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.