The Sky is Falling! Or is it?

[bmccasland]

So Washington turned the package down. What I don't get is the entire "golden parachute" thing - if you drive a company into the ground, why would a CEO or CFO still get a lovely parting package? Why wouldn't the CEO and CFO (and their respective assistants) suffer financially if the company goes bankrupt? The rest of us mere mortals would have to sell stuff off, like million dollar homes, so why wouldn't they?

Secondly, whatever restrictions that got relaxed and thus taken advantage of, need to be put back!

[Tuckervill]

Those CEOs and CFOs have contracts with the companies that specify what their golden parachute will contain. I'm not sure how specific they are. My husband has a contract with his company, but it's not very detailed. When you're talking millions in salaries and benefits, there had better be a contract of some kind!

Those CEOs fall into some kind of special categories for officers of a company, and my husband falls into the salaried employee category, I think. So, labor laws and such do not apply to them like they apply to my husband. For instance, we work in an at-will state, which means he can quit or they can fire him for no reason at all. I am sure the contracts of the CEOs override all that, because of their status with the company and how the fall in the labor laws. They're not labor--I would guess they're some kind of contractor, officer, something else. I'm not explaining this very well.

Don't get me wrong--I don't think the golden parachutes in these deals are fair to the American public. But there is someone out there who can explain why it is in the best interest of the company to honor the contracts with the CEOs a closely as possible, and it seems to make sense to Congress.

Karen



Karen

[Irulan]

S

Secondly, whatever restrictions that got relaxed and thus taken advantage of, need to be put back!

Have you tried to get a loan lately? Requirements are already tightening way up.

[andtckrtoo]

Have you tried to get a loan lately? Requirements are already tightening way up.

DH and I signed up for a condo in Napa 2 years ago when things were great and it was being built. Of course, the loan is due now. We were able to get financing, but we had to jump through more hoops (lots more hoops - and needed a lot more proof) than we did for our house mortgage which is more $$. Honestly, though, I'm okay with that. I'd rather have to PROVE I can pay back a loan, than to be handed money because I asked for it.

[Mr. Bloom]

What I don't get is the entire "golden parachute" thing - if you drive a company into the ground, why would a CEO or CFO still get a lovely parting package?

Let's use a real example that I can relate to...ME! Several years ago, I accepted a new job with a bank in trouble. I left a bank that I had been with for 17 years, where I was doing an outstanding job... My concern in going to a new bank is "what if the problems are bigger than anyone knows?"

So, to entice me, they offer me a "golden parachute". That is, if the company fails or is sold - in this case for reasons that predate me - I get $XXX. Now, I also give something up in return:

• if I leave, I can't solicit customers or employees
• I agree to not undermine the company's business efforts,
• etc

Is this a Golden Parachute? By the strictest definition, yes. But why else would I take the risk of making a change? So, how else to struggling companies get turnaround talent??

Note: on my post yesterday, I made some careless calculation errors in the post above. Sorry.

Here's the not as bearish correction:

Here are the numbers - compliments of some calculations off a Yahoo! data grab - Of those 16 days that were worse than today, the average change over the Dow over the next 3 months was 1.76%, 6 months was 1.01%, 12 months was .16%.
(

[tulip]

So, to entice me, they offer me a "golden parachute". That is, if the company fails or is sold - in this case for reasons that predate me - I get $XXX. Now, I also give something up in return:

• if I leave, I can't solicit customers or employees
• I agree to not undermine the company's business efforts,
• etc

Is this a Golden Parachute? By the strictest definition, yes. But why else would I take the risk of making a change? So, how else to struggling companies get turnaround talent??

Yes, but CEOs are responsible for being responsible, and it appears that many were not. And they still get highly VERY highly rewarded for essentially screwing up by not taking the necessary actions to fix problems--even problems that predate them (they are CEOs and that's there job in my opinion). That's what most people do not understand.

[bmccasland]

Two questions/points:
1) if Mr. Gold becomes the CEO of a company - and discovers there are financial problems that predated him. Does he make sure the light of day is shined on these problems, to the stock holders at least? Or does he keep quiet about them? If it's to his financial advantage to keep quiet (but unethical), and he allows things to continue because it'll make him oodles of money, then to me he doesn't deserve his golden parachute.

2) Mr. Gold has been CEO for a while, and things were profitable when he started, but because of decisions he helped guide, the company goes down the toilet. Again, to me he doesn't deserve the golden parachute.

I can understand taking a risk to turn around a business in trouble. What I don't understand is getting a tidy settlement package for allowing a company to fail.

If the laws become more lax, such as real estate loans, that doesn't mean you have to take the risk. I understand anti-descrimination laws. I don't understand getting a house with no money down (except for Vets, the VA loan thing I get). I don't get the constant barage of credit card offers I get in the mail either.

Whatever happened to the incentive to save for the future?

[blueskies]

A big part of the problem is that people in these financial companies were paid astronomical bonuses for raking in huge profits in the near term. The pay structures seem to reward short-term profiteering over the longer picture.

There was an interesting article in the NY Times explaining how a relatively small unit of AIG, the Financial Products unit, was responsible for its downfall. The individuals who were responsible made vast sums of money, and it looks like they'll get to keep it.

http://www.nytimes.com/2008/09/28/bu...1&ref=business

This particular unit increased its annual revenue from $737 million in 1999 to $3.2 billion in 2005. Bonuses paid to the 377 employees of this unit over the last 7 years totaled 3.5 billion!

They generated enormous profits by collecting premuims to insure debt for a period of time, selling credit default swaps. "Because the underlying debt securities — mostly corporate issues and a smattering of mortgage securities — carried blue-chip ratings, A.I.G. Financial Products was happy to book income in exchange for providing insurance. After all, Mr. Cassano and his colleagues apparently assumed, they would never have to pay any claims."

The problems began when the underlying securities began to lose value. The contracts required AIG to put up collateral, collateral which they never expected to need. The portfolio of outstanding credit default swaps for AIG is valued at over $500 billion. That's a huge exposure, hence the need for the $85 billion bail loan from all of us.

The more that I read & begin to get a picture of this financial house of cards that's starting to tumble, the more that I believe that promoting inflation will be the cornerstone of our economic policy. They won't call it that, but that's what they're going to have to do keep the balls in the air. Wages won't keep up for regular people, the dollar will fall in value, and their will be a move toward a decreased standard of living for ordinary Americans. That's my prediction.

Mr. Silver, I've heard analysts saying that the total drop we've had in stock prices from their high is equal to that typically experienced over a bear market, and these analysts suggest that that indicates that it's nearly over. I don't think it's fallen enough, because housing prices are still too high relative to median income to sustain. Further, I don't think the drop in consumer spending has made its way into the system yet. Finally, I think every company in America is going to be looking for ways to reduce expenses right now & that translates into rising unemployment.