Outrageous! Bailout money spent on skin cream
October 9, 2008 by Fred HosierPosted in: Dubious decisions, Oh no they didn't, Special Report
Some companies might find it difficult to justify $23,000 worth of spa treatments at a fancy resort for executives when times are good, let alone when bankruptcy is looming. So the outrage over AIG, Inc., spending $440,000 on a retreat for its executives while it was tapping into an $85 billion bankruptcy bailout loan from the federal government shouldn’t come as a surprise.
The retreat came to light this week at a Congressional hearing that revealed findings of an investigation into AIG’s meltdown.
Rep. Henry Waxman said the executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa at the St. Regis Resort in Monarch Beach, CA.
Bonuses OK’d despite big losses
The $440,000 expenditure seems like a drop in the bucket compared to executive’s compensation packages which were also revealed at the hearing.
Documents from AIG show as the company’s risky investments were imploding, executives’ pay plans were altered to pay out regardless of losses.
AIG lost more than $5 billion in the last quarter of 2007. When the company’s compensation committee met in March 2008 to award bonuses, CEO Martin Sullivan urged that those losses not be considered. Including the losses in calculations would have slashed executives’ bonuses.
The board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of more than $5 million. Sullivan also got a new compensation contract with a $15 million golden parachute.
Sullivan countered that he was mainly concerned with helping other senior executives.
The hearing also showed that AIG executives hid the full impact of its risky financial products from outside and inside auditors.
Of course, there are obvious financial management lessons to be learned by the AIG story. But what about an employee morale angle? How do employees feel when company executives are treated to multi-million dollar salaries, bonuses, and special perks? Does it hurt morale, or are these compensation packages for executives easily explained because of their responsibilities? Let us know your thoughts in the Comments Box below.
Tags: bankruptcy, executive bonuses, golden parachute, morale
October 10th, 2008 at 8:15 am
Obvious the compensation committee isn’t doing its job - they are supposed to be awarding performance. The impact on morale for compensation awarded for failure is also obvious. The of outside and inside auditors to do their jobs in overseeing what any company is doing adds to the morale problem. last but not least, our congress isn’t minding the ship either - they don’t even understand the fundamentals of the economy or the bailout.
From the employees viewpoint, they don’t see the relationship between pay and the work/ responsibility of the CEO and those around him/her, they don’t understand why those who should be overseeing the financials have missed the boat and they don’t see their congress understanding the basics of the economy we live in and coming up with real solutions. Love him or hate him, at least the president is trying to do something while everyone else seems to running for office. Of course the situation produces low morale.
October 10th, 2008 at 8:17 am
Correction - I should say “The failure of outside and inside auditors…”
October 10th, 2008 at 9:20 am
Egregious!!!
October 10th, 2008 at 9:33 am
You know…this seems to be the normal in any failed corporation that ends up in the public eye. The executives are so greedy, that they turn into these over-compensated crooked individuals and they “just don’t understand what could have happened to have failed so miserably”. Unfortunately for all of us, they are under a microscope where every screw up and greedy moment will be publicized. This hurts morale for companies everywhere big or small because people feel if this could happen there…surely it’s happening (or could happen) everywhere. So, as our entire country (or world) watches this drama unfold, they are giving up any hope that there are any good places left and they come in as a robot to do their job and afraid to do anything for fear of losing their job or security (if there is such a thing). It is just sickening that this kind of thing continues to happen and continues to be allowed.
October 10th, 2008 at 9:37 am
Hang ‘em all! The audacity that we continue to reward these businesses for acting with a conflict of interest, for using poor judgement and lacking integrity by bailing them out time and time again with our hard-earned tax dollars is about enough to organize a revolt! AIG’s creditability is in the toilet and the buck needs to be stopped here and now. My hope is that you continue to expose them (and other snakes like them as well as everyone they’re in bed with) clear down to their polished wing-tips!
October 10th, 2008 at 9:48 am
NOBODY deserves a $15 million bonus on top of their millions of dollars in salary. The compensation these people approve for themselves is just ludicrous. Especially when the rank and file workers can hardly survive. The President of the United States, the leader of the free world, doesn’t get that kind of compensation (even when he/she is doing a great job!) Who the devil is on the boards of these companies that approve such out of proportion compensation plans?
October 10th, 2008 at 9:50 am
I thibk we should make them pay it all back!! What nerve!
October 10th, 2008 at 9:54 am
On the day of the first House vote on the bail out, a man from Alabama called C-SPAN and called these executives, board members, and auditors, and many government officials, economic terrorists. He suggested that detention in Guantanamo and waterboarding was the correct treatment for this kind of callous greed which would seek a $5 million bonus for work that had tanked the company and brought harm to millions of individuals. Criminal and shameful.
October 10th, 2008 at 9:59 am
I knew this would happen, I was entirely against the bailout from the start, help the people who have inflated mortgages and people who lost their jobs not the multi-millionaires help the little guy. We are all at fault for voting for this type of government. I made a list of all house and senators who voted for this bailout in my state and I will not vote to re-elect them!! this is the same for our local government we are experiencing the same problem. Our city council voted to give upper management huge salaries and benefits and told our teachers and police and firemen sorry budget it tight we cannot give you a raise! Again I took names and will not vote for any officer who voted for these outrageous benefits for their buddies. We should have let the big business fail and we could all start over, some of us little people have nothing to lose, ie: no stocks and savings it takes every penny every week to survive, nothing left to save.
October 10th, 2008 at 10:01 am
Does it hurt morale? It not only hurts morale at the company that’s involved, but it hurts morale for the entire country’s population!!! The working poor, unemployed, those without health insurance, all the families losing their homes in this financial mess and all the rest of us can only wonder where justice ran away to when we hear these stories. I am about as angry as I have ever been about corporate irresponsibility!
October 10th, 2008 at 10:02 am
I guess we learned nothing from Enron. Why do we bother with auditors? They either don’t or won’t do their jobs by auditing these companies. As far as compensation committees…they must be compensating themselves as well to allow anyone to tell them to NOT include losses!! That’s ridiculous! There isn’t a person in this country worth millions for a bonus. These top executive should be required to repay every cent they received in bonuses (at least this year) in order to try and stave off some of us middle class Americans from having to foot the entire bill. The entire trip they took should come out of each and every one of their pockets…NOT the company’s. I also hope that due to the major losses AIG has incurred the contract to Sullivan is considered null and void.
As far as morale for their employees…there is none. Most of the individuals working for them don’t even know the top executives receive what they receive until it is brought to light. I guess none of these so called top executives ever really thought…Hmm if we didn’t get these huge bonuses maybe we could hire more…expand more…etc. I’m fed up with this batch of crooks just as much as I am with the Enron crooks.
October 10th, 2008 at 10:06 am
that amount of money for salaries and/or compensation packages are not explanable. This is an outrage, and they should be called upon to answer to their public investors and the “little man” (employees) who gets pittance compared to the executives. This type of downfall will continue to happen as loing as there is greed in these major companies, because this is what it is all about, greed and “all for me, no matter what happens mentality”. The big oil companies are the same; as long as they are raking in the fortunes in gasoline price profits, they could care less about the consumers that make them “millionaires” and give them the big homes and fancy cars and vacation resorts to rush off to when times get tough.
It’s sad when you can look at these companies and say this is what America is all about; no wonder we are in such trouble.
October 10th, 2008 at 10:07 am
Unfortunately, the companies that do this get the press. I can tell you we don’t reward failure and I that I have supported compensation committees as part of my job and know that in many cases, sanity prevails. Keep in mind also that the bail-out money spends no tax-payer dollars. The Treasury must sell bonds to fund the bail out. It is the bondholders who will pay for the bailout, not the tax payers - our congress people and political candidates apparently don’t realize that or if they do, they are exploiting the situation - they know the truth but realize fear is a powerful incentive to vote. That is not an excuse for the way in which these companies are acting and managing the money they get from the Treasury, just a fact people need to understand as we all go through this mess and are about to vote.
October 10th, 2008 at 10:14 am
These executives have elected to ignore the current economic situation and the position of not only their employees, but the nation as a whole. Since they so ignorantly spent the money provided by the bailout program to visit a resort, trips many of us cannot afford to take, they should be prosecuted to the fullest extent of the law for fraud, especially since this money is being provided by the everyday tax payer. In addition, each one of these individual should have every one of their personal assets frozen and sold to reimburse the bailout for the funds used. They should not receive a bonus, they should not receive a salary, and they definitely should not receive $200 - they should just been sent off to prison.
October 10th, 2008 at 10:15 am
I would add too that the press enjoys singling these cases out to promote class envy - the rich against the poor. In doing so they promote an agenda of wealth distribution - take from the wealthy and give to the less wealthy. Political parties that enjoy taxing the “rich” to pay for social benefits build upon these stories for their gain.
October 10th, 2008 at 10:18 am
The lesson is clear, when push comes to shove, these executives acted in their own self interests, as does any employee when they are threatened. The difference is that these executives have the power to protect themselves, at the expense of other stakeholders. They are paid a lot more money, to compensate for their increased responsibility, and to compensate for the fact that they can be fired for failing to perform their duties. They are in the spotlight. But this group is neither being held accountable for their own failures by paying them less, nor are they upholding their fiduciary responsibilities. When self interest is allowed to overpower responsibility to stakeholders, then the executives have failed in their jobs. They should be fired, not compensated. Not sure if they should be to the court system. If the laws do not force this step, then the laws should be amended to catch this type of abuse.
October 10th, 2008 at 10:31 am
In the 80’s, CEO compensation was approximately 42 times the average employees salary. Today it is over 400 times average salary. This is totally inexcusable, and as much as I dislike government interference, any company that is receiving any form of government assistance, holds a government contract, or provides workers for government entities should be forced to cut their CEO’s salary and compensation to this level. The excuse that companies are unable to attract good people without paying them more money is BS. If that were true, good workers would also be receiving increased salaries. Police, fire, and education front line workers would receive additional compensation. This is greede on the part of a few who sit on these boards and help their friends steal from the companies too.
October 10th, 2008 at 10:32 am
The size of the bonuses aside, my idea of a bonus is something you get above and beyond your regular pay due to special circumstances that helps enhance the company or for meeting special requirements. Obviously the company failed to do so if it needs the government to save it. The bonuses should not have been paid to the executives.
The whole circumstances reminds me of congress voting to give itself a raise…
October 10th, 2008 at 10:33 am
If they are using bail-out money to conduct such behavior, they should be prosecuted for fraudulent use of government funds. They should be ordered to pay it all back with the kind of interest they were charging struggling homeowners — plus fines (preferrably greater than those outragous bonuses) and ordered to do time in prison and/or community service. Treat them just like Enron, Tyco, and the stream of hospital executives that have been jailed for fraud.
October 10th, 2008 at 10:34 am
On the bright side, AIG learned their lesson from this event. They annouced today that they are cancelling a previously scheduled “training session” at the Ritz Carlton in Half Moon Bay, CA. Just imagine how much that would cost!
October 10th, 2008 at 10:36 am
I don’t care what the contract says, the company basically failed, how on earth can they still receive a “Bonus” when the company has failed. The company has either closed down or is in bankruptcy or something similar, meaning there is no more money at the moment and therefore these high paying executives SHOULD NOT receive one freaking penny. Period!!! If a company fails, all the employees working for that company are let go and paid nothing, why are they different, just because they have a contract? I am sure somewhere in that contract it has some verbage in there about if the company fails or doesn’t make money then they should get a big fat “ZERO” just like the rest of the employees. Who in their right mind would pay for services failed??????
Board members should also be held accountable for allowing this nonsense as well. They ALL should be held accountable for their actions (or lack of actions)and they ALL should have to pay back ALL the bonus money received. Put their bonus money toward the bailout instead.
October 10th, 2008 at 10:38 am
Why not give the bailout money directly to the American taxpayer and NOT to these corporations - think of the impact that might have - there would be enough for each american over the age of 18 to receive (after taxes - have to keep uncle Sam happy) up from a quarter to a half a million - what would YOU do with that - pay off your mortgage? Housing crisis solved. Put away retirement money, pay for college?? Pay off your DEBT!! The politicians have failed us, and will continue to - because the whole machine that runs our government is BROKEN - why on earth should we continue to trust that they have OUR best interests at heart. I think placing more money in to the hands of those that have so poorly mismanaged it is a crime! As far as the Spa getaway, give me a break!! Those executives should be tossed out with NO security blankets and start to live in REALITY, like the rest of us!
October 10th, 2008 at 10:40 am
I won’t say what I feel like saying because I am sure to offend someone…but I will say, we are getting closer every day to not being a free country because of this type of arrogance, ignorance, greediness and stupidity.
October 10th, 2008 at 10:42 am
I too, see the class envy in some of these comments. Also, one doesn’t get the full story from the liberal media. The group which went to this outing was a group of independent insurance peoiple who happened to use AIG for their products. The outing was scheduled over a year ago and was paid for by their profits, profits, by the way that were not part of the larger AIG losses. These independent agents - if the trip were taken away - could switch alliances to another company, thus, the outing takes place. It’s another cost of doing business, IMHO - a good expenditure.
And who’s to say what is an outrageous income. Most of the people don’t say a word when a movie star or a pro athlete make gazillions and the movie stinks, or the athlete’s team doesn’t win. Let the corporate boards operate as they should. If they reward poor performance - shame on them if the company goes under.
October 10th, 2008 at 10:46 am
Pat - I was going to say the same thing. The Enron scandal was in 2001 - have we learned nothing in 7 years? Also from a marketing standpoint - what are the chances the American people would even want AIG’s insurance after this and all the bad press they are getting? Then how does the bailout loan get repaid?
Who are the “bondholders” ?
October 10th, 2008 at 10:51 am
Movie stars have no effect on our economy if their movie bombs…they don’t ruin morale for the entire workforce for getting 5 mil when they fail miserably. If their movie fails, it hurts the entertainment industry and them…not the people that are trying to keep this economy up and running.
October 10th, 2008 at 10:51 am
And the Govt do nothing. Just illustrates thast no one has learned thier lesson from this. CEO, in fact whole board in my opinion should have been fired (if not before certainly now. they were not exactly very successful anyway - pls see losses made), the cost of this “fun” trip be re imburesed to the tax payer immediatley and all future planned “get togethers” ( i understand there are others planned)cancelled until further notice.
Of course these people all have thoer buddies in Congress or the senate so nothing will happen and we will go on as usual. Pathetic!!!!
Sad thing is it ilustrates the lack of back bone from the Govt.
October 10th, 2008 at 10:55 am
Why should the rest of the country “bail out” a bunch of irresponsible individuals as this? Not only did the management and compensation committee allow these type wages to start with; but after the fact they reward these people - Outrageous! Most regular employees just get “fired” for being incompetant; or at the very least, are reprimanded and demoted if they cannot handle their assigned responsibilities.
October 10th, 2008 at 11:02 am
Please do hang them and the Board members too! But first, let’s demand the money back (they obviously did not earn it)! I am so tired of seeing companies do this and either leave their employees, pensioners or taxpayers holding the bag. How in the hell did somebody fall asleep at the wheel? Another ironic piece of information…one of their subsidiaries is building a 23 million dollar expansion in our city! Excuse me, isn’t this what Sarbane Oxley has supposed to prevent?
October 10th, 2008 at 11:06 am
Altering pay plans behind closed doors? Hiding impacts of risky products? Take a look at the first “value” in the official AIG Director, Executive Officer and Senior Financial Officer Code of Business Conduct and Ethics (from the AIG website): “Each director, executive officer, and senior financial officer owes a duty to AIG to act with integrity. Integrity requires, among other things, being honest and candid.” Uh, yeah, right…
October 10th, 2008 at 11:08 am
Your elected officials are either incapable or unwilling to do something. Most don’t understand the complex issues that got us to where we are today. Many congress persons still complain about giving away $700B in tax-payer money when in fact there is no tax-payer money involved. If they don’t even understand the legislation they just signed nor recognize that it was their failed oversight, their desire to over-indulge a segment of the population who could otherwise not afford to buy a home and their deregulation that allowed lenders to offer insane products to induce the otherwise unqualified, we wouldn’t be in this mess today. Lets not let the stockholders slide in this either. They can vote out boards and officers yet they are more motivated by profit. not what the board pays it’s execs.
Larry is correct - I’ve worked in compensation for 26 years - indeed who is to say what is fair or insane. A movie stars salary or a professional player salary is motivated by potential profit realized by the studio or team. A CEO’s compensation package is often structured in the same manner - what can the CEO generate for the stock holders. Movie stars fail sometimes but they negotiate their take upfront - athletes have bad years yet they still get huge payments and endorsements. CEOs negotiate their packages upfront and they often have a lifespan with a company less than a movie star or athlete.
October 10th, 2008 at 11:09 am
I’m still amazed at the payout of these individuals. As CEO/upper management, they lead their company into this situation. I don’t see and individuals “lower on the corporate ladder” getting any help paying their bills if they should loose their job. If this isn’t bad enought, then to spend that kind of money at a spa, JUST UNBELIEVABLE. The government should recall their loan, ask for all their money back and suggest that perhaps the individuals responsible for this mess give back their bonus, etc to help the company.
October 10th, 2008 at 11:12 am
I think the fact that there are so many responses to this article in indicative of how angry we all are. The problem with just voting them out as one respondent suggests is that those who take over are just as bad. We have lost our moral compass in the U.S. I see it in a microcosmic fashion within our employees who think nothing of quitting a job without notice or leaving for lunch and not returning. If these men and women involved in this financial meltdown had any conscience, they would never have allowed things to get this far and they would never take money they did not earn.
October 10th, 2008 at 11:12 am
And Mari - sorry $700B divided by 200M people gives you about $350 - less after taxes….
October 10th, 2008 at 11:16 am
This issue is much bigger than the monetary disaster we are facing in our country. We are fostering a mentality of no accountability for our actions - this is true in all arenas of our “free” society. We have no sense of financial integrity anymore, it’s take what you can get no matter the cost. Why do we even have laws anymore. The loop-holes are bigger than the freedoms we are supposed to enjoy. Quite frankly, decades ago, this kind of abuse of power would be considered theft - there is a clear conflict of interest and all bonuses should be returned and an independent audit should be conducted to right-size people’s compensation packages (golden parachutes) none of us have them.
What are we teaching our children. If they fail a subject in school, we will promote them to the next grade and give them a bonus for every “F” they receive. If employees don’t perform to set standards they are fired. If we personally make poor financial decisions, we will suffer. The reason top executives get big dollars is because we are entrusting them to make decisions that have far reaching affects on our economy - but they should be held accountable for those decisions.
We have handicapped our nation and have become the laughing stock of the world - what kind of reputation do you think we have in the world and in the eyes of our children. What a pity that our country was once a great society has been degradated by individuals with no moral backbone. And sadly we reward them for it.
October 10th, 2008 at 11:19 am
Unfortunately this is another example of higher ups not having compassion for the lower level employees. The same employees that are key to accomplishing the success of any organization. (sometimes more than the higher ups). I am left to wonder how many more AIG/Valic lower level employees will lose their jobs when the public pulls their business from a company with executives that obviously have no morals.
October 10th, 2008 at 11:20 am
I am very disappointed with, though not especially surprised by, the AIG debacle. Unfortunately, these greedy, uncaring, unethical executives are far too common and their behavior is all too typical. I just wonder where it will end…or if it will end. Our country has allowed and rewarded this unscrupulous behavior, not only from the executives of these large corporations, but from investment groups that buy, gut, and churn businesses, leaving a wake of unemployed behind them while they walk away with millions. There are no easy answers, but one would hope that “someone out there” who has an ability to affect change would finally take notice of the long term ramifications of our current financial / business practices and that they would actually do something about it. It should be illegal to profit from the destruction of a company. Too much is at stake. I can only hope this is becoming clearer and if we survive this world-wide financial crisis, perhaps we will actually learn from the past. However, I’m not holding my breath.
October 10th, 2008 at 11:27 am
Janice - precisely.
We, all of us, are responsible for where we are today. We’ve become a nation of rugged entitlees. When you are focused on whats in it for me, you get where we are today. We seem to have this insatiable desire for instant gratification - must have that $55k SUV that gets 10 miles per gallon even though I can’t afford it. Ah, but someone will let me pay it off in 7 years at a ridiculous rate of interest and I buy. I don’t think that gasoline will inevitably rise in price and my gas bill will be as high as my car payment. Who will help me? Who will bail me out? Why isn’t my congress lowering gas prices? I see that $400k house that I like but I can only afford a $200k house. But there’s that no money down option, or that interest only option or that 50 year mortgage option and every one knows house prices will always go up - so I buy the house I can’t afford. Then when prices go down and interest rates fluctuate and I can’t afford my house that I shouldn’t have bought to begin with, who will help me? Who will bail me out?
Sure - be mad at the outrageous good fortune of a handful of people - but also look around you - look inward. We’re all contributing to the problem. Take responsibility for your part of the world.
October 10th, 2008 at 11:30 am
Geo W should be ashamed of himself. I have been a loyal proponent of GWB but he well may go down as one of the biggest disappoinments in history for funding this crap (among other stupid things). A good question to ask of everyone who touched this situation is “are you crimnally dishonest or just that stupid?”. Put them on a payback plan.
October 10th, 2008 at 11:33 am
One more thought - we are a nation of borrowers who borrow to consume rather than to invest. That’s always a recipe for disaster.
October 10th, 2008 at 11:35 am
Jim - who’s to say what’s fair or insane for compensation? Common sense. I agree it’s not just CEOS, etc. Movie stars and athletes were the original incredibly overpaid “workers”. Yes, CEOS should make a large multiple of salary compared to rank and file because presumably they have the intelligence, knowledge and leadership skills to safeguard their company, make it profitable for stakeholders which is good for the company, the rank & file and the economy in general. But, I still contend that no one is worth millions upon millions upon millions of dollars -especially when they fail to carry out their fiduciary responsibilities. These guys are more like weathermen than athletes - they still get paid even when they are consistently wrong, LOL.
October 10th, 2008 at 11:36 am
Everyone’s expressed anger is fully justified, and I share it completely. But the problem is a systemic one and therefore so is the solution. For example, if a football refree’s income and bonuses were paid by the owner’s of one of the teams. Would you really expect him to be purely objective? Even if he were a sunday school teacher the rest of the week, he could not help but be bias in favor of his benefactor. So, if the company board members and the compensation committee members are beholdin to the CEO in any way (and they are!!) then you are a fool to expect anything other than what we are seeing from these self-serving boards. This is not rocket science! Change the incentives and you change the behaviour. If stockholders are powerless to change these symbiotic cabals, then legislative action is needed!!
October 10th, 2008 at 11:38 am
This is crazy. I don’t agree with anything AIG has done here. They should be ashamed of themselves, all they see is $ $ $. I think these executives should be punished and I think the government should step in and take charge here. Looks to me like this type of behavior is not going to change even with it being brought out to the publics eye.
October 10th, 2008 at 11:38 am
I as a taxpayer believe strongly that these CEO’s need to be prosecuted for treason, as this is what it is. Greed is one thing but to run their companies into bankruptcy, then take more money unjustified from government bail out is down right treason and they should prosecuted and found guilty and punished.
Isn’t punisment for treason the death penalty.
Our Country is at risk because of these crooks, anyone out there want to start a petition to force our government into protecting our rights as honest taxpayer citizens. It’s about time “We The People” stand up to this currupt government and do something.
I can guarantee you, neither the top republicans or democrats are going to do anything to protect us, the average citizen.
October 10th, 2008 at 11:41 am
I would love to know just how many of these “VIP’s” would be diagnosed by a mental health professional as suffering from “Narcissistic Personality Disorder”. How else can you even begin to explain such a high level of absolute arrogance, zero conscience and total greed during a time when the average, hard-working, middle class family is struggling to survive. I’m beginning to think that to understand the criminal mind we don’t have to look to the prisons… we need to look at corporate executives. There’s a real fine line between the two!
October 10th, 2008 at 11:43 am
CEO is the only profession where the more you fail the more money you get. If tax payer money is going to help these companies survive then we should have a say in where this money is going and it most definately should not be going into these scoundrels’ pockets!
October 10th, 2008 at 11:44 am
Sorry Lorie - but there is no “common sense” in the world of compensation. Would you say paying an hourly worker $50 an hour to screw a door on a car at a Ford plan is common sense? I don’t. Unions say yes. Have you looked at what states are paying their workers for the jobs they do? And they get enormous pensions that in some states (like New York) aren’t taxed - and they are allowed to double dip. I can work for the state and collect a pension at the same time. And if I am a railroad worker and declare myself disabled (like 90% of the railroad retirees in NY), I get a fatter pension. We tax payers don’t get that - we don’t get retiree medical. Our 401k withdrawals are taxed. Fair?
Agree - always wanted the weathermans job.They pay you whether you are right or wrong (and most times they are wrong)
October 10th, 2008 at 11:45 am
700,000,000,000 / 200,000,000 = 3500
October 10th, 2008 at 11:49 am
Deb, the same way our politicians do…. most of them have been in congress too long and/or never worked for a living. Part of the problem is the career politician - out of touch with the rest of us and responsible for both creating and fixing the mess we are in. They often think they are the solution when they are in fact the problem.
October 10th, 2008 at 11:59 am
I’m a little shocked by this post. I come to this site to find the facts that are pertinent to my job, NOT read an ill-researched opine that is being presented as fact. Do any of you (besides Jim) actually bother to utilize any form of due diligence and research news stories on your own or do you always just glom on to a catchy and untrue headline?? Honestly, get out there… Read a paper… Google it for criminy sake… then sit in shame at how silly you look to post such hateful opinions on an already flawed post.
October 10th, 2008 at 12:00 pm
We should check facts before jumping in with both feet. This was in the WSJ and NYT:
NEW YORK–(BUSINESS WIRE)–October 08, 2008– American International Group, Inc. (AIG) Chairman and Chief Executive Officer Edward M. Liddy sent a letter today to U.S. Treasury Secretary Henry M. Paulson to clarify the circumstances of a business event held by an AIG subsidiary which was discussed during an October 7, 2008 hearing by the House Committee on Oversight and Government Reform.
The event, mischaracterized as an “Executive Retreat,” was held by one of AIG’s insurance subsidiaries for independent life insurance agents, not for AIG employees. These agents were top business producers for the company, and of the more than 100 attendees, only 10 were employees of the AIG subsidiary who were there to represent their company. No AIG executives from headquarters attended. The meeting was planned months before the Federal Reserve Bank of New York’s loan to AIG.
In his letter, Mr. Liddy assured Secretary Paulson that AIG now faces very different challenges, and “that we owe our employees and the American public new standards and approaches.” Mr. Liddy assured Secretary of the Treasury Paulson that AIG is “reevaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating.”
Mr. Liddy concluded, that “AIG is focused on doing what is necessary to address our capital structure, repay the Fed credit facility and emerge as a healthy global insurer. In the meantime, our insurance businesses continue to operate normally and satisfy the needs of our policy holders.”
October 10th, 2008 at 12:05 pm
Pay the money back. The backs of middle class america who pays the greater percantage of taxes is breaking.
October 10th, 2008 at 12:11 pm
Sue - thanks - missed a zero. Point is giving people money doesn’t solve the problem. Someone has to buy the bonds to generate the $700B and the Treasury has to pay interest. There should at least be collateral for the $700B bonds so there is some hope of recouping some or all of the money in the future. Handing it out like Halloween candy makes no sense.
October 10th, 2008 at 12:13 pm
What more to add…. “The love of money is the cause of all sorts of evil!” This statement was true over 2000 years ago when first written and it’s even more true today as money has become the core of our lives especially in this country. Greed and corruption abound not just in private business and in other countries, but clearly in our own as well. The AIG fiasco is well beyond our comprehension, yet does anyone remember when disclosures of our own government’s spending was in the news? ($700 hammers, $500 ash trays, etc…We don’t hear of that any more, but be assured it continues! Only when it strikes at our personal retirement plans and their rapid detrioration do we become outraged - despite our inability to do anything about it. We rely on the foxes guarding our henhouses, so let’s not fool ourselves by being shocked at AIG… before taking the speck out of someone else’s eye, let’s take the log out of our own!
October 10th, 2008 at 12:14 pm
Hey, I’m a hard worker, loyal, dependable, responsible, willing to learn new things, enjoy thinking about what is good for the company, and it’s employees. I try to give 110% no matter what I’m doing, and enjoy seeing share holders and employees happy always keeping them informed. Never keep employees in the dark that only convinces them the company doesn’t value them. I think I could run one of these company’s and all I need is to have my salary doubled, so that means $100,000. Do you have any applications? And is there any way you can get the media to take the AIG commercials off the air it makes me sick seeing that guy driving around saying how wonderful AIG is. What has happened to this country where are the real people?
October 10th, 2008 at 12:18 pm
Well put Joe.
The government seemingly has no accountability to any one - they spend our money like water - then they have the nerve to say its patriotic to pay more taxes.
October 10th, 2008 at 12:20 pm
The only way for the people of this country to voice their opinion is to vote. Regardless of seniority or power level in Congress, any senator and representative who voted for this haphazard bailout needs to be ousted.
When will they get the message and truly represent the people that elect them.
Be heard, loud and clear. “You’re doing a poor job representing us, you’re fired.” Please vote for someone else.
October 10th, 2008 at 12:40 pm
Sandy - treason is a bit strong. We the people over consume. We the people buy too much on credit. We the people don’t save enough. We the people must gratify our desires immediately rather than save for them. We the people have continued to accumulate personal debt at an alarming rate because we the people just need to keep up with the Jones. We the people elect congress people who think they are entitled to our money via taxes. We the people continue to elect them over and over again.
We the people created the problems we now face. We the people play into the hands of companies (and their CEOs) that will invent ways to satisfy our desire to spend beyond our means. And as we do, their profits rise, and so does CEOs pay. We the people ought to look in the mirror and start at home.
October 10th, 2008 at 12:48 pm
Back to basics. If you are in charge of the success and direction your company takes you should be entitled to reap the rewards of success, and take the hit for failure. These companies FAILED. Execs should get nothing. Seems by today’s standards any moral code for people in the highest positions of power has eroded down to one thing and one thing only; “What’s in it for me?” They cook the books, get “creative” in burrying thier gross mismanagement and mistakes and make everything look pretty on paper just so they can “get thiers”. To heck with any sense of responsibilty to all the people you are destroying along the way. Now it’s a world wide crisis and they are taking lavish vacations. Yes, Congress is drilling these clowns now but what else is really being done? How is this not criminal on the highest level? Seems like the top brass are making up the rules as they go along and grabbing everything they can on the way out, and laughing about it too. Not a good sign for our society in general. With people like this in charge how are we all not doomed in the end. I am outraged and disgusted.
October 10th, 2008 at 12:59 pm
I don’t care about the title: do the words “cash bonus of 5 mil.” mean anything? This is the kind of thing that is sickening. If the losses are being ignored and the bonuses are being paid, there’s a problem.
October 10th, 2008 at 12:59 pm
want what we have…….imagine that!!
October 10th, 2008 at 1:01 pm
Jeanne - if we did that, we’d have no one to vote for for President…. both our candidates voted for the bailout.
October 10th, 2008 at 1:06 pm
Jim: I have excellent credit, I pay my bills on time or early, I do not over-extend without realizing if I have to work in a gas station in the evening I will have to pay this bill. I also vote: but my vote doesn’t always win. So as far as “we the people” I have started by teaching my 14 and 15 year old to balance a checkbook by having their own checking account and putting their own earned money in it so hopefully they don’t fall into “what we the people” did in this country. Meanwhile, I have a government that will not help people that are willing to help themselves, but will help the loafer. I have to face the fact that I have to deal with this type of sickening action by people who should know how to run a company!!!!!!!!!
October 10th, 2008 at 1:09 pm
mac - as I said at the top of this…. its obvious the comp committee didn’t do its job. That’s always a problem. From an HR perspective you do not continue to motivate behavior via bonuses and higher compensation lest you get the same performance and the same results you are trying to avoid. The question that started this was about the impact to workers which is obvious - paying your exec a bonus while the company loses money is devastating to the workforce. Most bright companies don’t do that - we certainly don’t - we fire them. Otherwise you send the wrong message to your workforce.
October 10th, 2008 at 1:10 pm
I find it abhorrable what they’ve done!!! Fire them all, break up AIG, and give all the bailout money to all us average americans. Personally I think they should all be prosecuted as embezzlers!!!! And to think, not only did our government give them the original bailout money, but then our government gave them even more!!!! What the *(&(^&%*%*^(^(!!!! I think our government is as *&(&& up’d as AIG, for even considering the bailout in the first place. Especially in hindsight, as we can see that all the executives were worried about is themselves….not their customers!!!!! May they all get horrible diseases and die slowly….eating up every cent of their “bonuses”…..
October 10th, 2008 at 1:14 pm
mac - life’s not fair. And good for you! The more we teach our children not to make the mistakes of others the sooner we’ll change this country. But it won’t happen overnight. Hopefully more people like you will set an example and set a trend that leads to a better life for all.
My personal belief is that the government is not there to help us. We are guaranteed life, liberty and the pursuit of happiness. The government should be there to make certain we have the opportunity but can not and should not guarantee that opportunity. We have to earn that.
October 10th, 2008 at 1:20 pm
mac - I, by the way, have no debt except for my mortgage, which I could easily pay off if necessary. I owe no one, drive a Honda that gets 36-40 miles a gallon and pay for all the necessities in life with cash. Had a dad very much like you are raising your children. I can afford many “things” but “things” don’t buy happiness. Things don’t satisfy desire, they create new desire.
October 10th, 2008 at 1:32 pm
AIG, Inc is a publicly traded corporation and as such has a board of directors and executive officers responsible to the shareholders. This board and its officers did not do thier job, thier job is to the shareholders not themselves or their key people, as such they should be held legally and financially responsible for thier actions. When the CEO asked the compensation committee to not calculate in the loses he ignored his fiduciary resposibilty to his shareholders. It is wether or not they will be held accountable, in this day and age everyone gets angry, which requires little effort on our part, but to actually prove thier scandalous behaviour also criminal will require time and finances.
As for the tax payers not being part of the bail-out, true the bondholders are the ones putting up the cash for the bailout but when those US Treasury bonds are sold back by the bondholders for the value of the bond and interest accured whom do you think is utimately responsible then.
October 10th, 2008 at 1:33 pm
I have an idea, I happened to be in Iowa yesterday and drove by the Iowa State Penetentiary….looks like a great new home for these cheats. And the monies they gave themselves as ‘bonus’, is redistributed to us little folks.
October 10th, 2008 at 1:38 pm
Kelly - unfortunately the “middle class” does not pay the bulk of the taxes in the country. The “rich” do.
And by way of clarification, the rescue package is not a “bailout”; it’s an asset swap, to be followed by a subsequent swap to get the dollars back. It needs to be done - if it is not done, then the credibility of this country’s greatest asset - the dollar - is at stake. If the dollar fails, the entire economy fails.
October 10th, 2008 at 1:40 pm
Dawn - read my last post - it’s an asset swap….
October 10th, 2008 at 1:44 pm
The “asset swap” is a trade of liquid money for illiquid financial securities (essentially, bonds of unknown value). The government will become the owner of those securities, straighten out their true value, then sell them back to private sector investors. In effect, the government creates temporary new money, trades it for those securities, straightens out the value of those securities, then recaptures that “new” money by selling the securities back. The temporary new money is necessary for unfreezing the credit markets. If we don’t do that, we’re all doomed.
October 10th, 2008 at 1:51 pm
So it looks like just about everyone is outraged but in the executives opinions, sticks and stones and all that
It’s not just the executives though, it’s all the money people and the shareholders. Everyone wants more money, more money so companies are out their shopping for the “smartest and best” executives and will pay whatever they have to to get them on board.
Should those responsible pay it back, yes absolutely, everyone involved should have to liquidate all their personal assests and put them in the kitty to be distributed to the folks that lost their shirts.
But hey, with their millions those money people can afford the best attorneys this country has to offer. Money and power, power and money, once you have it you don’t have to care about the people you step on.
October 10th, 2008 at 2:23 pm
Jay - just to be clear - the board members are not beholden to the CEO. Its the other way around. The CEO serves at the pleasure of the board. And if you have ever been in a board meeting, you’d recognize that quickly. The comp committee is often a subset of the board and given the new disclosure rules for public companies, many engage the services of outside 3rd parties not beholden to the company to evaluate their actions since compensation, bonuses and the methods of deriving them are now reportable and open to the public. As we established early on, they acted, in my view, with great stupidity and risk and the stockholders should take them to task for it.
October 10th, 2008 at 2:43 pm
I hope I am not repeating someone. I have a couple of comments… First point, these are only the onews that have been caught, how about the oneas that are still in business (doing very well) at our expense. I am talking mostly about the oil industries that have had double their record pofits in the last few years while continuing to raise prices leaving less money for us to be able to pay our loans. Here is where the investigations need to start Second point, I know one of the comments mentions the carrer politions in congress, I feel that not only are they out of touch with the working classs of people but they are also able to give themselves raises every year with out the taxpayers having a say. And more than likely 99% of them are not worth half of their salaries, they only meet a few times they don’t even put forth the effort to attend the sessions.
October 10th, 2008 at 2:49 pm
I have owned a small business for 17 years. We have run our business fairly and honestly. We have not taken huge bonuses or any bonuses for that matter. We have treated our employees and customers fairly and honestly also. Because of these troubled economic times we will be forced to close our business next year. Why won’t the goverment bail us out? Why is it the crooks get to be bailed out but us honest hardworking little people get no reward?
October 10th, 2008 at 2:53 pm
But Susan, without people wanting more than they can afford, none of this would have happened. If Congress didn’t make a conscious decision to have Fannie/ Freddie Mac extend credit to those who here-to-for would not be eligible to buy, none of this would have happened. If Congress hadn’t deregulated, none of this would have happened (I realize that government auditors were also part of the problem). When do people own up to their own actions?
If I start a company that loans enough people money with outrageous terms and interest scenarios and I get wealthy and the economy subsequently goes sour and you lose your house, car, big screen tv (all the things you bought on those outrageous credit terms), am I the guilty one for making money? Your desire to consume even beyond your means was satisfied at a price you were willing to pay. Are you equally guilty for buying beyond your means? Should I liquidate my wealth and give you some money? At what point do you take responsibility for being part of the problem? I’m not excusing AIG and their actions but asking a much broader question. When do we start taking responsibility for our own actions that invariably lead to the problems we face today?
October 10th, 2008 at 3:00 pm
True it is an asset swap but the value of the assets we are receiving in exchange is the portion in doubt and if what we receive does not meet the financial burden then the tax payers will. Jim if these assets where so viable we would not need to be bailing them out or swapping assets as you want to put it. Unfortuntly creating this temporary new money also brings down the value of our dollar currently until we straighten out the value of those securities and recapture the new money.
October 10th, 2008 at 3:06 pm
Having worked in the financial services industry (at the lower end of the pay scales we are seeing) for nearly 30 years, I am appalled at some of the things that have been revealed since AIG hit the skids. I hear about ever increasing insurance premiums, as well as those who simply can’t afford those premiums or their prescription drugs. I have always seen abuse in many areas (i.e. expense acccount abuse, treating top sales folks and their families to the finest resort accomodations, etc.) and have just settled into the fact that the insurance industry has more money than . . .
However, this latest news has me frustrated on many levels, one is simply that the fed has to bail some of these folks out to save the masses, the second, and most important is that I can’t do anything about it. And, third - I shake my head when I realize that I will ultimately be paying for the excessive spending many have enjoyed for a number of years while I sit in my conservative home (one that I can afford) and treat myself occasionally.
I can vote, but my impression of the candidates is that they too have been blind sided and obviously have not prepared statements to support a successful financial bail out. Naturally, they would rather be campaigning on issues where they are prepared to speak.
I can only hope that something will be done once the feds see how some insurance companies spend our hard earned premium dollars.
October 10th, 2008 at 3:09 pm
Dawn - you are right. No one can predict the future value of these assets let alone determine their current value - BUT - they must be purchased. This country functions on credit (unfortunately - see my statements previously). Those credit markets are frozen. Until the bad assets are cleared, those markets will stay frozen. If they stay frozen too long business will fail, payrolls will not be met, the death spiral will continue. The value of the dollar has unfortunately already fallen - it has to be stabilized. That will happen when the “lubricant” of the economy - credit - begins to flow again.
October 10th, 2008 at 3:11 pm
Jim
While I agree with some of your posts, you did make a mistake in saying that we only have two candidates to choose from. There are far more caddiates, including Bob Barr, a Libertarian. If the American people would finally realize that they do not have to vote for either a R or a D and start voting their values in a third party we might actually start making a difference. The party that pretty much personifies personal responsibility is the Libertarian Party. With the LP party the gov’t would never have had as much power or money to get us into this problem. Individuals and businesses would be far more responsible for their actions instead of always looking for the gov’t (ie the taxpayer) to bail them out of poor decisions. These poorly managed businesses would have been allowed to fail and better run businesses would have taken their place. I would just as soon that we get rid of a lot of these “to big to fail” banks and other companies and get back to community banks and businesses doing more business. They are far more responsive to individuals and the communities that they are in.
Many people here have said that they should give this money to the taxpayers instead of the companies. I agree, but instead of a one-time payment maybe our taxes should be dramatically lowered so that we get to keep the money instead of sending it to the gov’t that got us into this situation in the first place. Do you think you could have made better decisions with your portion of the taxes than the gov’t is doing? About the only party that thinks that you can make better decisions with your money than the politicians and bureaucrats is the LP party. Give them a try this year and help make a difference.
October 10th, 2008 at 3:17 pm
No one denies that those folks that borrowed more than they can pay back have created their own problem but too many people that did not borrow over their head are now suffering too. Then there are those that lost their job or their earnings dropped significantly and now they are in trouble through no fault of their own. Bottom line is all those involved in this disaster should be held accountable. And as for the lack of legislation to prevent this kind of thing, did you vote republican or democrat last election? Did you make your voting decision based solely on gun ownership or womens’ rights or your religious convictions? Because, if those issues are your focus then I am with the folks that say those things do not belong in the legislative process to begin with.
October 10th, 2008 at 3:35 pm
Susan - agreed. That’s why we need to get the economy going again and quickly - see my post above. We’re all suffering and the credit has to start flowing again and quickly or none of us will have jobs or homes. If any one violated existing law, they should pay the consequences. But those of us who over extended ourselves and drove this country into a credit frenzy by over consuming must also pay a price lest we have the same problem on our hands again. Without pain there is no lesson learned. If you are talking about the last general election I actually wrote in Ron Paul’s name (was living in Texas at the time). He is the only person that has consistently voted against government spending. Gun ownership is a matter of the constitution, women’s rights are not mentioned in the constitution specifically and I believe religion a concept that is too narrow to define God - but none of your questions or my answers have a bearing on the question posed at the top nor the problems we are faced with at the moment.
October 10th, 2008 at 3:41 pm
Steve — I appreciate your thoughts, but big oil is just that — big. The industries profit margins are smaller that the manufacturing company I work for. People are being taught to demonize any big business. If that is proper, you should criticize Bill Gates and Microsoft. Microsoft keep 30% of what lt receives vs, 5-6% for the oil companies.
October 10th, 2008 at 3:44 pm
Jim you are correct unfortunately. The person buying the house, the tv, the car and other wants on credit they should not have been given will have consequences to live with but what about those that knew what they where doing and where we could end up and continued and once they saw “the righting on the wall” so to say got even more greedy, what are their consequences? I thnik that is what most American want right now some idea that justice will prevail.
October 10th, 2008 at 3:48 pm
Actually no response is needed to the original question. How can there be any question as to how demoralizing it is for employees to see their supposed leaders grab the bucks run the company into the ground then bail out on their golden parachutes. The gap between the excutives and the employees on the line gets bigger every day. I know our folks here are paid a pretty low wage and I earn a middle class paycheck but nothing to write home about. Our managers here are good people who really care about the employees but the gap is still huge between managers and production workers. You see the beat up wrecks and older compacts in the parking lot and the front line where the execs park is full size crew cab Toyota trucks, Corvettes and other pricey vehicles.
That says it all.
October 10th, 2008 at 3:55 pm
Terry - I realize there are others (you can see from my previous response to Susan, I chose Ron Paul in the last election). But our representative republic forces us into a mainly two party system. At the moment I feel the same way I did just before the first Nixon election - voting for the lesser of two evils or writing someone in.
Yes. I always make better decisions than the government with my own money and much more efficiently. Few people realize that this country did quite well without an income tax for a vast majority of it’s existence. And we did without a Social Security System and a War on Poverty, etc…. The problem is our career politicians have an entitlement mentality - they think they are entitle to my money. And if I make a lot of it, they are entitle to more of it.
They have also been in the business of creating “rights” none of which exist in the constitution and “rights” citizens have never voted for. Even animals have rights. If I am a Democrat or Republican, and I want to get elected, I will say you have a “right” to medical care and I will tax the people who make more money than you to pay for it. Everyone appears to have a “right” to something and if they don’t have it, they will vote for the candidate that grants them that “right”. Dangerous for our country and for freedom itself. The major party politicians are much to blame for our sense of entitlement at some one else’s expense.
The Libertarian concepts are much closer to what this country needs at the moment than either mainstream party. Imagine, the VP candidate declaring its patriotic to pay more taxes!!! He must think we’re all idiots! How about, its patriotic to spend less of your money by cutting the waste we are creating in Washington!
October 10th, 2008 at 4:01 pm
The nerve of the executives at AIG. Received help from the bailout and had the audacity to go on a retreat at the taxpayers expense is outrageous to say the least, insensitive. They are truly not concerned about their employees or the crisis we are in. Now I understand they are asking for more money - NO WAY. Put the culprits in prison and make them repay the money they have STOLEN! How appauling - families are loosing their jobs, their homes, health care, etc., let them see how it feels to wear the other shoe.
October 10th, 2008 at 4:07 pm
Dawm, I think, again, if they violated the law they should be prosecuted and I hope they are.
Susan, if you look at the IRS tax return data, the middle class actually is doing better (along with the rich). Unfortunately, the data you see and hear from you candidates is flawed. When they talk about stagnant earnings they are looking at the census bureau data for “households” not the individual earners within the household. If you look at the individual earners you’ll see proportional rises in income for all levels of workers. You’ll also see proportional tax cuts for each earner since the last major legislation. Politicians bank on you not looking at the data or doing the math - Clinton was a master at it.
Compensation is a function of supply and demand and what the market will bear. I face it every day in my job as we recruit workers. Unfortunately we are competing in a global market, especially for a manufacturing job - as jobs are outsourced in manufacturing, a larger labor pool exist from which to draw workers. That depresses both starting salaries and salry increases.
October 10th, 2008 at 4:09 pm
It is easy to point fingers after the fact and without all the facts. Partial information becomes like statistics-you can use it to prove anything.
The problem began with the greed of mortgage companies and real estate agents who sold people homes they could not afford and mortgage instruments that they had to know would implode. Companies like AIG and others bought mortgage backed securities. In the past these had been relatively low risk. To make bigger profits, they ignored that these were not of the same quality as standard morgages. But our economy runs on risk- the greater the risk, the higher the returns. And higher returns makes policy holders happy, and stock holders happy.
I would bet that the extravagant trip was a sales meeting for the top sellers of insurance products. These sales people are independent, and since it is an industry standard to do so, most insurance companies honor the top independent producers, and insure that they continue to sell. Independent agents have the option to sell any company’s product, and companies prefer to spend the relatively small amount to have these independent agents sell millions (per agent) of their products- so this is possibly a prudent investment.
I wish that we could get less sound bites and more real information!
The damning evidence here, though it is not as inflammatory on the face, is that key leaders knew that they had a problem and yet made announcements to the contrary. Enron revisited.
If on the other hand, we as investors and policy holders would be satisfied with modest returns, companies like AIG would have less pressure to “exceed expectations”.
There is fault enough to go around. Add regulators, rating agencies, and your congressional representatives who have a greater interest in appearing before the cameras condemning others, than fixing problems.
Ask your representatives what they are willing to give up to fix what is wrong. Ask them about their medical benefits, pension plans, and other tax payer money that supports them, and their junkets, staff…..
Reform should start at the top!
October 10th, 2008 at 4:27 pm
Susan - by the way - where I work (and I manage compensation among other things) the executive salary budget is no larger than the salary budget for regular employees - never has been. Our ratios between workers and management are no where near what are sensationalized in the press. I look at market salary data all the time - I don’t see (on average) anything close to these unusual cases that pop up in the press. Again, class envy is a tool of the press and popular with politicians especially right before the election.
October 10th, 2008 at 4:29 pm
No question most of these companies executive pay was outrageous even when things were going well and completely insane as they were going down the tank. There was an inexcusable lack of oversight or accountability within as well as outside the firms. However, please at least report the facts and not use sensationalist headlines such as Executives using Bailout money for Spa treatments. The company that has been cited for this had this booked well in advance of the bailout/loan situation I am sure. In fact if they had cancelled this they probably would have lost a good portion of the cost anyway. All but approximately 10 of the people attending were NOT company executives but top sales staff as I understand it, which were being rewarded for acheiving sales goals. This is common for most sales organizations. I think the situation our country is in right now is only being made worse by all the half truths and distorted facts, which just add to the anger and fear.
October 10th, 2008 at 5:29 pm
Actually Joan the problem could not have started had we not deregulated and certain political parties leaned on Freddie and Fannie to make housing more affordable to those who would otherwise not be able to afford a home. Mortgage companies simply made that happen and agents sold the houses. It was no more greedy than a car salesman with a special financing deal from GM to sell you a depreciating asset on credit for 72 months. Everyone knows you are crazy to buy a depreciating asset on credit but they do it any way to satisfy their desire to consume - to have more than they can afford. Is the salesman at your local dealer greedy to sell you something that loses 25% of its value or more when you drive it off the lot? How those mortgages were packaged and sold and resold is the deceptive part.
October 10th, 2008 at 5:36 pm
Great point Susan. And to add to the problem, by encouraging more people to buy homes that they otherwise could not afford, we generated more demand for homes which drove prices up. (artificially)
We saw obscene rises in housing prices in many areas of the country because of this and now the associated housing fall. We (the government) started it - now we’re paying the price.
October 10th, 2008 at 5:58 pm
The whole thing just angered me when I heard about it. First off, here at my company, we do not get bonuses if the company as a whole does not do well that year. Bonuses are something that is shared when we achieve our goals in sales and meet/exceed our margins. AIG had to be “bailed out” by the government…the tax payers…us. To get a bonus was outrageous. They executives, if they had moral obligations should take a pay cut from their salaries because of the state of the company. [What ever happened to the captain goes down with his ship]?
But then to turn around and “celebrate” the bail out by going on this outrageous retreat is beyond comprehension to me. When children don’t do their chores, do they still get an allowance…a reward? A spa retreat to me is a reward. What were they rewarding themselves for…bankrupting the company?
I strongly feel they should pay back all the money they spent on this retreat…with interest! They should also be fined &/or jail sentence for the reckless handling of taxpayer’s/government money.
They should also be fired. There are people out there doing their best to survive in this hard economic time and we are all sacrificing to bail out these companies. The nerve of these executives to think they have the right to behave so irresponsibly.
October 10th, 2008 at 7:05 pm
I agree 100% with Joan. There are so many things that happened which put the global economy into this terrible state of affairs.
By the way, here’s another possible party to blame….
No one seems to remember that the Fed made the price (rate) of borrowing money sooooo low to dig us out of the “.com” boom, that it helped feed the frenzy. Then you get these other “products” like ARMs and interest only loans being handed out like candy causing bidding wars on individual home purchases.
By the way Jim, independent auditors don’t pass judgement on how a business is being run unless, it is a going concern. Auditors are only expected to provide an opinion of reasonalbe assurance that a company’s financial statements are free from material misstatement. Hopefully, audit procedures are able to catch any cooking of the books, but has anyone dealt the “fraud” card in the AIG matter? Until then, what is it that you think the auditor’s should have done? Go to the Comp Committee and tell them they think Executives are getting paid too much?
October 10th, 2008 at 7:18 pm
These overpaid executives should pay it back. I’m in the stock market mess along with many other Americans. This bail out has affected our retirement plans - which are becoming more worthless by the day. It is a gross injustice to most working class people. How much can a person’s work be worth? Why is there such a great difference? Are these people gods? They are living like kings - their greed has no end. I don’t know how they sleep at night knowing so may others are just struggling to keep their homes or find a meal for their families. Certainly, if our tax dollars are going to bail them out, shouldn’t our government pass some legislation on salaries? This is the most unfair time I can ever remember in my life. It is sad that my generation will be remembered by this turmoil forever and it’s our children and grandchildren that will have to pay for this mess probably all their lives. Wall Street greed. Executives of large corporations with nobody to watch them. Poison!
October 12th, 2008 at 12:16 am
Let me see, a publically held company is on the road to hell and the CEO is protecting Sr execs, I bet with their complicity. I want a RICO investigation of all people party to this theft and conspiracy to steal tax payers dollars.
October 13th, 2008 at 9:10 am
1. Term limits for congressmen and senators. One term. Six years. Find another job.
2. Taxpayer revolt. The bailout is a joke and the laugh is on us. Start by not voting for any incumbents; toss them all out on their butts.
October 13th, 2008 at 9:26 am
Jim - I left early Friday, so I am just now responding to your comments. First, thank you for all of your posts, as they are very thought provoking and true. Second, yes, I too have a home “that I can afford” no matter where I work, in fact my mortgage is less than people can rent a 2 BR apt. for. I drive a corolla that has great gas mileage and has over 100,000 miles on it and it will have at least that many more miles on it before I give it up! I did however buy an additional 5 acre plot that is behind my home which stretches my budget, but this is the thing I was more than willing to work that evening job for if I had to! It was going to sherriff’s auction and this was the only chance I had to get it. The one thing I do want my children to have is a place for a home in the future and when it is time for that, they will have that land to build on. This is why they have their own checking accounts at 14 and 15 because I may have land for them to move on, but they will have to put something on it. I have seen many high school graduates driving around in corvettes who couldn’t balance a check book and never had a job…I couldn’t imagine harming my kids future by allowing this. And that is exactly what is happening…we have managed to build a huge culture of “over-esteem” and “someone will bail me out” mentalities. Our government supports it every day by offering rent money, food stamps, and whatever else to people who are fully capable of working, but won’t because “why should they”? In fact, I have people in my family who do just that…live off of the system. It makes me sick.
And my last comment is: I am all for people who can make a 5 million dollar bonus, if they do something to earn it. I can’t imagine I could ever do something that I could earn that kind of bonus…but I would love to!
October 13th, 2008 at 9:28 am
I agree that the government makes some pretty “interesting” decisions sometimes that makes you stop and wonder if any of them really know what they are doing. Concerning the government, the worst thing we have going for this country is the two party system. If there was some way to get rid of that system and eveyone just go to an independent, then everyone would have no choice but to vote for who they thought was best for the job, instead of what party are they affiliated with. I do agree that these company packages and plans for their top leaders is a little on the “crazy” side. Who in the world needs $5 million or more when everything they do is paid for by their company. What if they got $1 million and divided the other $4 million among the workers of the company that may be out of a job. What if all multi-million CEO’s out there that are over companies that are being bailed out by the government were to give up just $1 million of their salary or retirement package to the government buyout. Wonder if that would impact anyone’s thinking at all. I blame a lot of how America feels on the media. I watched a news program the other day that started out by saying what a dismal day it was for Wal-Mart, the were well under what was forecasted for the month. And then follow that up with Wal-Mart was up 3% for the month. Doom and gloom sells I guess and as long as the news media has something to complain about, they have job. The bad part, they are putting the rest of us out of a job.
October 13th, 2008 at 9:49 am
Thanks Mac - imagine if you actually did something that made say a $1B profit for your company - then maybe a $5M bonus would make sense. But of course in this case, no one did anything but lose money and the bonus was paid any way - STUPID.
Johnny - agree with term limits mentioned in an earlier post. The bailout is unfortunately necessary otherwise the economy will crash. Throwing out those would voted to bail out would leave us with no one to vote for for President. Again if you read prios posts on this - its not a tax-payer bail out and unfortunately it is necessary.
Finch understand your point and agree. What I meant was (and you should read the 3 hour interview with Warren Buffet) we have a 200 person government oversight office watching two companies and writing glowing reports about how they were doing under government oversight right up to the moment those companies collapsed. If were going to have oversight then we need competent people in the government who know how and where to look before disaster occurs.
Auditor should be looking at how assets are valued and making certain the methods used are sound and defensible - especially government oversight auditors in banking.
Cyndi - please read previous posts - the AIG retreat was not for the execs.
October 13th, 2008 at 10:10 am
This is beyond outrageous. It is blatantly indicative of the overall economy, the haves and the have nots. Many executives believe that they are so far above or removed from the working class. But if you continue in the manner that they are, there will be no working class to hold them up on the pedestal that they are on. Many people believe that the US is indestructable. I am sure that Rome felt the same way before they fell! Management 101, Managers are only as strong as the people they have around them. Well, you are losing your people around you!
October 13th, 2008 at 12:00 pm
Jim, I have to disagree with your statement that no taxpayer money will fund this bailout. While it is true that those who buy the bonds will initially fund the $700B, tax revenues will be used to pay the interest and, eventually, the principle repayment on these bonds.
October 13th, 2008 at 12:10 pm
Nan - this is exactly what the media wants you to feel and the political candidates are exploiting this and you. They want to exploit the “haves” and “have-nots” so that you will vote in a certain way. What you should be shocked at is the spending in Congress - it dwafts any outrageous CEO salary and all of their salaries, bonuses and stock options combined. You could tax the “rich” at 100% and still not pay for the deficit spending this government has achieved. What we need is people who will go to Washington and CUT spending or at least freeze it (that would be patriotic). You should be outraged not by the bail-out but by the spending that was added to it:
New Tax earmarks in Bailout bill
* Film and Television Productions (Sec. 502)
* Wooden Arrows designed for use by children (Sec. 503)
* 6 page package of earmarks for litigants in the 1989 Exxon Valdez incident, Alaska (Sec. 504)
Tax earmark “extenders” in the bailout bill.
* Virgin Island and Puerto Rican Rum (Section 308)
* American Samoa (Sec. 309)
* Mine Rescue Teams (Sec. 310)
* Mine Safety Equipment (Sec. 311)
* Domestic Production Activities in Puerto Rico (Sec. 312)
* Indian Tribes (Sec. 314, 315)
* Railroads (Sec. 316)
* Auto Racing Tracks (317)
* District of Columbia (Sec. 322)
* Wool Research (Sec. 325)
Instead of thinking about a handful of CEOs outrageous salaries and bonuses, start thinking about a Congress and Presidential Candidates who keep spending your real tax dollars on stuff like wooden arrows which has absolutely nothing to do with saving the economy. Go to voting booth armed with knowledge, not with manufactured class envy, go to the voting booth with an understanding of who is likely to continue this outrage on the public (at any level of income).
Ask yourself before you vote, why the press is not telling you about the pork added to the bail out bill - who added the earmarks, who introduced them, who voted for them. They don’t want you to know. They want to continue their class envy because it supports their candidate.
Also think about the current incentive package being proposed now - that’s spending more of your tax dollars. Instead of sending back my tax dollars in small amounts, why not let me keep them in the first place?
————-
Yes JT you are right - but the bonds will be sold to investors. If the assets appreciate over time, we might actually make some money. This is an asset swap as I posted earlier. Certainly the Treasury won’t pay $700B in interest payments as the politicians and press would lead you to believe.
October 13th, 2008 at 4:19 pm
We hear so much about the “liberal” media. A convenient term, I think. If they’re so liberal, why has so much energy been given to criticizing candidates or elected officials supposedly in that camp? And, I had not heard of the specifics Jim mentions in the “pork” added to the bailout bill, but I certainly have heard there were items included that weren’t crucial for the initial package. Both parties need to take responsibility for that. I think the coverage is pretty balanced, with each candidate getting a turn. About the class envy mentioned - it’s not necessarily envy that outrages us, but a sense of what’s fair and reasonable. Yes, CEO’s could be seen as having the most responsibility for a company and are deserving of bonuses if the companies do well. But, to pay them the bonuses even when the company has not done well is indeed outrageous. We citizens do have some sense of entitlement, encouraged from many sources, including the advertising with which we’re bombarded all the time. There’s an ad on currently (I try to tune them out so I don’t know the product, but think it’s a car - surprise!) and the song is “I want it all and I want it now” - maybe it’s a credit card? That’s just one example. I certainly think we bring our own political agendas to these opinions. I’m sure mine is showing, and so is Jim’s. The “president is at least trying to do something,” he writes. In my opinion, the philosophy of letting the free market be as free as possible, without reasonable regulations being enforced, has contributed the most to this mess. And, corporations, of course, consist of people. Many, if not most, people have too much greed - for material things, for power, for winning. So, that’s the responsibility of all of us - to reorder our values and to take responsibility for purchases we may not be able to afford. When’s the last time anyone read all the pages of a contract when buying a house, by the way? It might make it easier to highlight the important things briefly and have the realtor (broker, escrow officer) point them out and the buyer initial each one. That won’t help if the buyer is led to believe the interest rate is 6% when it’s actually 11%, however. We have to vote for the candidates with whose policies, programs and ideas we most closely agree. And we do have to ask ourselves who will likely continue policies that led to this mess.
October 13th, 2008 at 4:36 pm
Jim - I am not speaking from media. I see it where I work right now. The company is losing business, yet the chief executives keep get all kinds of golden parachutes. I work in a high level position where I have to actually see that these executives get what they contracted to get! I agree with what Judy says about greed!
October 13th, 2008 at 4:55 pm
Judy - I don’t see balance in the media - I see biased towards one candidate. You can prove this to yourself by doing a Lexis-Nexis search. If you read some of my other posts you’ll note that I didn’t vote for George in the last election. I simply acknowledge that he attempted to do something which is now bearing fruit - note today’s market. Neither candidate has taken a stand on anything relative to the economy - too fearful to say or do something so close to the election that might hurt their chances rather than doing their job - US Senator. Numerous polls have been taken of the media - I recall one where 70% of them considered themselves liberal. Why do you think Fox News flourished? Because ABC, CBS, NBC, CNN, etc… all speak the same - close your eyes and you cannot tell the difference. If you don’t think class envy is alive and well, read the hatred in some of these posts - treason even one person suggests…. Off with their rich heads! The media and the candidates use this to their advantage - Fear is a powerful motivator. I bought a house in April of this year - I read every document (which is extensive here in New York) and I exercised my real estate attorney. Lack of time is no excuse for entering into an agreement such as a mortgage lightly - I blocked the entire day for the transaction. The trouble is so many companies (except Wells Fargo and Berkshire Hathaway) did the same thing - they didn’t say to themselves “What if the real estate market goes down” and look at what they were actually buying. They assumed the price of real estate would go up. They should have asked those questions for their stockholders before buying into a ponzi scheme. Sub-prime and ARMs got us to this point - people must read the terms of their financing agreements. Many people assumed that continually rising house prices would allow them to quickly refinance those front loaded mortgages - it didn’t happen this time - they lost the bet - and foreclosures rose rapidly depreciating the value of the securities traded amongst companies in investment banking. Thus the crisis.
Yes we must vote but not simply because someone speaks eloquently but with little substance or experience - we did that once before and got what we deserved. Or because someone is an experienced Senator with strong military experience. As I said earlier - I feel much the way I did when Nixon was first running - who to vote for? The lesser of two evils it felt like. Perhaps the Libertarians deserve a shot this time - we couldn’t do any worse.
October 13th, 2008 at 5:10 pm
Nan -if you read my previous posts you’ll know I’ve spent some 25 years managing compensation at all levels of the company. A parachute is often negotiated before the CEO starts and may be written with our without provisos. Even if he fails he may be entitled to payment via a legally binding document. Fair relative to the rest of the workforce? Depends on your view. We don’t use them - we can get good CEOs without a parachute. Some boards feel they are necessary to get the “right” person. Look at what sports teams do to get the “right” player. Huge sign-on bonuses in hopes the player plays well in the future. If he doesn’t, people say the team was crazy to pay it. If he takes them to a super bowl, people are too busy celebrating to worry about that huge bonus. It was worth it.
October 13th, 2008 at 6:39 pm
Outrageous!!!
AIG, and any other company who got “bailout” money after giving their management huge bonuses should be investigated for criminal activity as well as just plain bad management or bad auditing.
Some jail time for those who are criminally guilty of crimes like malfeasance, fraud, theft, etc. would be appropriate. Bonus money should be returned to the company coffers. Why should they get a bonus while the company is going down the tubes? The stockholders aren’t getting bailed out.
Does corporate greed or protecting those at the top know no bounds?
October 14th, 2008 at 8:57 am
Jim - Perhaps I should have spent a little more time being more thorough with my messages. I am well aware of what is done in advance. The subject matter that concerns me right now is the executives that are just now getting something done because the company is losing money and business. They know the company is going to be sold or go under! Consequently, they are setting themselves up for protections that everybody doesn’t get. They are not trying to take suggestions from the workers on how to make it better. Nor are they listening to how to save the company. They are simply setting themselves up to escape successfully! I have been at this since 1974! I am speaking first hand!
October 14th, 2008 at 9:25 am
Yes - I agreed with you Nan. Where are the stockholders in those companies? Where are the board members? Where is the comp committee? As I posted much earlier, the stockholders should be taking those people to task. They are NOT the norm however - but they do sell newspapers and TV air time and they make great scape goats for politicians especially during an election year. There are plenty of examples of CEOs that are acting responsibly, don’t have enormous salaries and parachutes. We should be more outraged that our Congress people, in a time of a global financial crisis in the credit markets, load up a bail-out bill with pork (real tax-payer dollars). They cannot even vote a bill up or down on its merits without saying whats in it for me and my special interest group - rum subsidies, wooden arrows, NASCAR - please! Why do they need more of my tax dollars in times of crisis for things like this? If you are outraged with the inner workings of some corporations you should be even more outraged at your elected officials who seem to be oblivious to whose money they are spending. We sent the current bunch to Washington 2 years ago on promises to end the war, etc… They’ve done nothing. Their approval rating is lower than George Bush’s rating - think about that. They managed to pass a bill establishing National Corvette Day - that’s about it. This is the same group who now wants you to elect their freshman senator with no experience and no concrete ideas - he’s going to Washington to make change he says - where is the change they promised 2 years ago? Where is the change Jimmy Carter promised? Where is the change Bill Clinton promised? I’m not advocating either candidate - won’t vote for either. But people need to think a little more than they have been. At the very top of this, the question was posed about the impact of corporate policy for execs on morale of employees. How about the impact to employee morale by a federal government that can only seem to manage squandering huge sums of our money and are totally out of touch with reality?
October 14th, 2008 at 11:26 am
There have got to be some type of regulations put in place for publicly traded companies that make it illegal to “ignore” poor performance/financial results and allow the CEO to pay out huge bonuses to top people anyway. His excuse that he was just looking out for top execs points to a huge problem - the top execs at major corporations look out for their own self interests - not the interests of the shareholders or the company itself. There should be criminal charges brought against those who so blatantly ignore their fiduciary obligations. I also think “golden parachute clauses” should also be made illegal. No other employee of a company expects a bonus if their own or the overall company’s performance was poor. Again, it leads back to the top brass looking out for themselves and to hell with the rest of the company!
October 14th, 2008 at 1:45 pm
And I fear there will be because too many people are running around with too little understanding and too little information. It is quite interesting that things like unemployment rates under Bush approximated Clinton’s 8 years, yet Bush has “failed” policies, the boom starting in the 90’s was due to cuts in capital gains taxes (by whom?) yet we have “failed” policies, federal tax receipts soared after the tax cuts of 2001, yet we have failed policies - coincidentally as an election draws near. Bank deposits are at record highs as are cash positions with most banks. Unemployment rates are no where near recession levels. Bank failures were in the 1000’s in 80’s - this year and last, 15 per year. Foreclosures are limited to the sub-prime market - most Americans have the American dream. I could go on but the point is our media is skilled at out and out distortion, lies, and slanted views to draw the sought after responses and their agenda. For any government regulation to make sense in the arena of public policy two things must happen - a) the press/ media which has abandon all sense of ethical journalism must be held accountable for their agenda driven distortions and b) our educational institutions have to start teaching fundamental economics instead of their agenda driven shift toward constructivism and the outcome-based theories. Unfortunately, the outcome of the current events will largely be driven by the what information the media provides and how well it is understood by Americans who are not skilled or trained in economic fundamentals. Many people could grasp what has happened and the solution set if they had the intellectual facilities (via our educational system) and the facts. At this point most of the voting public, unfortunately, has neither.
October 14th, 2008 at 2:10 pm
Boy, do I agree that the media is “skilled at out-and-out distortion, lies, and slanted views to draw the sought-after responses to their agenda.” You can’t believe anything you read. There are always too many facts dropped from the article to make any intelligent judgment and you have to research carefully to keep from being taken in. There is such an abundance of misinformation, and partial facts are distributed with the sole intention of being deceptive and leading a person to a predetermine conclusion. I think we have to be very careful and dig deeper to mine the facts in order to keep from being led down a twisted path. It’s unfortunate that this is the way it is, but most media entities are out to deceive and not to report the whole truth.
October 14th, 2008 at 4:12 pm
If any of you who have been posting are actually in HR, you need to be studying the candidates positions on certain legislation that could have profound impacts on businesses, employee morale, jobs and benefits - many of these proposed legislative acts may sound “patriotic” yet they could profoundly impact the employee/ employer relationship, and not for the good if enacted under the next President and Congress. Research what your candidates supports and realize the impact to employers both large and small in cost, extra paperwork, fundamental working relationship (and therefore to your job, productivity, cost of business). If you think more government is the answer, vote for the candidates who support these:
EFCA (Employee Free Choice Act)
HFA (Healthy Families Act)
Lilly Ledbetter Act
Civil Rights Act of 2008
Patriotic Act of 2007
Ergonomic Regulations - OSHA
October 31st, 2008 at 11:23 pm
Great reading at 10:17 at night. I wonder what’s going to happen to GM? Will our wonderful govt bail them out like AIG? Or will someone take a look at what the company is spending money on? Coming in and bailing them out is not the answer. Let them go under and someone else takeover where they left off. There are lots more companies more stable, more sound, and more secure that don’t pay their high level execs crazy money. Many more companies that don’t reward their executives for essentially looking and acting like furniture. You nice to look at and sit on but pretty much dense.
November 12th, 2008 at 1:46 pm
I’ve never been in a huge position like an executive but it does irk me a bit when I hear that executives are being paid enormous bonuses at the end of year; when the employees that worked their butt off for the company only get a gift card to Wal-mart; or a fruit basket! In my opinion, for what it is worth; the executives are already getting paid 7 figures (or close to it) a year; and they aren’t hurting for money as it is. Why do companies fork over all that extra cash to them; when it could be used in so many better ways… Improvements for the companies themselves, or donating some money to needy organizations….. Ok, enough of my ranting.
November 12th, 2008 at 2:48 pm
Tim, its a combination of things. Being CEO is risky in the sense that a life span of a CEO is short, sometimes only a few years, especially if they don’t perform. Comp committees benchmark the market place they compete in and have to pay a CEO similar to the CEO’s of their competitors, just like companies have to pay competitive wages for engineers, accountants, etc… Its relative but market driven. If a CEO makes a decision that earns substantial sums of money and returns to the stockholders, the bonuses paid, as a percent of earnings, is small and no one complains. The rub comes when companies pay bonuses in spite of performance.
D - as to GM, they can easily close up shop in the US and continue operations in Europe and Asia where they are profitable. Remember GM, Ford and Chrysler are where they are because of us - the consumer. We demanded that they make half their annual production of new cars in SUVs and trucks that get horrible gas milage. Turning such an enormous company around (and their suppliers) is not an easy or quick task. We cannot blame them for what we demanded from them as consumers. If we let them fail, many jobs will be lost directly and many more indirectly. The loan to Chrysler some years ago turned out to be quite profitable to tax payers as I recall. We made $400M or so. Also, GM supplies many military vehicles - that must be protected. Would not want to rely on a foreign supplier for our weaponary.