Over the weekend, the US Government committed taxpayers to another rescue package for Citigroup. The Feds will guarantee over three hundred billion dollars of bad investments and give Citigroup another $20 billion in cash, on top of the $25 billion they already got. (Note that $25 billion the same amount that Congress and the Treasury denied the Big Three automobile companies last week...)
For this second bailout, there are at least a few strings attached this time. According to Citigroup, the corporation has agreed to pay no more than $0.01 per share for common stock for the next three years. (Bloomberg says the last quarterly dividend was $0.16 per share.) Furthermore, the LA Times says the US Government will have the right to veto all future executive pay packages. Not detailed in the article, however, was the all-important question of exactly who has that authority.
Unfortunately it appears that no real punishment has been meted out to any current executives--no pay cuts, no firings, no need to leave the corner office. And lest you think those measures would be petty or unfair, remember that Citigroup already announced last week that it would cut 52,000 jobs (a sixth of its workforce!) and as recently as four days ago, Citigroup CEO Vikram Pandit told investors not to worry about Citigroup's plummeting share price because everything was just fine.
Apparently, Citigroup is "too big to fail" while the Big Three are not. But Citigroup now has about 250,000 employees (after the firings go through) whereas the Big Three employ 355,000 directly and many more indirectly. Can you really argue that GM or Ford has been managed any worse than Citigroup? How can the government continue to find billions for Wall Street and nothing for Detroit?
I am not saying we should bail out the automakers. But my tolerance for Wall Street bailouts is now officially gone. How can it be fair that the top executives at these firms--the ones who screwed up--get to keep their jobs and big salaries while the rest of their employees suffer? I am so sick of getting the same smug lecture that we "have to" rescue these Wall Street firms from their own mistakes or the world will end. If the situation is that dire, why doesn't our government use it to leverage big concessions from these firms? Where is the pain?
And come to think of it... Where is the please and the thank you? Everyone knows these firms have no mercy on those who owe money to them... Just look at all the foreclosure signs out there... So now that they owe us bigtime, when do we get to watch the eating of crow and humble pie? At least the CEOs of the Big Three swallowed their pride and went to Washington hat-in-hand to endure hours of angry Congressional hearings (even if they did fly down on private jets). For $700 billion, can we at least hear a little begging?
Monday, November 24, 2008
No Soup For You
Posted by Dr. Strangelove at 10:37 AM
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3 comments:
I think Americans may be reminded that for all its many benefits, our style of capitalism has a very nasty class system. Corporate executives do not even need to forego a bonus, 50,000 ordinary people get sacked. It's disgusting. If an economic system like this were proposed to be instituted as a tabula rasa, nobody would rate this outcome as acceptable.
Conservatives (who are usually the beneficiaries) argue that this unfairness is absolutely part-and-parcel of the system. I definitely think that we can have a system that accords more respect to employees and demands more accountability for employers - i.e., a fairer system - without harming the economic engine of capitalism.
The argument being made is that this is a financial crisis, not a car crisis, so financial companies need bailouts, not car companies. Or that the crash of the Big Three won't harm the economy (read: Wall Street) as much as the failure of Citigroup.
The reason you don't hear begging, Dr.S., is the strange arrogance of these corporate executives. When he ran for president in 2000, Steve Forbes kept saying that he was a public servant because he had "created jobs" all his life. Nobody called him on it. Of course, he didn't "create jobs" out of the goodness of his heart, or as a public service. He didn't "create" a single job that didn't line his pocket. It was pure self-interest, and he paid each person for whom he created a job as little as the market would bear. The fact that, as Adam Smith noted, the public interest can benefit when we all pursue our own self-interest does not mean that pursuing one's self-interest is being civic minded. Most conservatives businesmen think this, however. They also think (a la Carly Fiorina) that their jobs are harder than that of (real) public servants because they are in the "real world."
There is a lot of anger about the bailouts. None of it will be directed to the right place, however. It never is.
I think what we should be doing is nationalizing these businesses to keep them afloat, not propping them up with the current arrogant dimwits in charge. This means REPLACING the management altogether, not just giving them cash. Conservatives would ask: Will government bureaucrats do better? That's not the question. The question is whether the Treasury or SEC could hire competent people for salaries of less than $1 million each. Surely they cannot do worse than the current crop of bozos who acted like lemmings in a bull market. When we've fixed the problems, we can privatize (sell) the companies again and get our money back.
I don't have a huge problem with big salaries per se. If a CEO comes in and turns a struggling company around, I'm not offended if they get a multi-million dollar bonus. What does offend me is that these bozos have set it up so they get the big bonus regardless of who well they perform.
We have a situation where incentives and meritocracy no longer apply above a certain pay grade. As LTG says, it's disgusting.
That same problem, to a certain degree, exists in the civil service as well. Not a surprise, since there is such a revolving door between the two. And the American public thinks you can run government like a business. Well, let's take a look at the results of that little experience over the last 8 years.
That type of CEO arrogance exists everywhere. In government, once you get to a certain level, you are too hard to fire no matter what you do. Disciplinary action comes in the form of a promotion to a different job. You are just moved around. My friends and I joke about what crimes we would need to commit to get a promotion. Get caught in the act with you secretary, you get moved from middle manager to division chief. A division chief accused of corruption? You get shipped off to do a little penance at the INS before you come back and become a deputy administrator. You order a bombing raid that kills a wedding party of 30 Afghanis and no terrorists? Get stationed in sunny California and head up a little academic institution where you terrorize the staff for three while playing golf and then retire with full benefits once the inquiry is completed.
Look at the Bush administration. You don't think he will pardon Libby soon? The only guy who has paid any price for outing and FBI agent was Libby. That is what made Watergate such a big deal. So many of those officials were punished. And You think Obama will allow his administration to go after some of these guys? Nope. Why waste "political" capital on such things. They will all go work for Brown and Root and Halliburton when they leave office.
In my current position, I see corruption, incompetence, arrogance, and the rest and no one is punished. The "merit pay" system that was instituted here in my work place is one that is, by design, meant to keep the higher ups happy at the expense of the smaller downs. It is a sophisticated system to redistribute money up the chain, but successfully hides the fact. Gee, sort of like our tax code.
I get pissed very often that people who should be fired aren't. And I get pissed that people, who are meant to be secretaries, are making decisions that should be so far above their pay grade it isn't even funny. I often hear the line from Harry Potter where the campus nark, Mr. Filtch says, "Gahhhd, I miss the screamin'!" referring to the ability to lock students up in the dungeon and hang them by their toenails.
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