Democrats & Liberals Archives

Financial Tycoons

Which is the most lucrative job a person can have in today’s economy? Of course, it’s not a worker in a factory or a clerk in a retail store. It’s not a teacher. It’s not a top-level salesman or a doctor or even a surgeon. No, the highest paid worker is the guy in finance, not the bank clerk who makes next to nothing, but the genius who plays around with money in a way that brings him wealth and brings the rest of us a depression.

Almost all workers do something useful, such as building a product or providing a service. These financial geniuses are not helpful bankers. Bankers accept deposits and make loans to people and businesses. Our economy could not work without them. But these geniuses do nothing useful. They operate a gigantic world-wide Las Vegas-type operation.

And they make more money than those usefully occupied!

Their bosses, the CEOs of these gambling organizations, make even more, a lot more. Standard and Poor lists the income of the average CEO as $10.5 million. Not bad. But financial CEOs beat them. According to NetworkWorld this is what a few of the troubled financial CEOs earned in 2007:

  • Richard Fuld, Jr. - Lehman Barothers - $34.4 million
  • James Cayne - Bear Stearns - $38.3 million
  • Lloyd Blankfein - Goldman Sachs - $68.5 million

Financial people have been making too much money. As a result they feel they can do no wrong. Just give them "capital" and buy out their "toxic securities" and they'll be healthy again.

NO. We must first clean up the financial system of "derivatives" and other complex securities. Then we must bring compensation down to earth. I'm glad the senate is considering limiting CEO pay of companies that are bailed out by the government:

Senator Claire McCaskill took to the Senate floor last week and put into words what most Americans know, but much of the economic and media elite systematically ignore: there is no economic or social justification for the massive incomes earned by the barons of Wall Street - especially when their companies continue to exist solely because of massive infusions of taxpayer dollars.

Senator McCaskill states that no financial CEO of a company that accepts bailout money should make more than the president of the U.S. - $400,000. Sounds good to me.

This is just a beginning. We must find ways to bring the income of financial workers closer to what other professional people make. We must give manufacturing a more important role than it now has.

If we must have tycoons, let them be tycoons that build something, not tycoons that manipulate money.

Posted by Paul Siegel at February 2, 2009 7:50 PM
Comments
Comment #274830

Senator McCaskill states that no financial CEO of a company that accepts bailout money should make more than the president of the U.S. - $400,000. Sounds good to me.

Should she/he make bonus pay if the performanc of his financial institution out performs all other financial institutions in a given year?

Should those left standing be given incentives not to invest in as many mortgages as possible, but in as many consumers possible? While holding deliquent loans low? That would be Jimmy Stewardish.

Incentive pay is here to stay. Cap it, and we’ll be beat at the finance game outside the U.S.

The old joke applies, let it run its course. “What do you call a banker on Wall Street? Excuse me, waiter, could you refill my TAB?”

Posted by: Honest at February 2, 2009 9:47 PM
Comment #274834

Honest,

Perhaps we should allow the world outside have these crooks. Being beat at a rigged game is no fun at home. Let the world feel our pain. What do they contribute to the USA?

Posted by: Marysdude at February 2, 2009 10:17 PM
Comment #274839

The difference between an executive who works 40 hours per week and one who works 60 hours per week is on average about 400 million dollars in extra compensation and bonuses. Those making more work less hours, and those making less work more hours. In this fashion, we are able to create far more executive positions and drive down the unemployment rate, especially with H1-B visas to fill those high paying positions no Americans want to fill.

Surely you can all see the enormous competitive benefits to our society for these 100’s of millions of extra salary and bonuses. :-)

Posted by: David R. Remer at February 2, 2009 10:57 PM
Comment #274841

Hmmmm,

Oprah makes about $160 million. We should do something about that as well.

Also, we should do something about Tiger Woods ($70 billion).

Posted by: Craig Holmes at February 3, 2009 12:22 AM
Comment #274842

Madonna made over $400 million.

So are entertainers and sports figures allowed to make more than those in Finance? just wondering where you would put the lines in a free society.

Posted by: Craig Holmes at February 3, 2009 12:28 AM
Comment #274844

“Oprah makes about $160 million. We should do something about that as well.

Also, we should do something about Tiger Woods ($70 billion).”

How much bailout money did the Oprah show receive from the feds this past year? How about Tiger how much taxpayer money has he accepted? Why are they relevant to this conversation.

Posted by: j2t2 at February 3, 2009 12:50 AM
Comment #274849

Paul
One thing to do beyond the bailout relm is to give stockholders more voice in compensation packages.
Regulation that forces stock markets to fulfill there original function as a means to capitalize industry would go a long way. Stock markets have not been in that business for some time. Instead they have become largely a method to extract wealth from the economy, to a small degree by pension funds etc., but mostly by the wealthy. Businesses capitalize themselves first buy useing profits,second by selling bonds, third buy borrowing from banks. Lets see now. Profits have disapeared. Banks aren’t lending money and bonds aren’t selling. That leaves government intervention. The question is how to apply its influence. Buying bad paper from banks seems to me to be the worst place. Instead we should be putting money in the people that actually produce things as you say.
I would like to say that Americans have lost their respect for work. Of course then again, looking back at economic history, its not a new story. This current mess is not the first depression created by robber baron’s greed. People that do actual work are usually economically downtrodden when they will put up with it. The best way to to fix it or at least to ameliorate the destruction, is through again providing the legal framework for a resurgence of trade unions. There are hopeful signs the BHO administration will help with this as well as a strongly Democratic congress. It is ,after all, people that actually do work besides counting beans that make the wheels go round.

Posted by: bills at February 3, 2009 9:15 AM
Comment #274857

Since GLB created this high finance monster, why would we want to salvage it? World financial competition? Why would we not want the world to fail at what we’ve failed at so adroitly?

Clip the wings of those who got us into this mess, and who now want a handout. If the world steals our financial thunder because we piss off some jerks who care nothing for America, so what? That, to me, would be their loss and our gain. Save the talent??? What talent?

Celebs may make too much, and sometimes place themselves on a pedestal, but they don’t crash our economy, or collect corporate welfare.

Posted by: Marysdude at February 3, 2009 11:24 AM
Comment #274899

Dude said “Perhaps we should allow the world outside have these crooks. Being beat at a rigged game is no fun at home. Let the world feel our pain. What do they contribute to the USA?”

That could be a plan, but I woudl then worry about us being reliant upon other banking systems to fund our growth and new businesses.

Despite the commoditization of banking, it is still a local game. Local banks can still play a role. I don’t know how to answer banking and major business. Do American citizens want to know that foreign banks are funding out nation?

Many of the morons will never work again. Between their leveraged life styles and their worthless stock options they have nothing. A few big Daddys are walking away with too much. Someone felt that to hire, retain, and reward them they needed millions. I think, however, it is very safe to say that those that made compensation decisions are no longer on the Board and have lost a money as well.

We just aren’t exploring the skin in the game that all the stake holders have. We keep focusing in on payouts, not losses, paper, job, or other.

I wonder how Investment Banking graduates feel about their career choice?

Posted by: Honest at February 3, 2009 7:09 PM
Comment #274928

Pual,
Why I am glad to hear President Obama is going to cap the CEOs of the Bailout Companies at $500,000.00 a year. I am also concern that many will walk away and start their own consultant business to get around the law.

No, Americans need to know that most of these citizens were playing by the rules and jumped in over their head due to the Leadership Advice that they wre given. And why that is no excuse for their poor judgment I do believe that given some time and proving track record that the issue can be revisited in a few years. For why the American Stockholder should have a better say in how the management of a company are paid bonuses.

So in my humble opinion why President Obama has a right to speak out on behalf of the Inherent Best Interst of “We the People” and state as a condition of investing in these Bail Out Business the capping of CEOs and other Mamagement Pay. I do believe that the Stockholders like Labor need to have a talk with the Management that got us into this current economic condition before anymore bonuses are paid. For it is a New Day in Washington is it not?

Posted by: Henry Schlatman at February 4, 2009 5:49 AM
Comment #274929

The head of Chase, Jamie Dimon, takes issue with Obama for painting all Wall Streeters with the same brush. His main point is that not all financial corporations failed and some CEO’s, like himself did not take a bonus.

http://www.bloomberg.com/apps/news?pid=20601103&sid=a9O1h4.cb0Kg&refer=us

I say, “bah” to him and his whining. He may not have taken a bonus AFTER he figured out he’d be a pariah if he took it, but I’ll bet he authorized plenty of bonuses for his henchmen who were a big part of his failure.

Posted by: Marysdude at February 4, 2009 6:27 AM
Comment #274933

Take the “bailout” - govt owns you - you follow govts rules. The same is true of us.

The Obama has every right to criticize the bonuses of those govt companys, and no business to stick his nose into the pay of the free companys.

Posted by: kctim at February 4, 2009 9:33 AM
Comment #274934

kctim,

‘O’ has said that Wall Street is at fault in our current economic struggles. Just because a company has not asked for a bailout does not mean it is not culpable in the meltdown. ‘O’ has not interfered or said anything about bonuses at companies not taking government dole, but is stipulating an income ceiling for CEO’s of failing companies that are on the dole…what could be more sane than that?

I know you don’t like him, but jeez!

Posted by: Marysdude at February 4, 2009 9:45 AM
Comment #274938

Dude, we are in agreement. I said that the Obama has every right to criticize those govt companys. He owns them and he can run them however he likes for all I care.
I won’t be using their services or products anymore.

Posted by: kctim at February 4, 2009 10:07 AM
Comment #274939

kctim,

Have you been investing in derivatives? Who are you going to use for future bundling broker house? How are they going to insure against your losses without AIG in the game? That last posting wears cloven hoofs…

Posted by: Marysdude at February 4, 2009 10:22 AM
Comment #274944

Dude, I have no idea of what “wears cloven hoofs” means, but I can tell you that I have no need for the things you mention. I don’t know what a derivative is and have never spoken with a broker.

Posted by: kctim at February 4, 2009 12:02 PM
Comment #274952

>Dude, we are in agreement. I said that the Obama has every right to criticize those govt companys. He owns them and he can run them however he likes for all I care.
I won’t be using their services or products anymore.
Posted by: kctim at February 4, 2009 10:07 AM

kctim,

Welllll…it’s what you said…the only companies he ‘owns’ are those receiving corporate welfare, i.e., the financial houses of Wall Street. They don’t sell pumpkin pie.

Posted by: Marysdude at February 4, 2009 12:56 PM
Comment #274957

Dude, they offer services and the car smucks offer products. I also do not believe we have seen the end of these types of so-called “bailouts” either, so the products list will likely grow.

The “financial tycoons” we should be worrying about are the ones in Washington DC.

Posted by: kctim at February 4, 2009 1:16 PM
Comment #274964

kctim,

It may be time for us to head for that cabin in the woods…;)

Posted by: Marysdude at February 4, 2009 2:38 PM
Comment #274975

kctm,
Why you may not agree with President Obama limiting the pay of top executives whose companies take Bailout money. Are you willing to give up your right as a Stockholder to have a voting voice in how the companies that you invest in are ran?

Or is it Stockholder beware that any CEO at anytime can bankrupt the company and take all your money to buy a million dollar toilet that you cannot even use? How does that work to build confidence in the Market.

Posted by: Henry Schlatman at February 4, 2009 4:10 PM
Comment #274976

Henry
I do agree that the Obama can dictate pay to the companies who took the bailout.

I also worry more about the govt CEO’s bankrupting and destroying the country than I do about some dumb companys CEO that others envy.

Posted by: kctim at February 4, 2009 4:23 PM
Comment #274986

A derivative is a financial instrument whose value is defined by some other asset, index or item. Three basic types exist: Forwards, Options, and Swaps.

Forwards (or if they’re sold on an exchange, futures) are derivatives where one enters into a contract to buy or sell something at a future date. The example given in the Wikipedia article for it has an agreement made to buy a house worth $100,000 at a future date for $104,000. Now, if the price goes up to $110,000, then the guy selling lost $6,000 in potential profit, but made $4,000 in actual profit.

This embodies both the reason for and the dilemma surrounding such contracts: if you agree to pay the futures or forward price on something, you’re stuck there for better or worse, on your end of the bargain.

These are often used in commodities markets, of course, in order to stabilize the relationship between buyers and sellers. The wheat farmer knows he can pass on his crop at a certain price, and his customer knows that they can get a delivery of that product. But of course, if the price plummets or jets up, one part or the other gets soaked. It also doesn’t help if the crop gets ruined.

Options are like forwards, only without the obligation. You’re essentially purchasing the right to buy or sell the underlying item. You’ve heard of these derivatives before: stock options are one species of them. The idea is that an executive gets the right to buy the stock at today’s value (either with your money or the company’s) during a certain period, after which, of course, you’d be able to trade it or hold it.

Presumably, this becomes incentive to increase the health of the company, as they would make a profit on their stock, if they chose to buy it. Sometimes, though, the person with the options has perverse incentive to drive up the stock price and then parachute on out, leaving shareholders holding the bag for the cost of their being looted.

Some options give the option to sell at a later date at earlier prices, but naturally, you wouldn’t want to do that if you wanted to give someone incentive to perform.

CDOs were a form of this.

Swaps, made famous most recently with the infamous Credit Default Swaps, Basically are an agreement to send money one way, and then another under certain conditions. The CDS can give you a good idea of what’s going on: The CDS is protection for its buyer in case of a default on the other asset.

The person or entity buying the CDS pays periodic payments to the seller. The seller, in return, promises to pay out a certain amount should the the covered asset default.

The trick was, you didn’t have to own the asset to take out this insurance, nor did somebody have to have the money on hand to pay off all the CDS’s.

All in all Derivatives are useful, but have to be used carefully, and conscientiously. They can be an economic disaster in the making if misused, just as margin calls and banks with more loans than their deposits could cover were such during the Great Depression.

We have to prevent problems where the secondary realms of finance become a hindrance, rather than an aid to the economy and the market. Regulating derivatives, their markets, and their issuance is necessary to the future health of our economy.

Posted by: Stephen Daugherty at February 4, 2009 5:18 PM
Comment #274989

A note of clarification: This:

Swaps, made famous most recently with the infamous Credit Default Swaps, Basically are an agreement to send money one way, and then another under certain conditions. The CDS can give you a good idea of what’s going on: The CDS is protection for its buyer in case of a default on the other asset.

should read

Swaps, made famous most recently with the infamous Credit Default Swaps, Basically are an agreement to send money one way, and then another under certain conditions send money the other way. The CDS can give you a good idea of what’s going on: The CDS is protection for its buyer in case of a default on the other asset.

And the paragraph on options should be clarified. The buyer of a call option (an option to buy) that puts the price at the current level when stock is bought later could make a profit if they raise the value of the stock in the meantime. Of course, if someone artificially inflates the value of the stock, then takes their options and runs with it, the executive could abuse that incentive and do real harm to the company.

Posted by: Stephen Daugherty at February 4, 2009 5:27 PM
Comment #274994

Stephen,

Thanks…what you describe is what I call, ‘High finance, in the rarefied air of ‘no value”. Becuse all the buying, swapping and trading is done without regard to the real value of anything, only a supposed value. And to make it worse, corporations like AIG then insured those buys, sells and trades of no value, and do so without the where-with-all to pay up when failure strikes.

I wish I’d thought of it. Just think, I could be hogging at the public trough much like the big dogs.

Posted by: Marysdude at February 4, 2009 7:13 PM
Comment #275011

Stephen,
Good breakdown to what has caused the problem in the credit and financial markets. And why in normal times (20th Century Thinking) the buying, selling, and trading of Futures work to help keep the flow of cash. I wonder if you could name me one sector of the economy who has not or will not see change in the 21st Century.

For dispite the fact of the Trillions invested in this type of paper even though President Bush said that things have changed after 9/11. How does a Citizen or the Nation put a price on something that in a few years will be out dated.

And more important, what sectors of the market will survive the Change and prosper in a new global economy? For if the Democratic and Republican Members of Congress cannot answer that simple question than why should “We the People” invest our Grandchildren money in spending and tax cuts to keep the 20th Century Economy on life support.

Posted by: Henry Schlatman at February 5, 2009 12:34 AM
Comment #275016

kctm,
Why I agree with your concern about the government CEOs, I wonder if President Obama would go so far as to tell Congress that he will veto any pay raise for them until the current problems are back under control.

Posted by: Henry Schlatman at February 5, 2009 1:06 AM
Comment #275022

Henry,

Pay raises for Congress are already law. ‘O’ can’t veto what does not come before him. Congressional pay increases are automatic, annually, unless Congress itself votes to keep it from happening. They have done so a few times in the past, but them smart greedy bitches have outsmarted us again. I’m a retiree, and they have to vote FOR me a raise, but they are Congressmen, and have to vote AGAINST their own raise…oh, well…

Posted by: Marysdude at February 5, 2009 6:15 AM
Comment #275030

Interesting Stephen, thans for taking the time and posting that.

Henry
It would be interesting to watch that battle, and while it can’t happen, as Dude points out, I think the Obama would toss the thought around a little.

Posted by: kctim at February 5, 2009 9:11 AM
Comment #275032

kctim, Henry,

If you really think ‘O’ should ask Congress to forgo their annual increases until we begin our climb out of the recession, you can tell him here:

http://www.whitehouse.gov/contact/

Posted by: Marysdude at February 5, 2009 9:24 AM
Comment #275033

Why President Obama may not be able to introduce a bill to freeze Congressional Pay, I do see the opportunity for PO and 3rd Party Leaders to make the case at the Public Pulpit. For if “We the People” are going to limit the pay of CEOs and top executives in the companies recieving TARP. Than does not Common Knowledge and Common Sense demand that “We the People” hold those holding High Office and Management in Our Government accountable for the same Principles and Standards?

Yes, just like all the CEOs of Banks did not cause this current problem so we can say the same about Americas’ Elected Officials; however, unlike the Private Sector “We the People” cannot seperate out the Civil, Political, and Religious Leaders that turned a blind eye so citizens like Madoff could swindle investors out of billions.

So just as a Good Parent must punish all the kids for the actions of one or two. Should not “We the People” ask Congress to follow the example of the Whitehouse and freeze the wages of Government Employees making over a $100,000.00 per year until our current financial crisis is cured?

Or something along that line given the current political environment should grab the attention of those on the Extreme Left and Right who want to stand in the way of My Peers Children building a Sustainable Green Civilized Society.

Posted by: Henry Schlatman at February 5, 2009 9:33 AM
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