Congress got to ask the subprime CEOs what everyone else is thinking: Why did you get millions and millions of dollars to fail so spectacularly?
From ABC News:
“There seem to be two different economic realities operating in our country today. And the rules of compensation in one world are completely different from those in the other,” said Rep. Henry Waxman, D-Calif., chairman of the House Committee on Oversight and Government Reform. “Most Americans live in a world where economic security is precarious and there are real economic consequences for failure. But our nation’s top executives seem to live by a different set of rules.”
In 1980, chief executives in the United States were paid 40 times what the average worker made. They now make 600 times the average worker’s salary, Waxman said.
“I think there’s merit to pay for performance,” Waxman said. “But it seems like CEOs hit the lottery even when their companies collapse.”
The panel included a who’s who of failures: Countrywide Financial Corp. chairman and chief executive officer Angelo Mozilo, former Merrill Lynch CEO E. Stanley O’Neal, and Charles Prince, former chairman and CEO of Citigroup. If you were expecting these guys to take personal responsibility for the subprime meltdown, you’d be wrong.
Instead, the CEOs talked about tough economic conditions and about how they helped many Americans who might not otherwise have been able to afford homes.
Mozilo just can’t seem to figure out why people are always blaming the poor adjustable rate mortgages:
“Much blame has been leveled lately at the variety of products, such as adjustable rate mortgages,” Mozilo said. “Before the onset of the current housing crisis, these products were widely offered by industry because they made homes more affordable for more people and helped homeowners consolidate other, more expensive debt.
“In fact,” he continued, “adjustable rate mortgages had been popular with both borrowers and lenders for many years. From my perspective, then, the issue is not so much the products, but the housing market.”
O’Neal gave an acceptance speech:
“Whatever I have achieved in life has been the result of the unique combination of luck, hard work and opportunity that can only exist in this country.”
ABC News says that over a five-year period, these three CEOs received more than $460 million in compensation. Mozilo says he’ll give up $37 million of his $115 million parachute in order to be less “distracting.”
Subprime CEOs Explain Why They Made Millions While Americans Lost Homes [ABC News] (Thanks, Natalia!)
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Citibank CEO Resigns, Additional $11 Billion In Subprime Damage Predicted
Merrill Lynch CEO Forced To Resign After Disastrous Third Quarter?
Merrill Lynch: We Just Lost $9.8 Billion
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@Congress:
How come you get paid more millions and you wreck the economy?
Seriously, who’s had the power to do something about it for, oh, 232 years and just made things worse?
At the first whiff of campaign cash Congress rolled back most every financial regulation since the Depression, (cough Gramm-Leach-Bliley) preempted stronger state laws that protected consumers, (cough OFHEO and OCC) relaxed capital and lending requirements, and reduced transparency obligations. El Jefe GWB is catching lotsa well-earned crep for doing diddley about this, but Congress passed the laws that opened the doors up to this deception and mess in the first place. Congress isn’t grandstanding (well, maybe they are) they’re scape-goating.
the picture says it all:
step 1: hand up
step 2: hand out
step 3: profit!!
@artki: Ideally, the object is to decide whether corporate governance rules are doing their job. Shareholders should have some influence over executive compensation and whatnot, but the fools at the SEC recently decided just the opposite, so that boards of directors have the ultimate say. Instead of, you know, the people who actually own the company.
So I’d hope the hearings would aim at revising governance rules to give shareholders greater sway. But they’ll probably just amount to grandstanding.
government oversight should be making sure that the owners of the company, that is the shareholders, have the ability to assure that pay and accountability and independent directors are what they should be. Right now Cox and the SEC is trying to assure that does not happen. I expect that might change under the next (Democrat is a given) administration. Heck, it might even change under McCain not that he knows anything about economics. Accountability to the shareholders. That is all the government regulations we need to change this.
@SarcasticDwarf:
Exactly – pointing the “finger of blame” – ooooohhh. How’s that fix stuff?
Thing is, do we want what Congress has been offering for solutions lately? Maybe for Congress sitting in the bottom of a hole pointing fingers is better than sitting in the bottom of a hole making shovels.
@TheUncleBob: Perhaps that’ll happen when: (1) a small, select group of homeowners have enormous influence over the national financial and labor markets; (2) these individual homeowners are paid hundres of millions of dollars apiece to breach their fiduciary duties to investors and employees; and (3) they become part of a growing national debate about inequality and the abuse of power and privilege.
The government loses money every year and has played a major role in this current financial crisis.
They seem to receive their pay without regard for their performance.
So what are they trying to prove?
Now ask the oil companies something similar
This is the typical pendulum-swing of American politics. People with ideas about market reform and deregulation come into power, remove what they see as unnecessary constraints on business, and then some big scandal happens when consumers get screwed over.
Energy markets deregulated -> Enron games the system to drive up power rates
Mortgage markets deregulated -> Subprime crisis, housing price bubble followed by a crash
Airlines deregulated -> People sitting on the tarmac for hours without food or toilets, Southwest can’t be bothered to inspect its airplanes, etc.
@selectman:
If they keep up their current “fuck you, customers, give us your money” behavior for a few more decades, maybe they’ll learn about another kind of asymmetry. (Asymmetric warfare)
Capitalism: charge more for something than it is worth and pocket the difference.
That is why I only buy from businesses with crappy stock prices and losing money. I know the service/product costs more than I paid for it. HA HA
This all makes me sick. I work for a small savings bank as part of a
2-person, non-commissioned mortgage department. Any of our loans which
are ARMs have “recast” feature for borrowers to modify their loans
before the reset dates. Looks like if I had chosen a big company making
unfair loans I would have made soooo much more money over the years.
@NoWin: Yep. Stan O’Neal is the black guy.
It’s not all just back-slapping. Competition for talent is a real factor.
Let’s say, say, Citi’s board had decided to hold their CEO responsible for the $9.8 billion loss and run him out of town on a rail, stripping away all his unvested options and severance goodies. Now they need a new CEO. Who’s going to want to accept Citi’s offer, when they know that any confluence of adverse factors could lead to THEM being ousted in a similarly disagreeable manner? No, they’re going to be shopping around the other options, looking to replace one of those other ex-CEOs who got to leave in comfort with the moneybags on the corporate jet.
The truth is that there aren’t THAT many people with the talent and qualifications to fill these positions, and when you’re at that level, you have a whole lot of leverage. Call it a supply issue if you want — if potential financial CEOs were as numerous as potential office drones, their jobs would be just as precarious as ours, but they’re not.
I’m not really sure why these guys don’t just intentionally wreck the company the day after they become CEO. Collect your sign-on bonus, collect your golden parachute severance the next day, *bam*, set for life and only 1 day on the job.
Sadly, that might just be the most sage advice I’ve ever given.
@WraithSama: Well. Termination for bad faith or intentional misconduct generally precludes the golden parachute. Sure, you might collect a one-time signing bonus, in exchange for throwing away your life of accomplishment (presumably you had to do something right, likely for decades, to be offered this opportunity) and any chance for future employment. The CEOs in question here are being scrutinized for poor performance, but there’s no suggestion of bad faith.
Yes, it’s easy and fun and cathartic to yell “CEOS ARE RICH AND SCHEMING EVIL BASTARDS! BOO!”, but try to examine things with a little more nuance. Very few people actually wake up in the morning, rub their hands together, and go, “Muahaha, I’m going to be so evil today.”
@RobinB: look at the bright side….you still have a job.
@bluewyvern:
I was being facetious.
@WraithSama: I know, I didn’t think you were actually suggesting that people might do that. I was trying to address the attitude behind the facetiousness, which is bitterness at the idea that these guys can get away with anything, and do…I’m just saying there might be more to it than reckless exercise of privilege.
@TheUncleBob: Are we really going to ask for equal accountability from the people who didn’t or couldn’t pay their mortagages? Just think about that for a second. But even that is beside the real point here. How do the lenders not bear the the responsibility for securing their loans? Loan applicants are not necessarily financially savvy, lenders necessarily are. These products they created were designed to do nothing more than generate the most income possible for the lenders. That’s their job. To then turn around and tell the American people through congress that they were floating bad mortgages out of some altruistic desire to help more people own homes is a slap in the face. To think that CEOs who are paid hundreds of millions of dollars primarily to direct policy are not responsible for the results of policies they created or approved is absurd. Their schemes tank and they get more millions thrown at them to go away while the thousands under them are lucky to receive enough compensation to carry them through a job search in an industry in turmoil and millions more have wrecked credit and lives in turmoil. But I guess that’s their fault for applying the principles taught to them by the dealings of these subprime lenders. Welcome to the American Dream going *poof* yet again, ladies and gentlemen.
Ok, I think most of you are not getting the full picture as to why these CEOs have been paid this much and there companies are in the shitter. Their own boards create how much the CEOs get paid, and for these 3, they have deferred pay for years and have made arrangements on when to get it. So stop yelling about ‘epic fail’ and learn about each companies pay structure. These guys aren’t getting paid this much every year. Jeez.
Read this for knowledge: [money.cnn.com]
Silly me… I thought dubya was partly to blame.
I’m pretty sure it’s none of the government’s business how much someone gets paid.