Monday, March 16, 2009

Another Fat Hog and a Full Barnyard

A Very Fat Hog

Every week I am surprised at the huge pay packages given to CEOs. For example, a guy makes $28 million for 2008 and just a bit less for 2007. He's supposed to be creating value. But under his leadership, the stock price of the firm is back to its value of over 12 years ago.

Today's fat hog is the CEO of State Street Bank. From the WSJ:

"State Street Corp. said compensation for Chief Executive Ronald Logue rose to $28.7 million in 2008, a year when the bank's shares plunged as it disclosed billions in unrealized losses and received a capital infusion from the federal government. Mr. Logue made $28.3 million in 2007. State Street is a money-management concern and major services provider to the securities industry. It received $2 billion in October under the federal government's Troubled Asset Relief Program, which places restrictions on executive compensation at companies getting funds."

The stock price of State Street is in the low 20s. That range was last reached in 1997, over twelve years ago. So the fat hogs get fatter at the trough while the stockholders get gruel and starve.

And a Full Barnyard

That's AIG, the engine of fraud behind this credit bubble. From the WSJ:

"AIG was lambasted for about $450 million in bonus payments planned for employees at a business unit that lost $40.5 billion last year. The unit's woes pushed the company to near-collapse, forcing the government bailout." ...

"The list of AIG's trading partners reads like a who's who of global finance. It includes big U.S. banks such as Goldman Sachs Group Inc., which received nearly $13 billion. Large European firms, such as Société Générale SA and Deutsche Bank also appear, each having received nearly $12 billion."

"Much, but not all, of the money was linked to contracts AIG sold the firms to insure against losses on securities -- notably those related to U.S. mortgages. As AIG's condition deteriorated, the trading partners were given more collateral to protect against losses. Some were made whole late last year when the securities were bought by a company funded largely by the Federal Reserve."

If one looks at charts of the growth in CDOs and related financial products they exploded in volume from 2004 onward. AIG was "insuring" much of those so the banks could hold them on their balance assets without any capital to back them. This is such a colossal cluster FUBAR that its almost beyond belief that the "smart guys" could be so stupid. They don't seem to have truly understood what they created. Or were just sticking their biscuit in the gravy while it was still hot.

What does this mean now?

Very harsh pay restrictions are coming to the boyz at the top. And it's rather hard to argue against them on practical grounds. Simple ideological arguments sound bit foolish in the face of this looting. But that debate is for another post.

Word of the Day

"Autogenous" - noun [$10]; a Mencken word
Autogenous means self-produced.
Sentence: Autogenous restrictions and cutbacks for CEO and other top executive pay by Boards of Directors would be the best for a free economy, but the SEC actively prevents even minor shareholder cooperation. And shareholders can't vote in secret for the directors either. Why are we surprised the system is broken ?

Le Mot du Jour

"Partage" - noun, masculine
Partage means 1. the division, dividing up; 2. sharing out; 3. sharing.
La Phrase: Le partage des profits donne trop aux diregeants d'enterprise.
Sentence: The division of profits gives too much to company executives.


Bud said...

gruel ?? what's that ?? something that animals eat on a farm

Bud said...

AIG knew what it was was just more

'hogs at the trough'

Bud said...

very harsh restrictions are coming..........which makes me uncomfortable

cuz it should come from the shareholders.......not from the federales

however, since this train is already in motion......i hope the focus is not on the amount of compensation........but the compensation shud be tied to the long-term

so senior executives shud not be able to cash out for say 5years repricing of options

if shareholders can't reprice their cost basis......neither should senior management

Bud said... about another rule

one person can only serve on 1 board.....period

we have this 'club' of board members that serve on multiple boards......anyway.....if you honestly do your job on 1 board......that should keep them busy.........serving on 4 boards makes no sense to me

plus.........board memebrs can have no prior relationship with the ceo and other top officers......they should not be friends

PS......i'm talkin about the elected board members of course.....famuly members who own a % of the company already have their interests aligned with other shareholders

Bud said...

and of one on the compensation committee's should have any contact or relationship ever with the senior executives

Bud said...

what an amazing gunfight in last nite's breaking bad episode

Bman how is your speed ?? accuracy is good............but if you can't draw quickly won't matter

marshall will kane vs doc holliday

i'll take doc

Bunkerman said...

Gruel is a very, very thin soup, often made from kitchen scraps. It's what prisoners at the "camps" were fed under Stalin.

Bunkerman said...

hmm I agree with most of your ideas, Bud.

Bunkerman said...

speed & range are quite closely related. I can draw and fire fast, but that means short range.

As the ranges get longer, one must take more time to score a hit on the first shot. No point is being the first shot to miss.

One can practice that at pin shoots.

Bunkerman said...

I think long term, restricted stock works well ... in reasonable amounts.

Cash payments should be quite low ... no more than $1 million.

mfl59 said...

Bunkerman Helicopter Ben got 1590 on his SAT....did you beat him sir?

mern said...

i took a peak at fridays posts, pretty funny.

i landed in san jose late thursday nite.

went all over the place, no guide, on the pacific side. i really like Tamarindo!

and frankly i felt more safe there, than say, in the hood of boca.

and while i was doing that, a certain poster was taking costa rica deep. but there was no pitcher?

reminds of the scene in major league when berrenger pretended he just hit the game winning home run in game 7 and as he circled the bases, wesley snipes saw and laffed his ass off.

too bad my home will never sell!

so i remain screwed, for being fiscally conserative.

thx bush and greeny thx a bunch!

Bunkerman said...

no, at that time, my verbal abilities were a bit weak.

Math, sciences were my subjects.

Bud said...

'there was no pitcher'


Bunkerman said...

fyi, as a freshman at Harvard, I was taking all graduate level courses in math, physics.

Bud said...

mfl ......can you tell me today when you not busy

'what's in your bag ?'

i want the complete list

PS......looks like i'm buyin a new set of irons....maybe the taylor made burner.........or x-22......or .....we'll see

'thanks jim'

Bud said...

btw...........clubs are super cheap these days......lots of sales

i guess most golfers not as fortunate as i am.......the tank has saved my ass big time

Spin-em said...

Tamarindo???....Is that a Costa Rican town or a brand of couch??...lool

Bunkerman said...

what's in your "bag" ?

Hmmm that quation could get a snappy reply


Bunkerman said...

btw, French for "bag" is le sac.

mfl59 said...

I'll have to check my bag for the details Bud.....most of my equipment is 4 years old or so....

Spin-em said...

prolly cant read the papers down there merny but Dayton's dancing fyi

maverick said...

Clemson worst draw of the tournament...Michigan ..Oklahoma...UNC....nice

maverick said...


Bud said...


'thanks jim'


'thanks jim'

ESI darkside

'thanks jim'

PS......where my 'ops expo open interest spreadsheet' ?????

Frosty said...

real funny...better shutty or I knock your teeth out.

Spin-em said...


Spin-em said...


just early

"thanks jim"

Bud said...

did i just get under frosty's skin ?? i think so

'mission accomplished'

PS.....still wanna be friends ???......ummmmmm...lemme answer that........'i don't think so'

PPS..........on to the next target


Spin-em said...

"PS.....still wanna be friends ???.".....

why shoud ya start having friends now?...looool

mern said...

yes spin i saw the flyers got a 9 seed, when i got home at 2am.

i hadnt been to Tamarindo since 96. still everyone so nice its crazy. land cheap! a few paved roads, now. internet access, soccer, dogs. no violence, no crime, really.

i can see y 250,000 americans now call costa rica home! and its growing.

soccer what a pussy sport. in iraq, some dude had a break away, with moments to go, only thing cud stop him.

yep, a bullet through his brain, saved the shut out.

another reason to make glass in that cancer!!!! the whole middle east, israel, too, GLASS!!!

give the uish 2 weeks notice they have been awarded New Orleans, and they better move there fast!

Spin-em said...

mern takes off 2 days a week..thats beautiful ..youve got the right idea sir..... dia es la maxima

Bunkerman said...

hmmm gotta look at that dog stock, AA - amazing to see it under $5.

Stock offering and converts .. sheesh

What a poorly run company.

Spin-em said...

frosty crushed em outta da park today.....geezzuuzz... called the top "XLF reject 8.67 2nd time"

"thanks bob"

Spin-em said...

Bud clam up soup for lunch???