonunionized mostly foreign owned auto factories got all kinds of tax breaks etc. from the states they located in, which basically were engaged in bidding wars to get them. I always thought that should have been somehow prohibited. It makes no economic sense, and actually creates an economic distortion. Maybe the federal government should award the nonsubsidized factories a big and ongoing subsidy to stay where they are, plus back payments to equalize the situation. (No that is not really a serious suggestion. But it would be fair.)
And it isn't just the executives in the financial sector that have been making the big bucks. Last year on the subway (so these weren't chauffered plutocrats) I overheard two guys commiserating about how their Christmas bonus was only $40,000, which was apparently less than they were expecting. Everyone was making out like bandits, while not contributing anything to the economy. Basically they were all mainly just playing with huge amounts of money and skimming off their and their company's share. I don't know of any way to do anything about the incredible and increasing income disparity in the U.S. except restore a more progressive income tax, particularly at the high end, and making taxes on unearned income or capital gains or whatever it's called comparable so these guys can't just make their huge bucks that way either.


Posted by: emjayay on December 22, 2008 at 10:39 AM | PERMALINK

You harpoon the best compensation packages that execs can negotiate for themselves and in the same breath exonerate unions that did the same thing.

Board of Directors are at fault for signing both agreements.

Normally such mismanagement gets punished in degradation of stock price and possibly bankruptcy.

If free market truly reigned, as perhaps it might after the Bush depression gets solved, such hatchets might be allowed to fall and aggressive negotiation will have a downside everyone will have to acknowledge and react accordingly.

Posted by: toowearyforoutrage on December 22, 2008 at 10:55 AM | PERMALINK

Thirty years of conservative "up is down" ideology, and we have all sorts of examples of the low man on the totem pole being blamed for the bad decisions and judgments of top management: torture at Abu Ghraib?...oh, yeah, just those bad apples. The collapse of the sub-prime mortgage industry?...all those irresponsible homeowners who accepted mortgages they couldn't afford. The collapse of the auto industry?...those damned unionized workers! The people with all the power in this country have worked out this sweet deal where they get all the compensation yet bear none of the responsibility.

It would be a glorious day if American leaders had their compensation was limited to something morally and socially justifiable--20X what the front-line worker is making seems a fair approximation. As a rule of thumb, then, if the customer service worker at McDonald's gets, say, $10 per hour, the CEO gets $200 per hour, or $400,000 per annum. If the CEO wants to earn $500 an hour, a million per annum, then the front-line worker will earn $25 bucks an hour.

Posted by: PTate in MN on December 22, 2008 at 10:59 AM | PERMALINK

"The financial executive had strong encouragement, not to say coercion, from Congress, especially the Democratic side."

Such confident assertions, none of them supported by any data and most of them flatly incorrect and not worth the trouble to debunk. Next?

Posted by: PaulB on December 22, 2008 at 11:20 AM | PERMALINK

I learned from my dentist about the Bush tax cuts regarding vehicles over 6000 lbs. Buy one or two and receive a hefty tax credit. I guess it was Bush's plan to get everyone who could afford it into a SUV of their preference. We should be asking of the Bush tax cuts, where were the incentives for fuel efficient vehicles?

Oh, yeah, I remember it was Bush who killed our economy! His policies, from our vantage point of today, were predicated on some sort of Social Darwinism - no wonder they have made no sense! -Kevo

Posted by: kevo on December 22, 2008 at 11:22 AM | PERMALINK

The reason there is a double standard is obvious. People understand what Detroit is doing, they can visualize it, they know or at least think they know why Detroit is failing.

The deregulation of Wall Street has contributed to these finance schemes so complex that our own government can not seem to understand, as in Enron, what they are doing. I have a finance degree, I work in tax, and my good friend used to work at Chase in the CDO division and I still don't entirely understand what in hell happened. I have a good idea, but as far as them screaming fire, I was running with everyone else.

The other reason for the double standard is Wall Street was first and they took advantage of us. That isn't going to happen again and Detroit just happened to be right behind them.

Posted by: ScottW on December 22, 2008 at 11:27 AM | PERMALINK

How about a 100% tax on all income (from sources) that is more than 30 times the annual average wage in America? Right now, the annual average is around $46,000, which would make the top pay around $1,380,000.

I don't know about anyone else, but I think that's plenty for all these 5th-rate graduates of 4th-rate business schools.

Posted by: TCinLA on December 22, 2008 at 11:38 AM | PERMALINK

Could we at least require our wingnuts to be able to add 2+2 and get 4 on consecutive attempts? "Marketeer" must be not only Southern (because he's so ignorant) but under 30 (since he's so uneducated about everything).

Maybe "Marketeer" could join Paul Weyrich in the "Good Republicans" list?

Posted by: TCinLA on December 22, 2008 at 11:43 AM | PERMALINK

All of this is probably too complex for most of us and that includes politicians and media. What I'm most interested in is the changing dynamics of our economy. For example - the closure of "mom & pop" shops in favor of large Walmart stores has the effect of consolidating the wealth to a few. I'm not against Walmart convenience but it seems everyone should benefit from this model. We're losing wealth that was once spread among many "mom & pops" who were closer (and more responsive?)to the concerns and needs of their employees and communities. The consolidation of money at mega-corporations should benefit us all and not just the few.

Posted by: Pastor Michael on December 22, 2008 at 12:22 PM | PERMALINK

Do you realize that the Senators in question were directly negotiating with the UAW in a Senate back room about wage and benefit takeaways while they were appearing on camera and bashing the auto bailout?

I don't remember the US Senate feeling obligated to DIRECTLY NEGOTIATE WAGES with a PRIVATE COMPANY while they were on camera discussing letting it all implode. And I certainly don't remember that happening with the Wall St bailout.

You can quote drivel from the newspapers. Just remember they're not exactly in the truth telling business either.

Posted by: Glen on December 22, 2008 at 1:18 PM | PERMALINK

Maybe "Marketeer" could join Paul Weyrich in the "Good Republicans" list?

Is it that hard to understand that the Democrats are not saintly innocents? Barney Frank's live-in partner is a lobbyist for the financial institutions, and Chris Dodd received discounted loans. It's appropriate that Cunningham and Stevens were convicted, but Republican guilt does not imply Democratic innocence.

Colin Laney: The nonunion Mercedes factory in Richard Shelby's home town was given enormous subsidies from state and local taxpayers.

True, and thanks for the reminder. It does complicate policy discussions: state vs. federal, past vs future.

How much of a "double standard" is there really? Most Republican opposed both the Wall Street bailout and the Detroit bailout. Most Democrats supported both bailouts. Only a minority of either party voted inconsistently, principally Republicans who have financial institutions but not auto or auto parts factories in their districts.

Posted by: marketeer on December 22, 2008 at 1:58 PM | PERMALINK

If GM goes out of business, everyone who owns one of their cars is screwed. If Citi goes out of business, everyone with a bank account is okay, everyone with a mortgage still has to pay it off, you can replace bank services easily, not an auto industry. In fact, we should expect to lose jobs in banking.

Also, couldn't the government just directly finance private firms (via commercial paper)?

Posted by: tomj on December 22, 2008 at 2:05 PM | PERMALINK

And it’s time to get nasty with corporate governance, and put an end to the absurd conceit that the compensation of executives should “align with shareholder value.” See:

“Does the corporation's interest ‘align with shareholder value’?” at http://scatablog.blogspot.com/2008/12/does-corporations-interest-align-with.html

The corporation’s interest is separate from that of the shareholders. The executives owe their fiduciary obligations to the corporation, which is a distinct legal entity from the shareholders. Other than in start-up industries, directors need to start paying a price for loading CEOs up with stock options and grants, while keeping salaries relatively puny by comparison (even if still grossly too high).

Posted by: urban legend on December 22, 2008 at 2:13 PM | PERMALINK

Easy way out of this- tax all those sweetheart golden parachutes 50% that the execs like Thain and co. get. Just like winning the damn lottery, which is what they did only the money ain't going to the schools.


Posted by: RememberNovember on December 22, 2008 at 3:47 PM | PERMALINK

urban legend,

based on the CEO's behavior, I would agree with you.

However, shareholders are owners of the co. - they share in gain/loss of company profits

bondholders are creditors

from a legal aspect, if company goes under, the bondholders gets paid first,

preferred stock next

common stock last to get paid.

Posted by: annjell on December 22, 2008 at 5:04 PM | PERMALINK

The UAW workers should not take a pay cut. These guys don't hoard their money. It gets spent immediately on goods and services where they live. You cut their salaries and you hammer the economy.

The call is to cut pay of the unionized workers to that of the non-unionized workers. This will further reduce the pay of the non-unionized workers. Their pay is set just a little below that of the unionized shops.

The southern states paid something like $250,000 per job to induce the foreign car companies to locate there. It is beyond hypocrisy for the senators from that region to complain about the loan to the US domestic car industry that runs about $5,000 per job.

Posted by: JohnK on December 22, 2008 at 7:36 PM | PERMALINK

@urban legend and annjell,

Is the problem that the CEO compensation is too tightly coupled to stock performance, or not coupled tightly enough?

Although there are some problems with rewarding execs based on stock price (namely, a severe short-term orientation), that's only a small part of what we're seeing here. Looks to me like the problem is that these guys ran their companies into the ground, but they're still getting the golden parachutes.

Maybe compensating them with LESS base salary or severance and MORE equity would make them more diligent or at least more regretful. And maybe adding in a 5-year component that vests only after the company stays in good financial condition well after they leave would be a good thing, too.

Posted by: Equal Opportunity Cynic on December 22, 2008 at 7:47 PM | PERMALINK

Equal Opportunity Cynic,

Actually, I really don't know what they are doing. I do know that what they are doing is not right.

Here's one for you, a lot of these corporations are either headquarted offshore or have subsidiaries offshore - thereby not paying their fair tax into the treasuries.

As far as tying their compensation to stock performance - this isn't a good idea if the stock prices are being frauduently inflated.

Paying the salaries based on part salary & part stock, same thing, they will frauduently inflate the price.

Stock brokers & investment banks are given commissions to push stocks & investments.

The best thing that could be done is regulation. Stripping bonds & licenses, and jail time.

Everyone is looking the other way. None of the checks & balances are working.

As I have said before, you have an audit committee, they are supposed to make sure to companies accountants are using proper general accounting principles - checking income statements, balance sheets, profit/loss statements....

Then an outside accounting firm is to double check the information submitted by the accountants, audit committee - he has signed his name verifying that he has audited the companies financial statements.

So, everyone is looking the other way. Out of all the people responsible, someone should at least call the insurance company - because, the insurance companies hate to pay out claims, that in turn would have forced regulators to come on board.

I know some of this stuff, I used to have a license to sell securities & was Chairperson of a supervisory committee - but this was years ago.

Posted by: annjell on December 22, 2008 at 8:45 PM | PERMALINK

BTW, I stopped selling investments because one or two things happen
1) you spend more time trying to explain how an investment work than selling. It's tough to do when you have quotas.

2) you end up lying & manipulating people to generate commissions & meet quotas.

I refused to work on other boards because of the corruption involved - for example, if the regulators can make it go away without public knowledge, that's what they will do. Example, sometimes when a company is merged, sometimes it is to sell the company to coverup mishandling of funds or prevent a bankruptcy - but still to keep the companies secrets.

Posted by: annjell on December 22, 2008 at 8:57 PM | PERMALINK




 

 

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