Thursday, October 22, 2009

Going Galt? or A great idea!

Over at MR, Alex T. bemoans the government's plan to slash executive wages at the 7 "most bailed out" companies. I respectfully disagree. These are State owned enterprises now and having an expert decide if the public is getting its moneys worth is entirely reasonable.

If fact, I think this is a trend well worth expanding in dealing with pay for people who are publicly funded.

I would be happy to serve as a "special master" to evaluate pay relative to performance at a lot of other publicly funded enterprises like say, Congress, the SEC, the Federal Reserve, Fannie and Freddie, the EPA, the Treasury and (just to be mean spirited) the office of the Vice President.

As to how I would rule in these cases, let's just say that Santa would be able to save on reindeer food because he wouldn't be coming to the DC area this year.

And yes, I do realize that I teach at a State University. Thanks in advance for reminding me.


King said...

Does it matter to you whether these companies were compelled to take the loans they received?

Anonymous said...

The companies are Citigroup, Bank of America, the American International Group, General Motors, Chrysler and the financing arms of the two automakers.

In this case they weren't compelled. These 7 companies came to the government with hat in hand.

King said...

Not really.

Because of their perceived importance to the market and financial system, the U.S. government provided $125 billion to Bank of America and eight other financial institutions -- half of the TARP funds available at that time -- in hopes of expanding the flow of credit and promoting economic growth. Government officials strongly urged the nine institutions these monies as a group, irrespective of whether individual institutions felt that they required assistance, in the belief it was crucial to restore public confidence in the banking system. ... Treasury required later CPP applicants to apply... (SIGTARP Report, 10/5/09, p. 14)

Also read about B of A being kept to buy Merrill under threat of firing.

Anonymous said...

So one of the 7 companies mentioned in this article was "healthy" and still "forced" to take bailout money.

Except not, since B of A got $20 billion in extra funds AFTER receiving the initial "forced" funds. Plus another 5.2 which it got through AIG. That's 25 billion in additional bailout funds which B of A needed in order to stay afloat.

Please explain how the other 6 companies didn't come in with hat in hand.

King said...

SInce the Paulson/Bernanke team compelled B of A to complete a transaction to purchase Merrill that it wanted to back out of, I don't think the $25 billion is really on them as coming hat in hand.

The car companies and their finance arms are different.

And we note that the flee to Galt's Gulch has begun. A good idea, or sanction of the victim?