bailout dead

Do you realize that Senator Obama indicated( admittedly before the bailout crisis) that he would cut the taxes of 95% of the American people by raising taxes on those who make more than 250,000 and by cutting corporation loopholes? That, I am sure would be even better than a cap on CEO salaries. When Senator Obama becomes president, I am certain that he will address the cap problem as well as raising the taxes on the obscenely high salaries of the plutocrats.

RG: "You should be arguing about the benefit of maximum wage, not minimum wage because I have not been arguing against minimum wage."

Obama: "It's about changing a system where bad behavior is rewarded so that we can hold CEOs accountable, and make sure they're acting in a way that's good for their company, good for our economy, and good for America, not just good for themselves."

I don't get that response's relation to my position Debra. I agree with what Obama is saying. But I don't think compensation caps for all is the way to address the bad behavior of some.

Unless nimh and cyclo's case is that anyone making over X amount is exhibiting bad behavior I fail to see the connection.

Holding CEOs accountable is an idea I fully support, but the bad behavior is what should be targeted. They haven't made the case that anyone making over their proposed limits is doing so and haven't illustrated how that would result in any such accountability.

Hell, they really haven't argued any benefits at all except for Cyclo's argument that workers making less than them will feel better about themselves even if they don't make any more money.

Do you think that limiting everyone's potential earnings is the way to hold CEO's accountable? My thoughts are that if you want to mitigate specific bad behavior and hold those responsible for it accountable you should punish the bad behavior, not just limit everyone's potential.

And that's a discussion about the merits of the progressive tax system. Nothing to do with CEO compensation.

Well, if we cannot meaningfully keep Golden Parachutes from being enacted (as they have some positive effects), and we can't cap earnings, how do we punish bad behavior amongst CEOs?

Cycloptichorn

Target the bad behavior. Not the position of "CEO".

So, for example, increase the regulation of public companies and their financials, identify specific practices that constitute bad behavior and criminalize the behavior or if already illegal increase both the penalties and prosecution efforts against them.

For example, in this particular case their bad behavior amounts to taking on risky assets that were overvalued and not balancing that risk with enough less risky assets.

Normally, they would pay the price for their risks by losing their shirts. But we've decided that they are important enough to the ecosystem to want to save them. So if they are going to have public guarantees they should accept public limitation on their risk.

The new "shadow banking" systems are clearly important enough to us to want to bail out, so we should pass regulation mandating limits to the risk they are allowed to take because it is all of our risk if we are committed to bailing them out.

With such regulation in place, their actions would have been criminal, and we could prosecute their actions. As it stands it we let their practices remain legal, but decided to bail them out. Now that we know we are willing to do so, we must insist on being able to mitigate the risks they take that the public assumes by virtue of providing this kind of guarantee.

The problem was that inordinate risk is not something we want to make illegal for everyone, just those who we intend to provide public guarantees. Traditional deposit banks went through this and we regulate their risk, now it's time for the modern banking system to accept the same regulation as we clearly have a social contract with them to prop them up.

And I'd like to note that the reason I don't think we should target golden parachutes is not because they can be beneficial, but because they aren't enough of a societal problem to justify interfering in the private contract.

If those guys with the golden parachutes are doing something society deems wrong, this (the things they are doing wrong) should be codified in law. And if it is, said law can be used to come after them with penalties.

Shady accounting? Define it, fine it, put the worst of them in jail. Stupid risks? Let them fall on their face, or if you are going to share their risk then limit it and then punish the people who break the laws.

so sorry barrakman but i've had to put you on ignore

RG, You're probably right about "societal problems" with golden parachutes, but they should also be covered under your previous post about illegal or unethical activities. No one should be rewarded with a golden parachutes if their management broke laws or ethical behavior.

If they break laws, they should be punished accordingly with no favoritism.

That's fine with me, if they are ill-gotten gains as defined by law I see no reason they can't be taken away. I don't see that as the case though, and see the problem as the lack of said laws and not the golden parachutes themselves.

Name one - just one - Republican who ever said that this is the way the world is supposed to work, that is, CEOs getting big money, and average, hard-working people getting chump change. I certianly don't, and I'm a registered Republican. Do you even care if what you say is true or untrue?

I guess the problem isn't fraud - it's not uncommon for parachutes to be stripped in those cases - but in the case of poor stewardship. If the decisions of a group of directors for a company end up dooming that company, or at the very least fail to save it, then how is it appropriate for them to retain large severance packages?

The sense of 'fairness' is what has people up in arms in this case. It doesn't seem fair that the line worker gets left with nothing and the management rides off into the sunset with millions. While the ideas and ingenuity and drive of the line worker may not have been as important to the company as some of those at the top, the problems faced are the same. If there is money left to be handed out to anyone at the end, it seems unreasonable to concentrate it at the top - they certainly don't need those millions in the same way as others do.

I understand that fairness isn't an easy concept, or one that has much meaning legally. But it explains some of the anti-executive sentiment that we see here.



The ratio of top pay has increased 100 fold, in the last 40 years? Why? What possible reason for this increase could be put forward?

Cycloptichorn

I'm not arguing that it's appropriate, just that it's inappropriate to limit everyone's pay as your response. If the company is private it's none of our business, if the company is public they can be sued for breach of their fiduciary duty to their shareholders.

I am not well educated enough on the matter to be sure, but I strongly suspect that our laws governing this are more lax than that of other comparable western nations and that we can stand to improve the situation by more inclusive legal definitions of fiduciary responsibility. But I'll be the first to admit that this is an area of law I have not researched extensively enough to have an informed opinion.



If the management did something wrong then by all means I support going after them for doing so. What I don't support is blanket classism that seeks to portray all of them negatively and seeks economic measures against all of them.



I'm fine with employment laws requiring that payroll debt be treated with specific priorities. The specific problems you have with corporate culture can be addressed in a variety of specific ways that blanket classism can't.



I think that if we want to legislate any fairness it needs to have meaning legally. It can't be an emotional ick factor, or a popularity contest but must be fair legislation.

So if these guys are really harming society in measurable ways, as opposed to just having an amount of money you find obscene, then those measurable ways can be addressed by law.



There are a lot of reasons, I'm not well enough informed to do much more than speculate on. But what are the specific problems with this?

Are you arguing that their increasing wages are a problem in and unto itself? And if so, why?

10 fold. You're off by an order of magnitude.

Okay, I accept that your answers to my last post would address all my concerns in a better way than limits to executive compensation (in terms of severance packages), and I'm grateful that you stuck with the conversation long enough to explain some alternatives to me.

Let me focus on this:



I would answer with a question: has the value of their work, relative to their employees, increase tenfold (thanks DD, I was incorrect) in the last 4o years? If not, why has their pay increased at a pace that is so much more pronounced then their employees? I mean, an order of magnitude difference is a big difference.

In the case of the financial industry, which seems to be particularly bad in terms of large payment for the executives, it would seem that a group of them decided to spend increasing amounts of company time and capital in pursuing leveraged purchases of these mortgage-backed securities. It's easy to see why it was tempting - the profits were enormous. Even if their packages didn't increase relative to the employees, the industry as a whole seemed to make a lot of money.

In retrospect, this was a bad choice. An astonishingly bad decision, really. But that doesn't change the fact that the people who were responsible for the bad decision will still walk away with gigantic severance packages, negotiated long before any problems reared their heads.

Given the bad decisions involved, it would seem that the value many of these executives added to the company was a negative one; yet the rewards remain the same. Perhaps we could change the laws allowing golden parachutes, to a situation in which: if the company is in a merger, or is in great financial standing, there are no restrictions on the plan; but if the company is in financial trouble, and is folding/being bought out/failed, the monies paid to employee pension plans take pre-eminence over those paid to the top executives?

I don't trust the BoD group in the financial industry to make these changes; we are either going to have to legislate something in, or allow the shareholders to have some control...

Cycloptichorn

As I was researching the claim I saw that too. A multiple of ten has a lot more possible explanations for me, and while I don't want to dig up their statistic's data right now I did start browsing the Fortune 500 for 2007 and noted that there are a lot of companies in areas like tech that have come to prominence based on the innovations of fewer people than in the past. I suspect folk like Bill Gates help increase those averages.

Additionally, I wonder if it reflects some market growth overall as well, as in the top 500 companies tend to be larger and larger and executives with stock-based compensation tend to have larger and larger compensation as a result.

I'll dig more if I'm curious enough but beyond the reasons why I feel the reasons this is a bad thing are important to establish if you want to impose limits on it.

It's too spacial for you to see it or for it to be explained to you in a way you'll understand it.

However, if you empty your brain, and begin to look for the "evidence" out there in Google-land, you might see it.

As a 73-year old man, I don't have the time or the patience for your re-training.

RG, Our local newspapers lists the officers and directors who receive stocks, and how much they gain from their purchase and sale. It's not uncommon for them to gain several million with each trade on the weekly report. It would be helpful if we could see a complete list by company and employee and/or director who have made several million every year. Some one time trades have shown gains of over five million. I'm not sure what worker actually earned those amounts compared to the other employees of the same company.

It would surely pop some eyes.

Shucks, now use that hellacious energy to help convince nimh. I've been a bit depressed this afternoon because seeing him advocate this kind of thing is shocking to me. It's hard to explain why, but it's shaken some of my leftist beliefs quite strongly to hear you guys both seriously advocate it.

That's the kind of thing I'm used to hearing from the Hugo Chavez leftists, not the Obama leftists and I find it as scary as the opposite extremists.


I speculated about it a bit, and would need to research it more, but my gut says that this is a trend we are seeing in which mass labor is becoming less relevant to the country.

That period is the period in which the American economy tended more and more toward services, and not labor intensive businesses like manufacturing.

In such service businesses, the value of one individual can go up very drastically because of the value of intellectual property. For example, a kid in Israel made a ranking algorithm that he reportedly sold to Google for millions. That kind of intellectual property has become worth more and more. The kids brain 40 years ago just might not have been as much as it can be worth today. With the dramatic increase in the potential value of ideas comes more concentrated wealth among the people who have them.

With technologies like the internet, and computing, a rash of billionaires have been self-made and a lot of times they didn't need as much labor as other types of industry need to reach the size they did. So a couple of guys making Google can make one of the 500 largest companies in the world in a garage and become some of the richest folk on earth. I think you'll see this trend more and more toward ideas and intellectual property being big business drivers in the most advanced economies.

At the same time we've seen other nations mature into manufacturing powerhouses, and we've seen technology enable the outsourcing of low skilled labor to areas that previously did not compete with low skilled American labor (a good example is an outsourced call center that is becoming a more and more attractive prospect with increased connectivity, as IP Telephony grows expect this to grow even more).

I actually like these things, remember, I am not patriotic. America's poor looks like the filthy rich in a lot of countries I've lived in and I'm happy to see the quality of life grow in developing countries as they begin to compete directly with Americans. I am concerned with the American middle class' conditions and think that America should invest more heavily in education, technology and R&D to try to keep up with the switch to a service based economy but in the global picture I think this is a great equalizer and is bringing greater quality of life to others around the world than it is taking away from that of Americans.

Anyway, those are what I suspect are drivers toward the disparity in America in general but I'm not sure that that is what translates into the specific cases you are talking about (i.e. the data is from 500 companies and that could as easily just be a micro trend amongst them that is unrelated to the general trend I see towards more valuable brains and less valuable arms and hands).

I see America's best solutions for this being in increasing the education, technology, and R&D investments in America. America is risking loosing their top spot as the great innovators because other nations are catching up and investing in human resources is going to be more and more important for America in the future. The smarter (more educated) the people are the better they will be able to compete in the service economy. America is not getting their manufacturing economy back so this is important.



I think the financial industry is a good example of the lacking relationship between labor and profit. One guy may well be able to play with 10 billion on the market better than 1000 with a million and with mergers and mergers I see consolidation of the assets without a huge need to increase labor.

I have no idea if this is what drives what you are talking about but this is a way I can see the value of individual executive labor increasing disproportionately over the general employees.



Well hindsight is 20/20 for everyone. It's just as much the American people's fault for collectively overvaluing the real estate, it's just as much the government's fault for the implied guarantee of Fanny and Freddie and for pushing home ownership, and it's just as much our fault for not seeing the need to regulate the shadow banking systems and for then not being willing to deal with the consequences.

Five years ago I thought real estate was priced ridiculously (living in San Diego helps with that as it seemed you have to be a millionaire to own a decent-sized house and live alone) and didn't buy into the bubble at all but I didn't realize the need to dramatically improve regulation on the financial industry as much as I do now (to give you an idea of how much of a priority it now is to me, my American politics have gone from single issue Iraq to Iraq/Financial Industry Regulation reform.

So yeah, these guys took risks they shouldn't have taken, but the whole country believed the same things they did. The whole country believed that the real estate was worth that much. The whole country is responsible for not regulating them if we are going to bail them out.

Remember, if we just are willing to accept the lumps we can let them fall and everything will right itself, they'll get their just deserts and go bankrupt. I believe that costs the public much more than it would cost us to intervene, but if left alone their actions will punish themselves.

That it will punish us all is why it is partially all of our fault for allowing the heart of our economy to go unregulated in this way. This was irresponsibility on a much larger scale than the mortgage backed securities.



That sucks, but I support not changing it fundamentally too much for the little guy. Hear me out.

I remember my first office job in America. I became the logistics manager of a company within minutes. It went like this:

I was on my way to sign the Army contract, I'd been through all the tests and all and they had made me as good of an offer as they could. My cousin was scared of the coming war in Iraq and convinced some millionaire guy to interview me. I postponed my Army meeting to humor her and went to the interview.

The guy hired me on the spot. "Do you know logistics?" he asked. I told him I didn't but he said "You'll learn. This will be better than joining the Army. What time is it? 12:30, Carol put him on the clock and lets go buy his computer!"

So I was the logistics manager. Want to know what I did the first week? I made a mistake that cost over $10,000. I can't see any way I could have known to avoid it (basically there was a container already sitting at a port collecting demurrage when I started and I had no idea it was there and let it collect ) but in theory I was responsible and it was, in fact, my fault.

The boss was livid and said that he ought to be able to dock my pay for it. I don't think that would have been fair because there was culpability to go around that I had no control over. Carol hadn't told me that it was there (she'd been doing the logistics beforehand and had no idea how to do it either) and hell he hired two people who know **** all about what they are doing and convinced us that it would be ok.

For that basic reason (it was not my fault alone) I don't think it's fair to punish me for my work liability that harshly. I had an agreement to be paid next to minimum wage and I didn't sign on to that kind of liability. For the same reason I'm not sure these guys at the top who didn't accept that kind of liability should automatically have to pay for their company's (and the country's) collective failings in this kind of case.

This wasn't a shady accounting practice by a select few at the top, it was a new financial instrument they all started playing with without enough understanding of it. I'm not sure how much to even blame the individuals, much less how fair it is to try to punish them that particular way.




I don't think we should interfere with golden parachute conditions at all, but I do think that it's fine to make conditions to employ people. For example a condition that X amount of cash needs to be on hand in relation to payroll, or that all employees have equal priority up to X amount for payment in bankruptcy.

I think there are a lot of ways we can help the little guy without interfering too much in the private contracts. Here is an example of a golden parachute in bankruptcy I think makes complete sense and we shouldn't have any qualm with:

Executive A is super talented, and is wooed to a risky startup with a big compensation package and a golden parachute to offset the job security he's giving up. He does his best but as are all startups this is a risky job and it fails.

If the risky startup thought it was important enough to hire him to offer that package I think it should be fine, even if he presides over a failure.



Shareholder control is a tricky issue. In some cases it can be worse for everyone. Remember that not all shareholders have the same priorities. If it were too easy for a corporate raider to hijack a board, cash in quickly and run then it would conflict with the shareholders that are in it for the long haul.

I think the corporations should bear more social responsibility and fiduciary responsibility to shareholders but not necessarily to give them more control. I see value in non-voting stocks for example where you have an explicit arrangement where they can share in profits but not have any control in certain cases.

I'm not convinced that shareholders can do any better at running companies, and there are already conflicts of interest among them. But I'm all for companies being held to a higher degree of responsibility to them.

But remember, being a shareholder is a responsibility as well. I'd be hard pressed to accept the gift of financial stocks right now, and if anyone out there is gambling on them now I think they deserve the potential losses they might incur over the next year.

Before responding to anything else: Robert you deserve a standing O for your patient explanations, and thinking of the questions that can't be answered by flawed logic. Bravo!
That's what you're going with? Something to do? More people in the workforce are just plain bored, than actually striving to improve their lot in life?