Topic: Economics
A Story to Explain "Shameful" Executive Bonuses This past week, President Obama expressed disappointment over Wall Street firms paying out large bonuses, after accepting taxpayer monies to stay in business. The explanation is simple.by Bob Nightingale
(libertarian)
Sunday, February 1, 2009
In a park, there were three ladies discussing the merits of their current and late husbands. One tells how her husband left his clothes around the house and had bad hygiene. Another lady's husband was a military drill sergeant, who liked to take charge of the laundry and other chores. Although he kept an impeccable house when not on maneuvers, she wished he would have used less starch in her under garments.
The third lady looked at the other two of them in disapproval.
"When dealing with the man you love, you need to make your wishes known. My Charles had acquired some terrible habits before we were married. I didn't say anything for a long time. After my children had grown, I no longer had to hold my tongue. Getting up the courage one night, I told him it was my way or the highway. Oh, the fight that ensued was awful. Somehow, we got through it with a degree of compromise. We really started talking. Although he died a year later, it was the best year of our marriage. We finally knew how each other felt. I miss him dearly. I only wish we had opened a dialog earlier."
Across the park, but in plain view of the ladies, was a dog run. An obviously male dog was let off his leash and allowed run around. A few minutes later, he sat in a curled position and began cleaning himself.
Charles' widow got up, walked across the park, and, to the horror of the dog's owner, whacked the dog in his maleness with her cane. The stunned owner leashed his dogged and exited the parked promptly.
When the widow sat back on the bench, she said without a note of regret, "I'm sure if my late Charles could have contorted himself sufficiently in front of me, I would have used a cane on him too."
There was nothing in these bailout monies that restricted how they should be spent. The former Secretary of the Treasury spent the TARP in hopes of spurring lending, not to improve moral behavior of the executives. The tisk-tisk rebuke by the President made for two days of news stories, but it will be largely ignored by the participants. Besides, he's not holding a cane to their, um, them.
I was fingerprinted after working in the IT department of a small futures trading company for over a year. When I changed firms, I was fingerprinted again and given a drug test. Neither fingerprinting nor testing me for drugs made me a better employee. I'm sure there are file cabinets filled with the results of drug tests and fingerprints somewhere at all these banks as well. None of those prevented the executives making bad investing and compensation decisions. The SEC and all their rules didn't stop bad behavior either. Only Adam Smith's "unseen hand" has the power to slap them around.
This is precisely why the government should not get involved in micromanaging businesses. The executive pay isn't what caused these firms to get into trouble. It was the fact that they did not return shareholder value. They ruined their companies, and the taxpayers covered their losses. These bonuses are just one more way that these financial geniuses are thumbing their noses at the rest of us, saying "suckers!"
One company I worked for in the 1990s went out of business because the senior executives did not manage a set of very large trades. In six months, those trades ate 40% of the firm's capital. When we couldn't pay the bills, the banks liquidated us and transferred our customer accounts quickly to another trading company. I lingered for about two months, supporting the account transfers. After the last customer account was moved out, I was given a check and asked to leave my keycard with the security guard. It was just another 80-year old trading company that won't be missed.
These banks and other financial institutions are in the business of managing risk. Their bonuses are supposed to be the carrot, and termination is supposed to be the stick. Believe or not, it is just that simple.
Can executives pay themselves performance bonuses for poor performance, after getting billions of taxpayer money? In the spirit of the recent election, they shouted, "Yes, we can!" The simple reason why they did it is because no one, neither the government nor their investors, said, "No, you can't."
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