Letters to the Editor
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Why didn't you mention Hank Paulson?
Of course Countrywide and the entire pantheon of subprime lenders would have never prospered without the GSE's, Fannie and Freddie,(left wing socialist agencies) who took the toxic mortgages off the lenders books and buried them where the auditors would never find them. But for sheer unmitigated, sleezy behavior, Goldman Sachs takes it all, having underwritten a ton of subrpime debt, they made money in the last quarter by shorting the market in these things, which does not exist on any listed exchange. That action surely drove the value of that paper lower, and put the borrowers further in arrears, but hey, Goldman made their number. Why didn't you mention Hank Paulson? Part of the NeoCon Robber Barron fraternity.
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christ...
corporate crony-ism at it worst...
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Glad Waxman's investigating this.
There's a story about Iacocca going to Japan and saying to Dr. Honda "You're killing me with your prices. you gotta raise them." Dr. Honda laughs and says, "Do you know how much I make a year? 88 grand. that's it. You made x million dollars last year. all the money I make, gets reinvested in the company."
Corporate Executive Compensation packages are out of hand in this country. And its time Americans understand how dangerous these packages are for investors, who are getting ripped off, the workers who lose what little retirement insurance they have left, and how dangerous it is for the economy that so much of our GDP is getting thrown into the hands of people who can't POSSIBLY spend it at a rate high enough to keep the economy moving. We'll never be able to force CEO compensation packages down (unless we want to be accused of being communists), but we can bring to light these practices and show them to the American people.
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I will never forget...
interviewing as a young attorney fresh out of law school at several Silicon Valley firms, including Brobeck, Phleger & Harrison. They had a large and fairly well-known executive compensation practice, but I made the mistake of criticizing one of my former bosses, a hedge fund manager who had a so-called "1 and 20" compensation package (1 percent of assets under management and 20 percent of annual profits off the top). I thought it was per se inequitable and not only created obscene outcomes but perverse incentives to make money at all costs. Needless to say, I didn't receive an offer from Brobeck. After the dot-com crash, they went bankrupt.
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Perhaps the problem is caused by ...
... the fact that many people who serve on boards of directors are also executives (although usually not in the same company).
The usual justification for this is that boards of directors benefit from the inclusion of experienced executives.
The downside is a huge conflict of interest: Boards tend to be generous with executive compensation because they want the same generosity returned when their own performance as executives is judged. The result is a big circular back scratching club that takes care of its own members, often to the detriment of stockholder interests.
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I blame HTWW left-wing anti-business blog for the housing bubble
As well as the coming recession, oh, and the dollar collapse, and AIDS. After all, Countrywide is on my side, and I can't doubt a catchy marketing hook like that.
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But WHY?
Leonard elegantly lampoons Mozilo here, but that's hardly difficult since Leonard is sharp and Mozilo basically hoists himself on his own petard. It's pretty clear that the CEOs themselves don't seem to think their compensation is just. If they did think that their compensation packages were fair, they wouldn't pule and whine so much--they'd just get slightly confused and wounded when anyone accused them of cheating the shareholders. We'd see more mild-mannered dismay and less unctuous squirming.
So, it seems like everyone is ignoring the elephant in the corner. Isn't the big question, why in the world are these guys getting paid as much as they are? And I don't mean simply the genealogy of the egregious CEO compensation package--how one thing led to the next. I mean why have they gotten away with it (and why are they still getting away with it)? Nobody (not even the CEOs themselves) really thinks they deserve it, so why?
I admit that I'm partial to big, gnarly, complicated explanations which weave together historical cultural narratives and technological trends, but then, I imagine most HTWW readers are, too. My intuition is that there's an echo here of the first Gilded Age in which the mythical figure of the "self-made man" somehow conflated financial success into Puritanical doctrine of special election. Somehow, being rich came to mean being good (in God's eyes, anyway). In the U.S., it seems to have become a "bad thing" to be poor--it's as though poverty reflects poorly (so to speak) on your soul. So somehow these fat CEO cats deserve the money; they're already so rich already that they must be morally worthy, and so what's a few hundred more million here or there. Just an intuition, FWIW.
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America's largest entitlement program
is the pay and benefits packages given to CEOs, CIOs, and CFOs, irrespective of their skills, talents, knowledge, sense, or performance.
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Mozilo an exception to overpaid CEOs
While I would agree that most CEOs are overpaid, I disagree in Angelo Mozilo's case, because he was the founder of Countrywide and most of his compensation has been in the form of selling stock. Without Mozilo, Countrywide would not even exist and it would not be employing the thousands of people it does. Even after the subprime debacle, Bank of America paid $4 billion to buy Countrywide - that is $4 billion more than Countrywide was worth in 1969 when Mozilo founded the company.
This is patently different from a CEO like Charles Prince, who came into Citibank in 2003 and left in 2007 with the company worth much less than when he became CEO, and after destroying thousands of jobs. He does not deserve his compensation or any sort of golden parachute.
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And the lesson is ...
Don't invest in companies with these sorts of compensation packages. As an investor, it is your money that is being handed to these guys. If they don't bring value, don't buy.
On a similar note, consider the effect of executive compensation on the price/quality of goods. Honda and Toyota put their money into engineering and product quality. GM and Ford subsidized their execs snorting coke off a hooker's ass. So, how is it that foreign automakers are taking over the world markets?
Someone asked "Why do they pay these guys so much?" There are a couple of reasons. Cronyism is a factor, but I think botique shopping is the main one. The boards of really big important companies want really big and important CEOs. So, they pay a massive premium for the biggestest and importantest CEO they can get.
It's kinda like car buyers going to boutique brands. They cost a lot, have relatively poor reliability, and usually middling performance when they do work - but damn it makes a statement. Wow, Bill got a jag! He can really afford to piss away money!
Sadly, CEOs can't be kept in the garage and occasionally paraded about. They are actually daily drivers and, as expected, leave you stranded with alarming regularity.