[R-G] [BillTottenWeblog] Economic Domino Theory
shimogamo at attglobal.net
Thu Jul 17 07:14:38 MDT 2008
Greed Without Accountability
by Ralph Nader
www.counterpunch.com (July 02 2008)
The worst top management of giant corporations in American history is
also by far the most hugely paid. That contradiction applies as well to
the Boards of Directors of these global companies.
Consider these illustrations:
The bosses of General Motors (GM) have presided over the worst decline
of GM shares in the last fifty years, the lowering of GM bonds to junk
status, the largest money losses and layoffs of tens of thousands of
workers. Yet these top executives are still in place and still receiving
much more pay than their successful counterparts at Toyota.
GM's stock valuation is under $7 billion dollars, while Toyota is valued
at over $160 billion. Toyota, having passed GM in worldwide sales, is
about to catch up with and pass GM in sales inside the United States itself!
GM's executives stayed with their gas guzzling SUVs way beyond the
warning signs. Their vehicles were uninspiring and technologically
stagnant in various ways. They were completely unprepared for Toyota's
hybrid cars and for the upward spiral in gasoline prices. They're
cashing their lucrative monthly checks with the regular votes of
confidence by their hand-picked Board of Directors.
About the same appraisal can be made of Ford Motor Company, which at
least brought in new management to try to do something about that once
famous company's sinking status.
Then there are the financial companies. Top management on Wall Street
has been beyond incompetent. Wild risk taking camouflaged for years by
multi-tiered, complex, abstract financial instruments (generally called
collateralized debt obligations) kept the joy ride going and going until
the massive financial hot air balloon started plummeting. Finally told
to leave their high posts, the CEOs of Merrill-Lynch and Citigroup took
away tens of millions of severance pay while Wall Street turned into
The banks, investment banks and brokerage firms have tanked to levels
not seen since the 1929-30 collapse of the stock market. Citigroup, once
valued at over $50 per share is now under $17 a share.
Washington Mutual - the nation's largest savings bank chain was over $40
a share in 2007. Its reckless speculative binge has driven it down under
$5 a share. Yet its CEO Kerry Killinger remains in charge, with the
continuing support of his rubberstamp Board of Directors. A recent $8
billion infusion of private capital gave a sweetheart deal to these new
investors at the excessive expense of the shareholders.
Countrywide, the infamous giant mortgage lender (subprime mortgages) is
about to be taken over by Bank of America. Its CEO is taking away a
reduced but still very generous compensation deal.
Meanwhile, all these banks and brokerage houses' investment analysts are
busy downgrading each others' stock prospects.
Over at the multi-trillion dollar companies Fannie Mae and Freddie Mac,
the shareholders have lost about 75 percent of their stock value in one
year. Farcically regulated by the Department of Housing and Urban
Affairs, Fannie and Freddie were run into the ground by taking on very
shaky mortgages under the command of CEOs and their top executives who
paid themselves enormous sums.
These two institutions were set up many years ago to provide liquidity
in the housing and loan markets and thereby expand home ownership
especially among lower income families. Instead, they turned themselves
into casinos, taking advantage of an implied US government guarantee.
The Fannie and Freddie bosses created another guarantee. They hired top
appointees from both Republican and Democratic Administrations (such as
Deputy Attorney General Jamie Gorelick) and lathered them with tens of
millions of dollars in executive compensation. In this way, they kept
federal supervision at a minimum and held off efforts in Congress to
toughen regulation. These executives are all gone now, enjoying their
maharajan riches with impunity while pensions and mutual funds lose and
lose and lose with no end in sight, short of a government-taxpayer bailout.
Over a year ago, leading financial analyst Henry Kaufman and very few
others warned about "undisciplined" (read unregulated) and "mis-pricing"
of lower quality assets. Mr Kaufman wrote in the Wall Street Journal of
August 15 2007 that "If some institutions are really 'too big to fail',
then other means of discipline will have to be found".
There are ways to prevent such crashes. In the nineteen thirties,
President Franklin Delano Roosevelt chose stronger regulation, creating
the Securities and Exchange Commission (SEC) and several bank regulatory
agencies. He saved the badly listing capitalist ship.
Today, there is no real momentum in a frozen Washington, DC to bring
regulation up to date. To the contrary, in 1999, Congress led by Senator
McCain's Advisor, former Senator Phil Gramm and the Clinton
Administration led by Robert Rubin, Secretary of the Treasury, and soon
to join Citibank, de-regulated and ended the wall between investment
banks and commercial banking known as the Glass-Steagall Act.
Clinton and Congress opened the floodgates to rampant speculation
without even requiring necessary and timely disclosures for the benefit
of institutional and individual investors.
Now the entire US economy is at risk. The domino theory is getting less
theoretical daily. Without investors obtaining more legal authority as
owners over their out of control company officers and Boards of
Directors, and without strong regulation, corporate capitalism cannot be
saved from its toxic combination of endless greed and maximum power -
Uncle Sam, the deeply deficit ridden bailout man, may have another
taxpayers-to-the-rescue operation for Wall Street. But don't count on
stretching the American dollar much more without devastating
consequences to and from global financial markets in full panic.
Consider the US dollar like an elastic band. You can keep stretching
this rubber band but suddenly it BREAKS. Our country needs action NOW
from Washington, DC.
Ralph Nader is running for president as an independent.
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