Clawing Back at Exec Comp (part II)
As regulators and shareholders sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle. Scrutiny over pay is intensifying as banks like Merrill prepare to dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers’ money. While bonuses are expected to be half of what they were a year ago, some bankers could still collect millions of dollars.
SEC's Chair's Bailout Bull$%&t
In what I can only type with a combination of disgust and astonishment, SEC Chairman Christopher Cox blames the current crisis on the "boom-and-bust cycles" of markets.
"Financial markets, of course, are not perfect. In particular, they are susceptible to boom-and-bust cycles. Cycles of this sort have been a hardy perennial over the past 400 years of experience with organized markets. Addressing the results of these cycles is why we have protective mechanisms such as the Federal Reserve System and federal deposit insurance.
Detroit Bailout; Ford Opts Out?
As we noted Saturday morning, the $15B Detroit bailout is moving ahead. The preliminary deal looks to be a a loan, plus supervision and an equity stake. And I'm not sure, but Ford is making noise as if they are opting out of part of the deal:
The U.S. government may end up holding stakes in General Motors Corp., Ford Motor Co. and Chrysler LLC if Congress and the White House reach agreement on a financial bailout for the automakers.
Under the proposed rescue, details of which are still being discussed, the Treasury would get warrants for stock equivalent to 20 percent of any government loans. With GM seeking as much as $10 billion and valued at $3 billion, the state may become the biggest shareholder. The legislation isn’t clear on what kind of holding the government would take, leaving it the option of preferred, common, voting or non-voting shares.
More Bailout Comparisons
Last week's discussion on the size of the bailout expenditures generated some interesting buzz. A few others picked up on the size, and created a few different ways to depict the amount of money involved.
These have been my favorites:
Calculating the Total Bailout Costs
More than a few people have asked me how I came up with the the $8.5 trillion figure for the total cost of the bailouts. Below is a table, plus the Excel Spreadsheet it came from.
Note that this cost does not include the $5.2 trillion in Fannie/Freddie portfolios that the US taxpayer is now also explicitly responsible for.
$7.8 Trillion Total Bailout Commitment
Big Bailouts, Bigger Bucks
I found that whenever I discussed the current bailout situation, people had a hard time comprehending the actual numbers involved. In doing the research for the Bailout Nation book, that was a problem. I needed a way to put this into proper historical perspective.
If we add in the Citi bailout, the total cost now exceeds $4.6165 trillion dollars. People have a hard time conceptualizing very large numbers, so let’s give this some context. The current Credit Crisis bailout is now the largest outlay In American history.
Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined:
Pithy Quotes for 2008 Bailouts?
So the never ending book is coming along. Thanks to Paulson, Bernanke, et. al., it just keeps getting longer.
One of the things I decided to do was throw a relevant quote, by a famous or infamous personage, into the beginning of each chapter. The idea was to set the tone for each chapter with some time tested wisdom or clever turn of phrase.
"If they are too big to fail, make them smaller."
-former Nixon Treasury Secretary George Shultz, said about Fannie Mae and Freddie Mac.
I have not come up with any quotes for the rest of the class of 2008 bailouts.
Any suggestions? The best quote gets an autographed copy of Bailout Nation, and my undying gratitude.
Fannie Mae / Freddie Mac
4. Detroit / GM loans
(research loan already made, plus the new bailout request)
5. Home Owners Assistance
7. Lehman Brothers (the non bailout)
8. Citigroup ($25 + 20 + 306 billion)
9. Whoever is next
10. Whoever I forgot
Tim Geithner and the AIG, Citigroup Fiasco
In the Cafe this morning, Institutional Risk Analyst Chris Whalen lobs a hand grenade at the nomination of Tim Geithner to Treasury Secretary.
It is this morning's must read:
The Bailout of Citigroup moves forward (Is this book ever going to be finished?):
"Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.
In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for [$27 billion of] preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program."