The government should limit pay for certain CEOs

October 24, 2009|By TIM ROWLAND

At a press conference detailing Apple computer's fourth-quarter earnings statement this week, it casually came up that air freight costs were projected to rise "abnormally." Apple's executives declined to say why.

Brilliant. Apple's computers are better than PCs, but not twice as good. Yet an entry level iMac costs twice as much, a fact for which Apple makes no apologies. In fact, such is the mystique of Apple, that a "slip of the tongue" about air freight can touch off a firestorm in the trade press. What amazing product is in the works, for which the company will need to pay so much in shipping?

No one would consider limiting pay of Apple executives, who are so savvy that they can turn a dull line item into a week's worth of buzz over a product that doesn't yet exist on the market.

And who of sound mind would suggest limiting the salary of Ford CEO Alan Mulally, even though Mulally himself (compensation $13.5 million in 2008) said he'd work for a dollar if Ford accepted federal bailout money.


Sensing an impending meltdown in 2008, Mulally hocked everything the company owned, right down to the blue oval trademark, in exchange for lines of credit that have saved the company from bankruptcy. At the same time, Ford's vehicles are improving and when everything shakes out, it will likely emerge as the No. 1 U.S. automaker, thanks to its shrewd managerial moves.

Now consider the government's move to limit pay for executives at the seven institutions (five of which are financial) currently on the federal dole.

Such interference typically goes against the grain of capitalism. And true to form, the clubby Wall Street set has launched its predictable megaphone toters onto the lecture circuit with the predictable argument that, as Daily Finance says, "is sure to damage the firms" that are involved.

It is true that the government might be motivated, in part by playing to the populist set that decries the "chasm between Wall Street and Main Street." It is also true that talent, as Wall Street defines talent, might flee the big banks.

It does pain me at this point to side with the populists, who are not only often wrong, but often gruesomely so. But every blind hog, and all that.

As for the talent, if past history is a guide to what kind of talent the megabanks attract, one can only say goodbye and good riddance.

Banking used to be a simple affair that operated by the 3-6-3 rule: Borrow at 3 percent, loan at 6 percent and be on the golf course by 3 in the afternoon. When I was in school, no business major wanted to go into banking because it was "boring."

Well, at least that problem has been scattered to the four winds.

Even the 19th-century Robber Barons and financiers had some tangible reason for being, be it oil, railroads or steel. J.P. Morgan has been much maligned, but he did bail out the U.S. economy once, when it was on the brink of disaster.

More recently, however, money is a product to be used only in the pursuit of more money - and if something is actually produced by that money, well, it can't be helped.

Private equity firms propped up by incredible amounts of borrowed money bought mammoth corporations, stripped them to the bone and then resold - until they couldn't resell and couldn't repay. Derivatives and other "creative financial instruments" earned profits, not on goods and services, but on the movement and restructuring of money itself. Banks began to tell appraisers what houses were worth (instead of the other way around) to fatten ever growing portfolios that, as it turned out, were based not on reality, but on a meaningless number on a balance sheet. Insurers wrote policies in support of that number without knowing what the number was actually worth.

So when Wall Street speaks of talent, this is the talent it means: The type of cat who would back over his own grandmother if it led to a higher quarterly statement.

The stench that wafts out of the credit card divisions at Citi and Bank of America alone is emblematic of this talent. This is a talent for preying on financially unsavvy college kids. It is a talent for cleverly backing people into a never-ending spiral of late fees that trigger over-the-limit fees. It is a talent for changing lending rules, while the customer remains locked in to whatever terms the company dictates.

If taxpayers are going to fund this type of behavior, then yanking the reins on executive compensation is the least we should do. The Wall Street apologists will condescendingly tell us that we just don't understand higher finance. Maybe not, but we understand right and wrong.

Maybe the "talent" will indeed flee these troubled financial institutions. Maybe in their place will come along an old-fashioned banker whose head lolls onto his chest after a big lunch and whose secretary discreetly wipes up puddles of his drool at the end of the day.

One question: How could this be worse than what we have now?

Tim Rowland is a Herald-Mail columnist. He can be reached at 301-733-5131, ext. 2324, or by e-mail at Tune in to the Rowland Rant video under, on or on Antietam Cable's WCL-TV Channel 30 evenings at 6:30. New episodes are released every Wednesday.

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