Investment house CEOs were paid a criminal amount of compensation

Wendy Peters
Editor’s Notebook

At the beginning of October, the U.S. House of Representatives passed a revised version of the $700 billion bank bailout plan (they originally denied) in the hopes that it would bolster the U.S. financial sector. As of mid-October, success wasn’t exactly being trumpeted down Wall Street; people were still anxiously awaiting tangible results.

One of the topics frequently discussed since the banking bailout was the obscene amount of compensation being paid to the principals of the various failed financial institutions. Financial CEOs were actually being rewarded with huge sums of money, in some cases, for being incompetent. Here are a few examples:

• Lehman Brothers Chairman & CEO Richard Fuld Jr. made $34 million in 2007. Lehman filed for Chapter 11 Bankruptcy protection in September 2008 and Fuld also sold $490 million in LEH stock.

• Goldman Sachs paid its Chairman and CEO Lloyd Blankfein $70 million in 2007. Co-Chief Operating Officers Gary Cohn and Jon Winkereid were paid $72.5
million and $71 million respectively.

• Bears Stern former chairman Jimmy Cayne received $60 million when he was replaced. The company was bought out by JP Morgan.

• AIG chief executive Martin Sullivan received a $14 million compensation package in 2007. He was ousted in June. The insurance giant received an $85 million federal bailout. Robert Willumstad was handed $7 million for his three months at the helm of AIG, before Edward Liddy replaced him.

• Fannie Mae CEO Daniel Mudd received $11.6 million in 2007, while his counterpart at Freddie Mac brought in $18 million.

(Source: http://www.bigpicture.typepad.com)

For insurance giant AIG, the story worsens. According to washingtonpost.com, less than a week after the federal government offered AIG its $85 billion bailout, the company held a week-long retreat for its executives at the luxury St. Regis Resort in Monarch Beach, CA. They ran up a tab of $440,000 from the taxpayers’ rescue package; probably not what the good citizens of the United States had in mind. AIG had also been planning another similar retreat for about 150 employees and brokers to the Ritz-Carlton in Half Moon Bay, CA. But in deference to the company’s new rescuers — the U.S. government — the trip was cancelled.

I don’t know if the $700 billion bailout by the U.S. government was right or wrong, though I do believe that some drastic measures had to be taken to staunch the bleeding of the financial sector, a condition that has now badly infected countries worldwide. We are on the brink of a global recession — and may well be in the midst of one when this issue goes to press. However, one doesn’t have to be a financial wizard to recognize something that is utterly wrong — such as the compensation packages paid to the above-named gentlemen. How can any of them justify accepting such sums when they must have known — long before the general public — that their institutions were either in serious difficulty or, indeed, going bankrupt. And for AIG execs to swan off to a luxury resort in the middle of this debacle is absolutely unbelievable and unforgivable.

Let’s compare these circumstances — some people might consider them to be crimes — with those in which former Canadian media mogul Conrad Black found himself. Black is currently serving a 6+-year prison sentence in Florida after being found guilty of fraud and obstruction of justice by a U.S. court. Black is definitely paying the price for his crimes, basically for treating his company, Hollinger, as though it were his own personal piggy bank.

Even though Lord Black of Crossharbour was found guilty of not playing by the financial rules of engagement, his actions did not prompt a worldwide meltdown, as is the case today. The financial executives in the U.S. displayed absolute greed through their dealings with the sub-prime mortgage fiasco. As I understand it, this is what started the domino effect of the banking sector spiraling uncontrollably downward.

While Congress has grilled some of these financial culprits regarding their part in the collapse of the U.S. economy, there doesn’t seem to be any desire to lay charges or to hold anybody accountable for what has now become a global malaise. Americans have been dealt a terrible economic blow, much of it due to lack of accountability both by government and also in the economic sector. Those who share some responsibility for this crisis aren’t being held to account; instead they are being given bonuses. No wonder individuals feel so frustrated with the justice system: one for the rich and one for the poor.

WP