Megan McArdle's made to me the case that the movers and shakers on Wall Street have taken a bath on all this and are plenty sad as is. But I don't think that's quite right. For one thing, if you had $20 million stashed away somewhere and lost 95 percent of that, sure you'd be pretty sad. But you'd still have a million bucks in the bank which is a lot more than most people. And what's more, during the fat years you'd been enjoying very high ongoing levels of consumption. Merely losing most of your savings doesn't come close to making the overall experience a negative one -- you'd need to be brought down to less than zero to make up for those years worth of high on the hog consumption slows. Specifically, to distinguish the issue at hand here from a pure quest for revenge, we need to ask ourselves what the current state of play make a titan of finance think about the way he's been running his business. What you want is for people to look back and say "well, I wished I'd managed the firm more responsibly at the margin." But I'm afraid the real retrospective analysis is "well, I wish I'd managed the firm lessresponsibly and soaked up more leverage-laden profits back when the going was good -- after all, the whole thing was going to blow up anyway and I was going to come out ahead anyway."
I think this misses the upside of diminishing returns: after some point, the CEOs of major institutions simply are not primarily worried about their consumption.
Matt is reasoning the way he or I would about a contract: if the worst thing that can possibly happen to me is that I walk away with $5 or $10 million, then I'm pretty happy, and perhaps liable to behave irresponsibly. But if I have, say $5 billion, walking away with that kind of money looks very different. I don't primarily think of my earning as a way to keep a roof over my head and some food on the table; those wants are so well satisfied that they basically don't register.
I think it's important to note that if this weren't true, the social safety net really would be the sort of devastating economic and moral toxin that some nineteenth century theorists claimed. If all people cared about was avoiding the possibility of outright starvation, then Sweden would be a country of wild risk-takers and epic slackers. And indeed, on the margin, there are people who don't bother to invest anything in their lives once their most basic material needs are covered. But most of us care deeply about not failing, even though we are unlikely to actually die of want should that failure take place. If Matt or I lost our jobs tomorrow through spectacular malfeasance, our lives would immediately become uncomfortable and annoying in myriad ways. But after radically downsizing our consumption, it's likely that both of us would survive, and neither of us would miss any meals. Nonetheless, we show up for work, and avoid obvious risks like invective-laden rants about our employers.
(I pause to note that my employers are, in fact, gems of people. That was just an example)
So I'm not sure how much extra incentive mileage we'd get out of taking all, rather than merely most, of the fortunes of CEOs who piloted their banks into the financial reefs. Some, clearly, because everything matters on the margin. But enough to prevent the financial crisis? I doubt it. CEOs, like the rest of us, are keenly interested in not getting fired and losing most of their stuff, which is the logical outcome of putting your bank into liquidation. Note that this does not settle the question of whether we should take the rest of their money--justice might demand confiscation even if prudence doesn't. It simply tells us on which grounds we ought to decide that question.
Now, I think a lot of liberals often mix up these claims with simple outrage that those CEOs are not, in fact, reduced to total penury. But the justice and the incentive problems are separate problems. It may well be totally just to take every last dime from them (and I imagine that shareholder lawsuits will do exactly that). But that frequently morphs into a muddy complaint that if these CEOs had suffered more, we wouldn't have had the crisis. The one does not follow from the other. There are many injustices in the world; almost none of them cause financial crises.
I know that my trolls are already mentally penning long whines that I have entirely missed the point--that their wealth is outrageous, that justice is important! Indeed it is. But it seems to me that it is also important to settle the empirical question of how such excessive risk taking could be prevented in the future. If we allow our outrage to convince us that taking every last dime from the bank presidents will help with that task, and this is not actually true, then we are simply setting ourselves up for more problems in the future.
A couple thoughts:
It's in the interest of the shareholders (the boards of directors of companies usually hold lots of shares) to get the long-term incentives right in the CEO's contract. If they get it wrong, they lose out.
I think it was Warren Buffett who's been saying that executive compensation should be lower. He could be right. And if he is, the first companies to follow that path will add to their bottom line and gain a competitive edge.
Which leads me to this: if Yglesias is correct, and 5 or 10 million is enough to satiate anyone, then how does a company convince an extremely talented Executive VP, who's already rich, to take on even more stress and responsibility as the CEO? It needs to offer exorbitant sums! Lower executive pay could easily lead to lower talent at the executive level, which would be a massive dead-weight loss for society. It's easy to get outraged, but if we want to make sure we're getting the right people in the right places, we have to pay them well. The outcome may not always be perfectly just...but, things are rarely (never?) perfectly just.
"The trouble with socialism is socialism. The trouble with capitalism is capitalists." Bill Buckley
http://www.nationalreview.com/buckley/wfb200504200907.asp
Most will get away with 10 figure minimum net worth's and will be just fine. Their children the movers and shakers and leaders of the next generation.
Behind every great fortune is a great crime. No matter. In American people always suck up to big money. Anybody who was anybody and lots of nobodies in Chicago were happy to shake Capone's hand.
Re: if Yglesias is correct, and 5 or 10 million is enough to satiate anyone, then how does a company convince an extremely talented Executive VP, who's already rich, to take on even more stress and responsibility as the CEO?
People are motivated by non-monetary rewards too, notably what the ancients called "glory" or perhaps "honor". Becoming a major corporate CEO is an accomplishment in and of itself. (And Meagan toucehs on the reverse; people are also motivated not to fail by fear of shame or infamy)
Note that we do not pay the President of the US, nor our senators, millions of dollars, but there has been no shortage of people who want the jobs.
JonF:
Are you really counting on vainglory to reel in the best talent available? Look at what we get in Congress and the White House. Most of them are not first-class intellects or talents.
Also, look at Bill Clinton's post-White House earnings and tell me that there isn't a financial reward to being President.
My point is that, for someone like an Exec VP, who's already worth millions, there is a very high opportunity cost: a cushy early retirement. To ensure that the right people are selected, companies need to coax them into the job with outrageous salaries. When successful companies start paying CEOs less, I'll be proven wrong.
The only thing wrong I see with your theory,Dan, is that they paid millions to the WRONG people; people who screwed up and failed in their jobs--otherwise, their companies would still be successful.
Liberals want blood; that translates into money from the wealthy. But if we take away every penny, then they end up on the welfare rolls that supposedly are what we want to avoid. It would be an interesting scenario of robbing the rich to give it back to them as government dole.
Matt Yglesias pens the usual emotional response to the pain he perceives around him and finds it necessary to blame someone. With someone to blame the world then continues to make sense. That is to say, it is still organized. You know the line of thinking---"if that person over there had not done this we would not be in the situation we are in, so lets hang him."
Needing the world to appear organized, instead of its normal chaos state, leads people to believe in conspiracies. Conspiracies solve all the loose ends of chaos.
As to the particulars of CEO compensation/money in the bank/loss of status he reveals his lack of understanding as regards money/position and its subsequent psychological loss. No matter the sums involved it is the same for every one.
CEO's that committed true crimes will meet justice. When large sums of money disappear the one thing you can be certain of, the appearance of hordes of attorneys.
"...my trolls are already mentally penning..." this conjures up a sort of adorable image, like moomintrolls, a squad of them, in different pastel colors with round cute eyes and cowlick hair.
To second Patrick's sentiment, I think that people are just looking for anything to blame for what is a collective failure of self-control on the part of the American consuming public, across all classes and other social divisions. Suddenly none of us is able to have our cake and eat it, too, ie to buy enormous houses, furnish them with giant electronics, and still put gas in cars that are far larger than utility for family or business would suggestfrom the standpoint of conscientious or within-means consumption.
And so, now that our poorly-understood economic foundation-built-on-sand has collapsed, we go for the most visible figures of the companies that failed, which is indeed what happens in any kind of scandal involving a body of people. When things go wrong around the country, people automatically point the finger at the President, or, for that matter, when things go right they do the same. Similar situation with CEOs... we will always as a society come up with excuses for poor decision-making on the part of those more similar to us, ie overconfident and undereducated-about-risk borrowers, and then dehumanize in preparation for mob-execution the leadership of the very institutions that had allowed us our higher standards of living than our means suggested in the first place.
Which leads me to a question for the readers, who have a much better understanding of these phenomena than I. Could it be possible that by having such free access to credit coupled with overly-generous bankruptcy provisions for individuals, real wages never felt a pressure to rise from the standpoint of the market in part because people could always lean on credit, particularly credit cards, instead of feeling a pressure as employees in a corporation or group to ask for an increase in wages to meet rising costs? That that and not a vast conspiracy on behalf of upper-management or shareholders and traders could be at least the larger part of why there has been such a phenomenon in terms of the stagnation of "real wages"?
If you have to pay gazillions to get people to become CEOs, how come you didn't need to fifty years ago? Humbug! The CEOs have been pillaging the shareholders because the market for CEOs is so imperfect, with CEOs and their cronies fixing their own "compensation" (nothing so vulgar as "pay" for these grand fellows). If you have wits enough to despise socialism and be deeply suspicious if welfarism, you really ought to have the wits to see the capitalist-pillaging CEO building his own cosy welfare state inside the corporation for the louse he is.
If you have to pay gazillions to get people to become CEOs, how come you didn't need to fifty years ago? Humbug! The CEOs have been pillaging the shareholders because the market for CEOs is so imperfect, with CEOs and their cronies fixing their own "compensation" (nothing so vulgar as "pay" for these grand fellows). If you have wits enough to despise socialism and be deeply suspicious if welfarism, you really ought to have the wits to see the capitalist-pillaging CEO building his own cosy welfare state inside the corporation for the louse he is.
Consider the sports world. Prize money is always significantly different between first and second place, yet the talent and effort difference between the 1st and 2nd place finishers is quite small. So, why do we give so much more money to 1st place finishers? Isn't the lure of glory enough? In the sports world, it appears that at the margin, big bucks are indeed necessary to extract the best efforts.
On the observation that Congress isn't handsomely rewarded, well, perhaps it ought to be a job paying millions. We've certainly attracted quite a collection of feckless hacks and blowhards to populate Congress. If the (legal) rewards were commensurate with the responsibilities, that might change.
This entirely ignores the fact that we in our twenties and thirties realize that the social safety net won't be around when it's time to fall.
"If you have to pay gazillions to get people to become CEOs, how come you didn't need to fifty years ago?"
The job of CEO came with a lot of public respect 50 years ago. Now it mostly comes with vilification from the chattering classes. So obviously the pay had to go up.
The other, politically incorrect, part of the answer is that 50 years ago, the top executives at most corporations were like Swedes, a culturally, ethnically and religious homogenous group. So the CEO didn't expect to get paid a lot more than the EVPs, who didn't expect to get paid a lot more than the SVPs, etc. Now senior staffs at most large corporations are a lot more diverse, and no longer function like a "band of brothers."
Income inequality and obnoxious wealth aren't much more than aesthetic problems in good times, but my fear is that in times of protracted or significant downturn, they'll actually pose threats to societal stability. You know, when Jefferson went to Paris and saw the continued gulf between have and have nots, he was freaked. He said you couldn't build a stable government that way. (spoiler: he was right.) If this thing really turns out to be a long struggle for a lot of people, I genuinely worry about the consequences of a few with so much and many with so little. Particularly in an era where television and magazines are shoving it into people's faces. (Willing consumers of that culture though they may be.)
Re: my post above.
Knowing that it won't be there when we need it, we make adjustments today by saving money and investing in acquiring skill sets that would benefit someone in a SHTF scenario, e.g. hunting, small-scale farming, raising animals for food, etc.
Matt is reasoning the way he or I would about a contract: if the worst thing that can possibly happen to me is that I walk away with $5 or $10 million, then I'm pretty happy, and perhaps liable to behave irresponsibly. But if I have, say $5 billion, walking away with that kind of money looks very different. I don't primarily think of my earning as a way to keep a roof over my head and some food on the table; those wants are so well satisfied that they basically don't register.
Also: I mean, yeah, I understand why they would feel that way. But, well, tough noogies, man. Arguments about relative wealth only go so far. That's why flat taxes don't make sense. 15% (or whatever) of Person A making $40,000 is relatively the same as 15% of Person B making $2,000,000 a year. But Person A would have a great burden placed on him by taxes, while Person B could afford to pay much more and still live a life of great material abundance.
Two points.
1) I've been in the consulting business for many years. As a result, I've dealt with many people at the higher levels of management. I am absolutely convinced that, once a certain level of comfort is achieved (the level varies), the drive to get ahead is fueled by ego, not money.
2) I also happen to know a fair amount about prize money in auto racing. The reason that a huge percentage of the total purse goes to the winner is to attract the audience. Fans believe that teams race harder for bigger money. Trust me, they are wrong.
If I read Megan's article correctly and extend the argument, it would seem to imply that bankers would not run a firm any differently (at least with regard to taking on risk) if it were
1. a corporation
2. a limited liability partnership or
3. an unlimited liability partnership (i.e., losses pass through to the partners personal wealth)
I find that to be very doubtful. It is generally the right that talks about declining moral standards in our society, but it seems to me that there ought to be enormous social sanctions against individuals whose arrogance, irresponsibility and yes greed have devastated our major financial institutions, with enormous spillover effects. These are dogs who very much deserve to be kicked while they're down, and some of them (e.g., Stan O'Neal and his $120 million walkaway from Merrill) aren't down so much, either.
Again, Gene, you're asking a different question: whether they deserve to be kicked when they're down. Perhaps they do. I certainly wouldn't cry about it if they lost everything in shareholder lawsuits.
But the question I'm asking is, if we kick them, does it offer a valuable object lesson pour encourager les autres? How much harder will future CEO's work to avoid this fate if we take every last penny, compared to merely, say, 90% of their fortune? It's an empirical question, but I suspect there are rapidly diminishing returns to punishment.
while we are at it, why leave out the class most responsible for the current state of affairs: The politicians who have, at last observation:
a private security force
a private air force.
perks that a ceo can only envy
a vast army of staffers to execute every whim
a 3 trillion expense account, BTW, what, exactly does that 3 trillion provide us?
a lousy track record: Please name a single social or economic problem that the government has solved. The word here is solved.
ON the history of CEO pay. In the "old days" there were a bunch of reasons that CEO pay ended up being limited. The first was that income taxes then were punitive at a marginal rate of 90%. It doesn't matter if you pay a lot more if most of it doesn't end up in the pocket. I think there was also a max salary above which the company could no longer deduct the salary.
In exchange the CEO was given many many other perq's. It was at this time that they gained company cars, planes, homes, country club memberships, and many other doodads, all of which were paid for by the company and deducted as company expenses. Often when they retired they got to keep all those perq's in retirement and it was all still paid by the company.
I wouldn't think of it in terms of a little vs. a lot, or absolute vs. relative. Rather, I'd think of it in terms of how much to reward a job badly done: not just somewhat badly, but badly in a way that destroyed your company and the lives of many people who came into contact with that company in their roles as customers, employees, etc. To me, it's pretty clear that the answer is "no reward at all." They should be fired, earning nothing thereafter, which makes the whole Megan/Matt discussion irrelevant.
But Megan: Consider these two alternatives:
1. We take every last penny of the culpable CEOs, or
2. We take 90% of the CEOs' fortune.
You are saying that (1) won't really do much more than (2) to discourage future CEO misbehavior. Fair enough. It seems much harder to argue, however, that (1) is going to be less of a deterrent than (2). In practice, (1) may be so much more expensive than (2) that it is not worth doing it, but that requires spelling out what the additional costs of (1) might be (legal expenditures, unintended consequences, etc.).
I think the missing word that people are searching for is: status. For most people at the top levels, status is more important than money. (Or, more to the point, money is important, but mostly as one signifier of status.)
In terms of a deterrent for overreaching behavior, the risk of loss of status does most of the job. Loss of money does not add very much.
In Portfolio, Michael Lewis has an interesting article on the current mess. Towards the end, he discusses his lunch with John Gutfreund, and seems to imply that the root of the current crisis came when investment banks, which used to be partnerships, turned into public corporations. If true, this suggests an obvious fix.
Look around you - Do you see that most often, money is made by honest men making legitimate transactions with each other? Or does it seem like more money is made by shady under-the-table deals, convoluted contracts, and crappy products and/or services designed not to make the customer as happy as they've ever been, but to make them just happy enough so that they don't come back and complain?
Do politicans honestly do the best job they can and work to make sure that the people are protected not only from criminals but from government as well? Or do you see politicans on the take - using the power of regulation and taxation as a lever to extract money from the people and cocaine and hookers from the businesses they control? Do you see hopeful politicians at election time telling you the truth about government or promising to deliver a larger piece of the pie?
Finally, does society reward hard work by allowing those who perform the work to keep their money or does it steal from those who earned or saved to give to those who did neither?
In today's society these crimes are commonplace. We take it for granted. It's just how business is done. The honest man is laughed at and marginalized while the criminal is protected and insulated from reality by excuses for his behavior.
Once the honest man realizes this is the case - Once he sees that the deck is stacked completely against him and that there's no way for him to succeed without being a criminal - He stops trying. He becomes part of the silent side of society hoping to do just enough to get by and provide for his family without drawing too much attention to himself in the process. He won't take the high-visibility jobs because his consience prevents him from doing what it takes to get things done. He's unwilling to become a slave to the process we've laid out for him so he withdraws to the margins where we want him.
And everyone's surprised to wake up one day and find the criminals in charge...
I am surprised that people here seem to have no respect for contracts. Stan O'Neal, just to take an example, had an employment contract, which Merrill Lynch honored. How is the honoring of promises even a subject for debate? What kind of people would even consider that an open topic?
What makes any of you think it's even possible to foresee events like the ones we are currently suffering through well enough to avoid them? It's easy to say, with hindsight, that these CEOs should have directed company investments away from what we now see were very risky devices. But just because it's obvious now, doesn't mean there is some "right" level of risk aversion - meaning, I suppose, a level that would have allowed a CEO to perfectly avoid the "bad" devices without also missing out on lots of "good" investments - away from which these CEOs are being incented somehow. It's far more likely, in my opinion, that pretty much everyone was equally blind to what was coming, and that where these firms are now as a result is simple dumb luck.
Send the best and brightest ten economists around back in time two years with what they know now, and they still couldn't explain to the world what was coming, because they don't really understand it themselves, nor could they convince anyone to dump what look like the best investment vehicles going. They'd look like another ten cranky bear-market contras, indistiguishable from the rest of that herd. Please explain how any amount of "punishment" is going to make future CEOs into seers, because from what I can tell, that's what you'd need to do to fix this.
I know that my trolls are already mentally penning long whines that I have entirely missed the point--that their wealth is outrageous, that justice is important!
You've sure made our job a challenge, MM, by making your point so opaque as to be mystical.
If you are arguing that we not confiscate a CEO's total wealth, which no one really seems to be arguing, then that's an easy win. If you are fumbling toward some general amnesty for financial malfeasance, you'll win on that one too. We're all much more concerned that someone somewhere has $10 they don't deserve than that someone has $10 million they don't deserve.
But hey, let's go on pretending the job of our government is to comfort the comfortable, and that this activity always improves the general welfare. Hasn't worked out so badly so far, eh? The reason Charles Keating didn't need to be invoked by the Obama campaign is that we're already living in his world.
And for all those twisted into a microeconomic fit about incentives and margins and moral hazard, I present you with the empirical results. Bummer.
Maybe we (or most of us) should all look in the mirror for the cause? When did "I deserve..." replace "I earned...?" Many years ago, the American people stop listening to the nags who warned that prolifigate spending bought on credit could not last forever. In 1964, the voters laughed - in landslide proportions - at Sen. Goldwater's proposals to rein in social security.
As far back as the 1950's, Ayn Rand noticed enough "quest for the unearned" developing in our society to write a novel about it. She, of course, is a kook in most Americans' eyes.
Is there hope for a generation who learns to use credit responsibly, to pay as you go for things they want, and to rein in the excess entitlements their elders voted for themselves? Gee, with 67% of the under 30 crowd voting for Obamalargesse, it wouldn't seem any lessons have been learned.
Thankfully, I won't be around to see the U.S. collapse into second-world status.
Matt says it's a moral outrage that we haven't busted the CEOs enough and Megan says we've punished them enough: we hurt their feelings and, besides, there are no grounds to take away the rest and it wouldn't fix anything anyway.
As far as I can see, we haven't taken anything away from these CEOs, except maybe for future earnings. If they were smart, they've already locked away their gains from the fat years.
But doesn't it give you pause when you see these financial institutions, to whom the government has just given billions, handing out 70 billion dollars this Christmas season as bonuses for a job well done.
I don't care what Megan says, something is really wrong here.
Nick,
I disagree. The path to real riches in this country is still to build a company that provides real quality or service. I work in the retail food business (the products that are sold in grocery stores) and there are thousands of companies who are vendors to this industry. Many of them will fail over the years. The vast majority will provide a comfortable living for their owners and a livelihood for their employees. And a bunch of others will make their owners and/or investors a whole bunch of money either through growth and profits or through a sale to one of the big food companies, or both ways.
Think of Stacey's Chips, which sold for something like $100 million, or Bear Naked granola, or Vitamin Water, or Alexia frozen foods. The list is very long and in each case a lot of money was made by providing a better product to the consumer.
My point is you don't have to be so cynical. There are still opportunities for honest people to get rich. In fact, there are more opportunities that way than through frauds, and there is no risk of jail (though there is risk of failure).
CEOs don't operate solely on their own. If we are going to get vindictive then we should go after everyone who has accountability here. Take the fortunes of the directors who presumably approved those failed strategies. Then we can take the fortunes of those who presumably approved what the directors were doing, the shareholders. Get them all!
Absurd? Sort of, but no more so than focusing only on CEOs. How many of those directors were not just cheering, but demanding those risky strategies in the name of higher profits, and loving it while it worked? How many shareholders were doing the same? If we aren't going to hold everyone responsible for corporate governance accountable then we are just scapegoating.
Tom Smith reminisces on The Right Coast blog:-
"The CEO and top officers of this company were classic French technocrats, graduates of grandes ecoles in Paris, quantitatively oriented, smart and tough. They took the metro to work. When they saw how American corporate officers lived, the private jets and hunting lodges, they could not wait to buy the American companies and join the fun. But before they were corrupted, they were models of civic responsibility."
American normality = French corruption.
Well if you are looking to curb excessive risk, it seems as if the answer would be in executive compensation. Not just in curbing executive pay, but tying compensation to performance. In my view, if the goal is truly to work to maximize the value for shareholders then why not tie how executives get compensated with shareholder value?
Obviously this could cause problems where executives concentrate on short-term gains to enhance values but it seems more attractive than CEOs getting enormous amounts of money even though their firm loses 70% of its value.
Does anyone honestly believe that if our so called "best and brightest" minds of the CEO sphere didn't get their massive salary and endless perks that they would then stop working or choose to enter the (disappearing) middle class workforce? Let's not forget these are college educated white collar people we're talking about here.
These people will not be choosing to work for average wages at department stores, or at fast food joints or mopping floors. They won't willingly choose to get dirty or strain their backs in order to put food on their tables.
They will continue to do what fit's their skill sets and their self image, be executive like in lesser positions for less money and fewer perks.
I find there is an interesting parallel meme developing and being pushed here, mainly by the "corporate class" and the "teevee babbling head class", that these unfortunate CEO's are somehow like The Big Three auto makers which we are now being told are too big to allow to fail despite their epic failure and myopic leadership and that we need to understand their predicament and throw them more good money after bad.
In my mind, if you ran your company into the ground while extracting as much profit (personal or otherwise) at the expense of your company's long term health, you are not deserving of another chance at the golden ring simply because you had been there once before. That's not evolution, that is corporate nepotism.
If this is the best our best and brightest can achieve, by willfully and knowingly creating and exploiting opportunity for massive short term gains in exchange for long term stability and a moderate profit curve, I would suggest that these so called leaders are not running a successful business so much as they are running a successful wealth extraction scam at the expense of their own golden goose and all the people further down the corporate and economic food chains.
I think you have indeed missed the point. All of the blather about "moral risk" comes down to this: if you do not enforce harsh consequences, then the law has no deterrent effect. For example, if someone beats another person to within an inch of their life, say 90%, we do not impose a penalty on that percentage basis nor do we really listen to excuses about how they could not have forseen the gravity of the damage they were inflicting upon the victim. They broke the law and hurt somebody quite badly and there is an agreed-upon range of penalty in this society which will include jail time and some form of renumeration to the victim.
"Wait!" exclaim the nit-pickers. "You're mixing the apple of a deliberate crime with the orange of an innocent error in judgment." Wrong. Actions taken with flagrant disregard for the safety of others are deemed willful and deliberate under the law. When someone gets behind the wheel and careens through a marketplace at 90 miles per hour heedless of people scrambling to get out of the way, they are acting with criminal disregard for the rights of others. In fact, if that driver were heard to say something like "Well, I had to do it to get to the bank to deposit my $50 million bonus check" it would probably go very poorly for that driver in front of a jury.
For the Wall Street professionals to claim ignorance of the risks of the derivatives over the past six years, one would need to either believe that they were a) not actually professionals, but amateurs who engaged in false advertising; or b) they were professionals who did not perform their due dilgence, but merely parrotted what others said in gross disregard of their duties; or c) they were professionals who performed their due diligence and understood the risks, but piled on anyway like lemmings figuring that they would either get out in time or the "everybody is doing it" defense might prevail.
The only "bail-out" we should have contemplated is whether the CEOs should be entitled to post bail to get out of jail pending trial. Shareholders have been punished and will continue to be punished. Employees have lost jobs and may also be prosecuted. Just as the CEO's reaped the credit for the profits, however, so too do the CEOs bear responsibility for laws and standards they broke.
If you permit them to break the laws and achieve any profit at all, while totally avoiding jail or other unpleasantry, then other CEOs, as the undoubtedly rational beings they are, will continue to engage in that behavior. From the standpoint of a cost-benefit analysis, making millions and losing a percentage thereof is still a net gain equation. Even short jail stints will have no effect. If, for example, the CEO takes $250 million in salary, bonuses and benefits over a five year period (modest by most standards), then is busted, goes to jail for two years and loses $100 million (a huge fine for most white-collar crime), then he's still up by $150 million over seven years. Sure, this cuts his average take down from $50 million per year over five years to $21.42 million per year over seven, but he's still nowhere near the poverty line.
If we are to restore any measure of trustworthiness to the American financial system, we must clean house and impose the penalties. Without some level of trust, nobody will extend credit and we will be looking at Great Depression II. The first, best, and actually cheapest, way to restore trust is to make examples of the CEOs, force them to forfeit their earnings, face real jail time, break their mansions, cars, jets, vacation homes, everything. Only by bringing the full weight of the law to bear will the law be credible. Other CEOs will only be deterred by credible law. Lenders and business partners will only be reassured by the certainty of prudent CEOs and rigid enforcement of laws.
I am surprised that people here seem to have no respect for contracts. Stan O'Neal, just to take an example, had an employment contract, which Merrill Lynch honored. How is the honoring of promises even a subject for debate? What kind of people would even consider that an open topic?
I laughed out loud at this, considering it comes in these blog, in this comments section, considering the attitude of Megan and the commenters here concerning the Big Three honoring their contracts with the UAW.
KIA, exactly which criminal laws are you proposing that we use to prosecute these people?
In this environment, it's easy to view the problem of management incentives as one of excessive risk taking. Traditionally, though, the opposite problem has been more common.
Shareholders are usually pretty well dispersed so they're willing to incur a moderate risk that a company will collapse if there is a possibility of really large profits. Without options or large bonuses or some other sort of incentive compensation, the manager's best interests are usually served by keeping the company safe and moderately profitable. In the long run, that's not good for society.
We need to make a distinction between executive behavior that creates company-specific risk (which should generally be encouraged) and behavior that creates systemic risk (which should generally be discouraged). Even in the latter case, changing executive compensation is probably not the best tool for reducing risk.
Freddie: Contracts should be honored to the extent a company is able to do so. If not, that's what bankruptcy is for. I have no problem with renegotiating executive employment contracts alongside union contracts in bankruptcy. It's definitely wrong though for the government to apply some special retroactive rules for executive compensation outside of bankruptcy.
I think there was also a max salary above which the company could no longer deduct the salary. In exchange the CEO was given many many other perq's. It was at this time that they gained company cars, planes, homes, country club memberships, and many other doodads...
There is such a max salary today, I think it's pretty low, like $1 million, but that did not exist in the "good old days." And both then and now, the personal perks would be fully taxable income to the CEO (business travel on the company jet would not be).
KIA,
Executives at United Airlines were desperate to hedge their exposure to rising oil prices so they locked in there jet fuel at $120 a barrel. Now, with oil at 49 a barrel they have upwards of $500,000,000 in losses.
Should those executives be put in jail?
These CEO's failed, you don't need to rationalize or explain it any more than that. The question is what are we going to do about this?
It seems to me a wild assumption that a person, CEO or otherwise, after experiencing a natural or imposed consequence of excessively risky behavior should then refrain from said behavior. Human beings, while in the odd case do tend to learn from mistakes, also tend to return to those behaviors as though somehow THIS time things will be different. If anyone doubts this, spend some time in Atlantic city or at your nearest OTB spot. Believe me the depravity of excessive risk and its negative externalities are not limited to the pristine, decadent boulevards of the financial district. It is alive, well, and much more depraved around midtown, and has been for about one hundred years.
These CEO's failed, you don't need to rationalize or explain it any more than that. The question is what are we going to do about this?
That's it exactly, though. Again and again we see top execs who performed horribly and are rewarded with wildly inflated severance packages. Why?!? That's what no one can seem to explain, why there appears to be no relationship between poor performance and compensation. People keep saying "let the markets work", but markets only work if there's some relationship between quality of work and compensation.
Freddie | November 20, 2008 12:20 PM
Good point. I'm sure some here will try to argue why top execs are different.
Since CEO salaries are presumably determined by shareholders, why not let the latter decide this? Have a vote of shareholders (not the board) as to whether they are entitled to divide every dime of wealth of a former CEO and the rest of the top management team who have spectacularly destroyed the company in which the shareholders invested?
There seems to be a general misperception that the CEOs of these firms laughed all the way to the bank. Au contraire. Their bonuses, and a considerable portion of their other wealth, was tied up in the company and its investments; most of them lost much or most of their fortunes when their companies went down. The general wall street feeling about CEO compensation is that they should be forced to put all their eggs in one basket and then WATCH THAT BASKET.
The biggest shareholder-value impact of a CEO hiring is the market reaction to said CEO hiring.
The bigger the pricetag on the CEO, the better the market reaction has been.
This is the "shock and awe" school of thought.
Look around you - Do you see that most often, money is made by honest men making legitimate transactions with each other? Or does it seem like more money is made by shady under-the-table deals, convoluted contracts, and crappy products...
Most often, money is made by honest men making legitimate transactions with each other.
The only "bail-out" we should have contemplated is whether the CEOs should be entitled to post bail to get out of jail pending trial...The first, best, and actually cheapest, way to restore trust is to make examples of the CEOs, force them to forfeit their earnings, face real jail time, break their mansions, cars, jets, vacation homes, everything. Only by bringing the full weight of the law to bear will the law be credible.
I second MikeF. Exactly which laws do you think these CEOs should be prosecuted under?
People keep saying "let the markets work", but markets only work if there's some relationship between quality of work and compensation.
I laughed out loud at this, considering it comes in this blog, in this comments section, considering the attitude of Freddie concerning the Big 3 honoring their contracts with the UAW.
Why?!? That's what no one can seem to explain, why there appears to be no relationship between poor performance and compensation.
It's because determining the quality of performance is hard. A couple years ago these companies seemed to be in great shape; contracts that were negotiated during the boom reflected that. I agree that severance packages are obscene, but imagine that severance packages were illegal: do you think we would have avoided this mess? Imagine that CEOs were compensated only with company stock, that couldn't be sold or traded until they left the company. Even then I don't think you're insured against a systemic information failure.
Gene-Using AIG as an example, I assume you mean the shareholders who benefited from the $6.2 billion net in 2007, or the $14 billion net in 2006, or the $10.5 billion net in 2005.
Or do you just mean the shareholders who were screaming "stop making me so much money, it's crazy!". There's gotta be at least one.
I laughed out loud at this, considering it comes in these blog, in this comments section, considering the attitude of Megan and the commenters here concerning the Big Three honoring their contracts with the UAW.
The Big Three are fundamentally incapable of honoring their contracts with the UAW. The question is whether taxpayers should step in and "honor" those contracts on their behalf.
But it was the shareholders who were demanding the executives take on more risk to raise profits? If any of these CEO's hadn't done what their shareholders demanded they would be fired.
The shareholders can't clawback bonuses if they, as the owners, were demanding that more leverege be used.
I can get worked up and indignant about these CEOs and othere execs who messed up, but in the end the truth (it seems to me) is that this was a systemic failure - and the system therefore needs tweaking. Individuals will continue to be as intelligent (or not) and greedy as ever before.
Go back in time 5-10 years, take charge of one of these companies. Refuse to invest in the shady investment vehicles and...GET FIRED. As your competitors are raking it the $$ by leveraging themselves up to their eyeballs and using new magical investments created by physicists, your company plods along. The Board would like a word with you...
I haven't seen anyone here mention the failure of the ratings agencies who slapped squeaky clean ratings on pieces of junk. That, it seems to me, is something to consider when looking for changes to make going forward.
I share the thoughts of many concerning executive compensation. It's out of control. Every time I try to come up with a cure for that particular disease, however, I find the cure to be worse. I hope someone smarter than me can figure something out there.
I should mention, of course, that there were obviously companies that did avoid the shady investments. They tend to be the tortoise-style companies that aren't flashy. They plod. It seems to me that some industries are more tolerant of plodding than others.
Three cheers for my plodding employer. The contrast between us and AIG (same business, at least theoretically - Property Casualty Insurance) looks pretty good right now.
I laughed out loud at this, considering it comes in this blog, in this comments section, considering the attitude of Freddie concerning the Big 3 honoring their contracts with the UAW.
In order for this to make any sense in the context of this discussion, you'd have to be arguing that the UAW doesn't do a good job of assembling the cars the Big Three design. That is a claim made by precisely no one in this debate. But nice try, man, keep working at it, you'll score a point someday.
It really is just transparently the case that some among you think contracts have to be honored when they're for rich executives and not when they're for assembly line workers.
@ MikeF: "KIA, exactly which criminal laws are you proposing that we use to prosecute these people?"
A loose outline:
1) Review of all corporate filings for violations of 18 USC §1001 knowingly making a false statement within the jurisdiction of an agency or department of the United States Government. All filings with the Federal Government, whether tax, regulatory,license-related or whatever which were misstated, falsified, cooked or misleading can and should be prosecuted. Since most securities traders are already heavily licensed and regulated, there should be a plethora of data to work with.
2) Perjury - for any filings or statements under oath.
3) Fraud - for false filings or statements which were not under oath or were made to sources other than the federal government.
4) Wire fraud and mail fraud - for circulation of false and misleading statements relating to the merits of risky investments. This can be prosecuted not only for misrepresentation of a material fact, but also for the omission of material facts or the failure to disclose such facts where there is a duty to do so.
5) RICO - for instances in which entities worked together to accomplish illegal or fraudulent ends.
6) Conspiracy - to cover or conceal losses, to promote fraudulent securities, to dupe investors.
7) Conspiracy against the United States, 18 USC §371 to defraud the United States or United States agencies such as FDIC or federal loan guarantors.
8) Aiding and abetting for any of the above crimes.
This is an off-the-cuff list. A dedicated prosecutor could easily expand this out to over a hundred counts. Between 1985-1990 over 13,000 federal criminal actions were brought against defendants in connection with the S&L crisis. Most of those pleadings could be refined and recirculated immediately.
@ JMO "Executives at United Airlines were desperate to hedge their exposure to rising oil prices so they locked in there jet fuel at $120 a barrel. Now, with oil at 49 a barrel they have upwards of $500,000,000 in losses. Should those executives be put in jail?"
Inaction when a prudent director should act can create liability, although those suits tend to be civil in nature. The operative question would be "Why, in 2002, 2003 and 2004 did you not put long-term hedges in place to protect your company when you knew or should have known that fuel is needed to make jets fly?" Some of the companies did have those in place and would have done well if they hadn't gotten greedy and resold the options.
The business judgment rule will provide some degree of insulation under these circumstances, but a good attorney will ask "Whose advice were you listening to when you locked the $120.00 rates? Didn't you check the inventories and consult with specialists or were you shooting from the hip?" There were a lot of experts who were claiming based upon verifiable data that there was oil in tankers sitting unsold at those rates and that the prices would dip in the future. CEO will defend saying it wasn't certain either way, ergo CEO may not be held liable. Realistically, they were shooting from the hip, but civil liability is tricky.
Nevertheless, this is different than a CEO saying "These CDO tranches are the safest AAA rated investments out there" so he can sell them to investors when you know the ratings are bogus and the loans underlying the tranche are toxic waste.
It really is just transparently the case that some among you think contracts have to be honored when they're for rich executives and not when they're for assembly line workers.
As a lawyer, I think they have to be honored until modified by consent or in bankruptcy. If Merril Lynch could have saved itself from disaster by entering bankruptcy and shedding the golden parachute, then I'm fine with that. Of course, they couldn't, both because the parachute wasn't big enough to save the company and because a stockbroker can't use the provisions of chapter 11. (11 U.S.C. 109(d)A. Read it and weep.)
GM can, because the legacy costs are big enough to break/save the company, and because it isn't a stockbroker.
So, no, one need not be a hypocrite. One need only have a passing familiarity with the problems at both companies and the bankruptcy law.
Three points:
1) CEOs are not the big fish in the compensation bowl nowadays. For every million a CEO makes, some financier is making ten million.
2) Curiously, there seem to be no complaints about the CEOs that donate regularly to left-wing causes and make fantastic amounts of money. Remember, those 10M/yr level trend massively Democrat. People want social mobility on the way up, but once they've gotten there they want to kick the ladder of capitalism away so they can stay at the top.
3) Rich people don't make money to buy stuff. As many have noted, they have all the stuff they'll ever need. They make money to get status. The day that supermodels stop leaving the quant with the five million dollar pad for the managing director with the fifty million dollar penthouse is the day that men will stop chasing absurd wealth. Unless you can breed a new race of men that will not risk it all for beautiful women, or women that will go the highest-status men, there will always be greed beyond material wealth.
KIA - glad to know you're on record for criminalizing actions of company owners who can't see the future.
It's unfortunate the rest of the world can't look at your own personal shortcomings and demand you be tossed in jail for them.
1. People make mistakes and suffer.
2. Small companies make mistakes and a few people suffer.
3. Big companies make mistakes and a lot of people suffer.
But the only way you can change this pattern is if you can change rule #1. Good luck.
I'm becoming reconciled to the CEOs of the failed banks keeping their walking-away money. Saving a large chunk of what you earn is a sign of prudence, after all. It would be nice, though, if they never get another job on Wall Street.
I remember a guy who was CFO of two failed banks. The company I worked for hired him. What were they thinking?
Going forward, I suggest that CEO contracts include delayed compensation guaranteed not to get paid if the company loses money or goes belly up after the executive leaves. As I understand it, golden parachutes at Lehman were specially protected.
Sam - sorry to learn about your reading problem. They have programs for that now. You should think about it.
y81 wrote:
What arrant nonsense. Yeah, those poor CEOs, so ashamed obloquy and vilification of the "chattering classes" (whoever they are) that they have to be forced, forced to take huge sums of money in order to do their jobs. This sounds like something out of one of Ayn Rand's more tendentious essays, one of the ones she wrote after Nathaniel Branden dumped her ass and while she was jonesing for a nicotine fix.
Here's an idea Y81, perhaps you have reversed cause and effect. Perhaps the reason that CEOs were respected 50 years ago and are vilified now (Although how you can say that CEOs are vilified given the cults surrounding Warren Buffett, Jack Welch, Lee Iacocca, Steve Jobs and Bill Gates is a mystery to me) is because 50 years ago they weren't seen as a bunch of greedy, responsibility avoiding, blame-evading punks who are only concerned with fattening their salaries at the expense of the companies they run and the US taxpayer.
American CEOs have propagated a myth that they are titans, that their shit doesn't stink, that the rays of sun shining out of their asses could bring warmth and illumination to blighted and benighted companies and indeed that this illumination, these golden rays spilling forth from their anal sphincters are the sole reason why their companies succeeded. This myth was necessary to justify the huge salaries that they asked for and as long as things were going well people believed in it.
But now things aren't going well and the CEOs have been revealed to have feet of clay. These emperors have no clothes. Did you even bother to watch any of the testimony of the financial industry CEOs on Capitol Hill last fall? It would have been laughable if it hadn't been contemptible. To a man every single one of these fallen titans blamed everyone else for the failure of their companies. They blamed the government, they blamed people who took out mortgages for homes they couldn't afford. They blamed the market. Not a single fucking one of them accepted a shred of responsibility for the plight of their companies. The men behind the curtains were revealed and rather than being the bold and visionary leaders that they told everyone they were while collecting their huge salaries they came off as a bunch of contemptible, whiny, little shits.
When Dwight Eisenhower, one of the greatest presidents our country has ever had, was commander of SHAEF he wrote two speeches in preparation for the D-Day invasion. One speech is the one that we're all familiar with, the speech commemorating the successful landings. The other speech is the one he prepared in case the landings failed and he had to withdraw the troops. It read:
"...If any blame or fault attaches to the attempt it is mine alone." It would be refreshing to see one, just one American CEO who had the same understanding of leadership and responsibility that Dwight Eisenhower did. Instead we have the likes of Kerry Killinger, former CEO of Washington Mutual, who, when the company's stock was in the tank tried to get the board of directors to rewrite his compensation package so that he wouldn't be affected by the bad decisions and lack of leadership on his part that caused WaMu's stock to tank.
Newsflash Y81, none of these guys is Hank Rearden, Ellis Wyatt, or Dagny Taggart. This is the real world, not Atlas Shrugged.
Wile,
Does it matter if the shareholders and the board demanded that the CEO pursue these risky strategies?
In my business I often work with companies that tell me they need me to do X. I say X is never going to work, we need to do A. They tell me, no try it anyway. I say ok and we all work for 3 months until it becomes obvious to everyone that X isn't going to work. Do I have some moral obligation to quit rather than to X, or is it resonable for me to do what I'm told? After all, it's the clients money if they want to waste it, that is their perogative. And, who knows, maybe they will turn out ot be right.
Nick said: "Once the honest man realizes this is the case - Once he sees that the deck is stacked completely against him and that there's no way for him to succeed without being a criminal - He stops trying. He becomes part of the silent side of society hoping to do just enough to get by and provide for his family without drawing too much attention to himself in the process. He won't take the high-visibility jobs because his consience prevents him from doing what it takes to get things done. He's unwilling to become a slave to the process we've laid out for him so he withdraws to the margins where we want him."
I am an honest man. No disrespect intended here Nick, but I've been in business for 35 years. I've owned six small companies (Under $2 million in sales) and worked for corporations where I was CEO of $24 Million in sales and a staff of several hundred and was in middle management with a few large companies, Ralston Purian for example.
The vast majority of the people I met and worked with along the way were hard working and honest individuals from the top down. And those who were criminal or skaters usually found the door in a reasonable amount of time.
Enron (and the others) was a sad anomally, not the standard for corporations. If they were the standard we would need to change our name to Russia.
It is a sad affair that we are in and generally it has more to do with not enforcing the laws that exist than in not having more regulations, as some profess.
If you took all the compensation paid to CEO's and put it in the treasury it wouldn't make a noticeable dent in what we are throwing away as a country and what we will throw away as we move to the left and socialism.
Most of these greedy clowns will pay with a certain amount of humiliation as their status is reduced. I am all for taking some of their money too, but I do not believe that they have set the standard for how American corporations work and they do work.
I'd rather see status seeking, money hungary CEO's running corporations than the government. The government of this country is not the engine that created our vast wealth and economic well being. The free market and incentives are what did this and if we lose sight of that and it looks like we might be, then we are in for some hurt.
I just started my seventh honest company and am looking forward to few more honest years in the middle of it and not on the fringes.
Lars
There doesn’t seem to be many differences in CEO ability but vast chasms in their pay. I read somewhere recently, can’t remember where, that while a bad leader can certainly ruin a good company it isn’t so clear that a good leader can right a bad company. Furthermore, it is also not clear that a great leader will have significant successes advancing a middling firm verses the average leader. Granted I am using some vague terms, good, bad great etc. But I think the point can still be made. This is especially true the larger the firm is, and generally the larger the compensation. It is unclear that the gaps in CEO pay and compensation packages with those of peers and workers actually produce net positive value for the firm. Shareholders would do well to investigate this and make investment decisions with this in mind.
KIA you are completely clueless if you're going to demand a CEO answer, "why didn't you hedge against high fuel prices 2 years ago and then bet on lower fuel prices 6 months ago."
If you were not asking this question 2 years ago and 6 months ago respectively I stand by my statement you are clueless. If you were asking these questions than you better be rich or you are a coward afraid to put his money where his mouth is.
Most likely you're just the worst kind of Monday morning quarterback that insists everyone else but themselves should be personally accountable to the Nth degree for all forms of unseen risk.
I don't think there is a CEO of a failing company that wouldn't say they have screwed up. But to swoop in with hindsight and pretend that it was so easy to spot all the details they should have gotten right is fool hardy.
I fail to see why greed should bring us any better CEOS than pride ("vainglory"). Neither are especially virtuous motives, although I certainly don't expect CEOs to be saintly, only capable. Curently the evidence is that too many aren't despite the inducement of stellar salaries.
But how about pay for performance? Pay the CEO a decent (say, senator-level) salary, plus some cushy perks (company limo, company jet, etc.). Then, if he (or she) stays with the firm a certain number of years (i.e., becomes vested) and if the firm does well, he gets a huge, huge bonus. Otherwise nada, zip, nill.
Justice for the various bad actors of the financial meltdown would look something like this -- forced to work at a gas station in some backwater hell hole in flyover country just so they could pay the rent at the trailer park. Forever. How you accomplish that would require some, um, creative, public policy. But anything less is not justice.
If A-rod doesn't bring home the World Series, he should have his salary confiscated....right?
I'm surprised noone has mentioned the negative incentives.
If CEOs can see others being prosecuted and reduced to poverty for bad judgment, rather than actual breaking of the law (current law, not retrospective law). Then we will see CEOs acting as they do in the countries where such things happen all the time.
They will make sure to channel their wealth into a safe haven in Switzerland or some other responsible country. And they will skip the country at the first sign of it all going wrong.
With the prospect of siphoning off even a tiny fraction of the US GDP, I'm sure many countries will find it in their interests to become such a safe haven.
Do we think this will help?
In order for this to make any sense in the context of this discussion, you'd have to be arguing that the UAW doesn't do a good job of assembling the cars the Big Three design. That is a claim made by precisely no one in this debate. But nice try, man, keep working at it, you'll score a point someday.
Sorry man -- I'd just have to be arguing that the work the UAW does isn't worth the amount that they're paid for it. Which is in fact what I'm arguing as are many other people in this debate.
But nice try dude, keep working on it, you'll catch up someday.
It really is just transparently the case that some among you think contracts have to be honored when they're for rich executives and not when they're for assembly line workers.
Yeah, that must be it. A simple case of class warfare, that's what this is all about.
If I walked in to a casino and there was a game that offered me hundreds of millions if I won and merely millions if I lost, I'd take that bet. Every time. And so did every Wall St. CEO.
Unfortunately, the losing bet, while still providing millions for the CEO has not been so good for the country.
And, having spoken to many people on Wall St. way back in 2004/2005 about how doomed the CDO/CDS market was, I can tell you first hand that many of their reactions was basically, "As long as I'm not the one holding them when their value plummets, who cares?" (and some were even looking forward to the crash as there was money to be made shorting things as well).
doctorpat, it's worse than that.
Nobody with alternatives will serve as CEO. And these people have alternatives.
-dk
Holy crap, it is really frustrating that I have to share the label "libertarian" with you, Ms. McArdle.
This... just sends me into a rage. I want to cry. The fact that you're selling a libertarianism that doesn't see the injustice of what's occurred - that somehow this corporatist, privileged system is the "free market" we're supposed to be promoting - just breaks my heart.
Financial crises are *always* the result of a fundamental injustice or fraud that has been perpetrated, and I can't think of an episode when both political and business / financial interests have not colluded to perpetrate it. The problem is that such an analysis would shake the foundations of the establishment that provides the context for what you're selling as "libertarianism" but is really just the mildly libertarian wing of the status quo.
This is what happens when you ignore political economy and think of economics as some Donald Trump-like game, where the rules just happened to come about and, gosh, the winners just happened to play the game better. God help the libertarian movement if our future is advancing vapid apologetics like this. We'll richly deserve the ensuing witch hunts in the not-too-distant future.
"People are motivated by non-monetary rewards too, notably what the ancients called "glory" or perhaps "honor". Becoming a major corporate CEO is an accomplishment in and of itself. (And Meagan toucehs on the reverse; people are also motivated not to fail by fear of shame or infamy)"
Then, for godsakes, why do they need to be paid 10's of millions?
Jeremy - you call yourself a libertarian, but you seem completely unaware of the vast literature which implicates one other important actor in economic crises. Let me give you a couple of hints - it controls the money supply, dictates accounting rules, subsidizes home ownership, etc.
But I guess you are in too much of a "rage" to think straight. Much easier to blame it all on greedy businessmen.
As for the punishment of CEOs - I would think that shame - the knowledge that you failed at the task you'd dedicated a lifetime too - might also be part of the price they are paying (even with a golden parachute).
You know, I don't agree with Mr. Marx about everything, but when he described the state as the executive committee of the ruling class, I think he was on to something. I'm not singling out CEOs to the exclusion of gov't bureaucrats. Rather, I simply don't see much difference between one state-chartered, privileged bureaucracy called the gov't, and another state-chartered, privileged bureaucracy called a corporation. To describe these neofeudal manors as a business, let alone as a creature of the "free market," is to be awfully glib about the principles libertarianism is supposed to advance.
As Roderick Long says in his essay on corporations and libertarians, it's a very similar relationship to that of the church and state in medieval Europe. The struggle between the two for dominance was real, but either side had an interest in maintaining the overarching system that legitimated both parties. Big business and big gov't are a good-cop, bad-cop scheme writ large.
"Could it be possible that by having such free access to credit coupled with overly-generous bankruptcy provisions for individuals, real wages never felt a pressure to rise from the standpoint of the market in part because people could always lean on credit, particularly credit cards, instead of feeling a pressure as employees in a corporation or group to ask for an increase in wages to meet rising costs? That that and not a vast conspiracy on behalf of upper-management or shareholders and traders could be at least the larger part of why there has been such a phenomenon in terms of the stagnation of "real wages"? - Neal
Wow, Neal! You mean it was just that simple? All employess had to do (those in a corporation or group, anyway) was ASK their employer for a raise???
REALLY?
And do you think the fact that they were in a "group" might have helped, too? It seems to me that we have had such "groups" for a long time....they are called unions. But I never realized how simple it was.....just ASK for a raise...wow!.
Do you think that the decades-long war against unions, higher wages, workplace protections, etc etc carried out by the Republican Party and it's corporate constituency might have ANYTHING to do with the situation? Or maybe that has WAY more to do with it than the fact that not enough employees asked for raises? Or, as you put it, "wages never felt the pressure to rise" - gee, having been laid off and now working at half my previous wage, I'm pretty sure my wages are "feeling the pressure to rise", I just don't think walking in on Monday and asking my boss for a raise will cause them to do that- (especially since I saw two of my colleagues packing their office belongings in their cars Friday when I left)
Let me guess....you're a Republican?