WaMu Fails. First major comercial bank to go.
online.wsj.com
online.wsj.com
The coolest part is that the CEO who has been on the job for LESS than 3 weeks will get paid $19.1 million.
From the article:
The company’s new chief executive, Alan H. Fishman, was in midair, flying from New York to Seattle at the time the deal was finally brokered, according to people briefed on the situation. Mr. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus
The guy would have taken the CEO job without the bonus; it serves zero purpose to the shareholders to give him $7.5 million.
Why don't companies base executive compensation on performance? Doesn't that seem logical?
My suspicion is that this is why some companies start out as good and are later perceived as evil. The game changes once you have legal fiduciary responsibilities to shareholders. It seems to me that it can get very hard to defend your strategy of not maximizing profits when others around you are raking it in.
Put the money in a 5 years escrowed account. If the changes that you made were sound and the company continues to succeed, you get it. Otherwise, you forfeit.
Must remember </sarcasm> tag
It would work out nicely if every leader thought leading was so fun that he'd do it for free. Berkshire Hathaway chooses its managers in this way. The people they hire seem to enjoy building something rugged.
Unfortunately, many leadership positions just aren't fun enough for this to be a viable option. And it's not even just a question of choosing the right man for the job. Public companies are notorious for their ruthless owners (the market), which often require different things than what would be necessary for long-term growth and stability. Even if all shareholders were interested in the distant future, the market is nothing if not a committtee. Necessary decisions are sometimes unpopular. No one who masters his craft (in this case domain-specific leadership) wants to be bogged down with politics, but this is exactly what public companies offer.
Hence, these positions attract the wrong type of people - those who are attracted to money or power. The 'right man for the job' is probably enjoying a tenth of the salary leading some small company somewhere, because leading a large market-exposed company just isn't worth it. It's not just a question of choosing the right guy and writing him a big check; he might not want the job.
Beyond that the board wants to reassure themselves that they are making good decisions, consequently they can justify a slightly larger payday for the new CEO on the grounds that since they are such fine people they have hired an above average CEO and should pay him slightly more than the median compensation for Executives in comparable companies...
Acting like Fishman was appointed CEO just because he was a friend of the board is completely false.
He was preivously the CEO of two other banks: Sovereign Bank and Independence Community Bank. He has 25+ years experience as a senior executive in banking.
I'm curious why you are so offended by a general viewpointon executive compensation.
Your situation is bad exactly because you are not paying attention to this how to build an empire (China) vs. collapse one (USA).
A board of directors in a state of panic. Note that Mr Fishman was serving as Chairman at the third largest mortgage brokerage in the country (who do commercial, industrial and multi-unit residential deals - not sub-prime stuff) - not the type of job to leave for a company about to go under without big incentives.
I think there is an argument to be made for better, more transparent corporate governance rules, that would make it easier for the shareholders to say "uh, no" to stuff like this, but it's ultimately their money.
(BTW, I am not a Republican).
The talk about short term profit taking being driven by the market is BS as well. If a company were to take actions that would depress its earning in the short term for the sake of (demonstrable) long term growth and profits, the smart segment of the market would recognize that and respond favorably.
One partial solution: outlaw stock options in publicly traded companies. Use cash bonuses and have the usual Employee Stock Purchase Plan that provides a 15% discount on investing in the company.
Shareholders could choose to buy stock based on how the CEO is paid but few do.
Look at who gets the money from Wall Street. Why? Big biz loves regulation that it can control. (When buying and selling is regulated, regulators are the first thing that will be bought and sold.)
FWIW, Sen Clinton does very well but Sen Obama is clearly at the top of the class. In three years, he got more from Fannie and Freddie than Clinton did in 8 and almost as much as Kerry did in 20. The highest 20 year total is Dodd, but Obama would have passed him by the end of his full term as Senator.
Meanwhile, Barney Frank is still out there arguing that we should be giving mortages to folks who can't pay them.
Never confuse publicity with policy.
It's hard -- probably impossible -- to justify Wall Street compensation packages on supply-and-demand grounds. In the 70s, CEOs earned about 30 times the earnings of their workers. By 2007, they earned 344 times the average pay of their workers.
CEOs do not provide 10 times the value they produced in the 70s. They are not 10 times more scarce. Corporations are not 10 times more profitable. They are not 10 times more prosperous by any measure -- if they were, they would offer 10 times more compensation, on average, to everyone at their company.
So if I were still a Republican, I'd probably say something like this: banks like Bear Stearns were irrational, and they should pay the consequences. The fewer bad banks we have, the better it is for all of us in the long run.
I don't know how many Republicans would agree with that last bit. Truth be told, most of them aren't even pro-free-trade. They're just anti-socialist. Anything that sounds like socialism sends them running for the hills. "Supply and demand" are useful to them only as a cudgel with which to attack the socialist view.
And this sort of justification is trumpeted only by the educated, Wall-Street-Journal-reading elite of the Republican party. Their popular support base in rural areas couldn't care less about economic issues.
It's certainly possible Fishman will decline to take some or all of the compensation, like one of the other failed institution's CEO (can't remember which now)
Notice also (if you're a tea-leaf reader) that the WSJ and NYT stories on WaMu didn't end with "raises new and troubling questions" about some other big financial; WaMu was a festering infected band-aid waiting to be ripped off our carcass, just like Lehman. Is there another big one? Wachovia is the next-most exposed company, aren't they? And they're considered pretty strong.
Reuters: AIG's ex-CEO refuses $22 million severance payout. Have faith all. The core of the United States will persist.
But in all seriousness, the FDIC arranged for JP to buy WaMu's deposits so they won't have to dip into (i.e. severely deplete) the FDIC insurance fund. Your WaMu account will just end up a Chase account in a few weeks/months.
Just logged in my account and got this message:
It also seems like AIG has increased their advertising for certain business units AFTER their recent plummet...
I shudder to think about taxpayer money being used for new marketing campaigns to "bolster confidence."
From my reading (because I can't call it research yet), WaMu's fall was triggered/multiplied by a lot of withdrawals from their customers because of fears that this would happen (chicken/egg). In fact, $19 billion was supposedly withdrawn over the past few weeks, which put them under their loan ratio (banks must maintain a certain cash/loans ratio). Of course it now makes sense that they offer such a great interest rate - they needed the money!
My concern now is what will happen to my interest rate?
There might be other financial institutions to get downgraded, but WFC will be in the back of the line.
Bad lenders and dim-witted/confused borrowers screw one another? Then dilute the dollar. "Borrow" a trillion fucking dollars that you don't have to sedate the market. Oh, that one will work great. I say, just let it be, before this thing spirals out of control. That $700B would do plenty to alleviate poverty for anyone who is, in fact, financially ruined by failing lenders.
We'll let the entrenched poor rot for decades, but bail out the rich in a week. I'm outright disgusted.
What can be done? I heard there was a small protest in NYC yesterday, maybe we'll have one in DC.
The bailout will mean a 100% loss for all the "rich" people. It's the "poor" that will win - they borrowed money, and don't have to pay it back.
This will just allow these unscrupulous lenders to maintain business as usual (assuming the companies are re-sold a few years down the road, which is the plan). That $700B will have to come from somewhere, and that place is nowhere. This may be disastrous for the economy.
And you misquoted me, leaving off "entrenched" in "entrenched poor." If you can buy a house, I have news for you, you are not a member of the entrenched poor. The middle and lower-middle classes were able to buy real estate like never before, and they will be bailed out.
Why, I ask, is rescuing new homeowners a priority now, when the third-world poverty of the inner city and rust-belt country is viewed as some incurable ailment? We know damn well why: Because this coincides with saving the bankers' asses.
How will that happen when they won't exist anymore?
>That $700B will have to come from somewhere
No it won't. The number is the total debt the US would be on the hook for - if people pay off their loans, then the US won't have to spend any of it.
What exactly do you want to do about the "entrenched poor"? Give them presents? This has nothing to do with them.
I don't know if the bailout is a good idea or not, I haven't looked at it in detail, but it's not as bad as you are making it out to be.
Basically I'm saying that hoping we'll get rid of bad managers is a bad reason to be opposed to the bailout.
If you have ideas for what to do for the poor post them. I don't. But I do know that keeping some companies alive will do more to help people then giving the money to poor people will.
No let's give them to multi-billion corporations and banks. There is no capitalism in the US anymore. Bad decisions at the corporate level are not being allowed to be punished by Market. Instead Market is manipulated, so we all get punished. This my friend is called SOCIALISM. Even freakin' swedish don't bail out their business. This nation became a parody of values it used to represent.
BTW: Why do you exclude the gov from the market? These days the fed owns all sorts of things, maybe they'll make a profit.
Look, again, I'm not saying that the bailout is a good idea. I'm saying your stated objections to it were poor and based on "it's not fair" rather than analyzing what the effects on the economy might be.
I don't really care about fair or not: I want to chose the course of action with the best effect. We can debate which course is best, but I hope we don't have to debate if that's the proper thing to debate.
Sigh, this conversation is reminding me too much of reddit, and it's partially my fault.
Good. This is how capitalism works. Right? You take risks and when you loose you pay the price. If it works out you rich. Banks have been going kaput since beginning of time, big deal. It is like with forest fire. It kills old and weak trees, so new forest can grow on it. Let the banks with bad, sometimes even illegal practices fail, so the new ones that will replace them won't take such a risky bets and give loans to people who can't repay them. What is wrong with that? Capitalism has 2 parts - boom and bust.
Why Wall St, is SOOOO capitalistic in boom times and SOOOO socialistic in bust times? Give them some of their own medicine. They made their decision they should pay for them, not a taxpayer. Let the market clean up the mess from the system!
> BTW: Why do you exclude the gov from the market? These days the fed owns all sorts of things, maybe they'll make a profit.
Oh yeah sure! Let's nationalize our insurance industry, our financial industry, our automotive industry and so on. Is how America was built?
> Look, again, I'm not saying that the bailout is a good idea. I'm saying your stated objections to it were poor and based on "it's not fair" rather than analyzing what the effects on the economy might be.
The effects on the economy would be great. Sure, there would be a period of deep recession, but this is better than popping up inflation. This will not make a single of these banks solvent. We will pay inflation tax for it and at the end of the day, we still have "toxic" assets in books. In government books instead of - so called private - banks - but the issue will be still there.
Ouch, I hope not. Regular savings accounts are getting 0.10% - 1.95% depending on the type of account and balance. Compare to Wamu's 4% APY
I ask seriously. I don't know much about this economics jibber jabber, but I know that I sure have been seeing a lot of bad news lately...
So OK for who?