Monday, March 1, 2010

Quote Of The Day

The quote of the day is from investor and Berkshire Hathaway chairman Warren Buffett, referring to the executives of the large banking institutions that have precipitated our current economic woes:

"It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price -- one not reimbursable by the companies they've damaged nor by insurance. CEOs and, in many cases, directors have long benefited from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well," he wrote.

Buffent Calls Out Financial Leaders

What's bothered me, and a rather large portion of the American public, is that there has been absolutely no accountability for the stupid things these executives did. There are no criminal penalties, no public shaming, and no real financial penalty. Even when they're fired, as John Thain finally was after breaking the New York Stock Exchange and finishing the job on Merrill Lynch, they can, as Thain is, still be worth tens, if not hundreds, of millions of dollars. Actually, it's probably not accurate to say he was fired. It was actually that he only resigned after it was clear that no one was going to let him be the one to run Bank Of America into the ground. Now, it appears he's been hired to do that for CIT Group as well. His predecessors at the NYSE and Merrill Lynch, who both certainly contributed to their firms' eventual failures, received severance packages of $140 million and $160 million, respectively.

Yves Smith wrote this about Thain's adventures a little more than a year ago at Naked Capitalism:

[T]he noise about Thain’s compensation is probably less important than how it unintentionally serves to divert attention from the real issue. Many (all?) of the big players in the financial sector are insolvent, period. Their credit losses (whether marked to market or a realistic cash flow basis) are bigger than their net worth. These firms are therefore wards of the state.

Yet we keep pretending that they are still private concerns, still keep the managements in place that created the mess, still allow them to pay themselves orders of magnitude more than average workers. As we have discussed, this is looting and the looting continues.

Thain Forced Out, NY Attorney General Cuomo Investigating Merrill Bonuses

Since that was written, Thain has gone on to his new gig at CIT Group. On Wall Street, it's clear that you don't have to learn anything other than how to blame others for your failures.

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