Awards for Rewards
PIM of SPAIN | November 9, 2009 at 12:41 pmby
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When Barack Obama the Nobel Peace Prize was awarded I participated in a discussion to analyze other awards that also could be rewarded. Here is the result.
An Award for Missing the Unmistakable:
This award goes to Ben Bernanke, the most passionate follower of Greenspan's mistakes, being appointed as his replacement, partly for his belief that U.S. house prices would never decline and that at their peak in late 2005 they largely just reflected the unusual strength of the U.S. economy.
An award for the Teflon Man:
Larry Summers, with a Financial Times stand, had little undertaken to blow warning whistles of impending doom back in 2006 and 2007. While earlier as Treasury Secretary he encouraged ferocious and reckless financial behavior by helping to beat back attempts to regulate some of the new and most dangerous instruments, with the help of Timothy Geithner. In 2009 his view is that the present unemployment is structural, and won’t be solved easily. It shows how unprepared the government is to tackle this problem.
An award for Stupid Mortgage Borrowers:
Reckless borrowers were helped out of trouble by government’s stimuli with a very limited effect. Contrary, those who showed restraint and either didn’t mortgage their houses for consumptive spending or rented one received no help at all. The money the more prudent potential buyers held back from housing received an artificially low rate on interest. Meanwhile inflating the dollar that reduces the value of their savings.
An award for Reckless Homebuilders:
Having superbly overbuilt for several years by any normal standard in relation to the population growth, are now encouraged for more homebuilding by giving subsidy to new house buyers of $8,000 each. This cash comes partly from the pockets of prudent homeowners and renters.
An award for Consumers who shopped till they dropped:
The world economy was expanding on the backs of consumers. First, they spent money they earned. And then they spent money they hadn't earned at all. They borrowed from future earnings, by increasing total US debt from just 120% of GDP in the '70s to 370% of GDP in 2007.
In the last 15 years of that period, especially, each time the consumer showed an intention to stop spending, the feds rushed in to provide more credit. And during the final five years of the Bubble Era the debt doubled.
An award for Banks Too Big to Fail:
Bankers applied a simple policy: make the bank bigger. Indeed, government forced them to be bigger, because there hasn’t been any serious Congressional discussion about breaking them up.
An award for over-bonused Bankers:
Look at Goldman's recent huge "profits," two-thirds of which went for bonuses. “It is now estimated that this year's bonus pool will be plus or minus $23 billion, the largest ever.” Less than a year ago, these same bankers were on the brink of disaster. If it was not that "government" - with taxpayers' money – saved their existence. And as for the financial industry as a whole there is no concern about the widespread public dismay, for that excessive remuneration and plundering of shareholders' profit and value.
Award for Overpaid public Company CEOs:
Even outside the financial industry, there also is an excessive form of remuneration for top management. And most of these excessive rewards come out of the pockets of shareholders. In 1964, the ratio of CEO pay to the average worker was reported to be between 20/1 till 40/1. By 2006, this ratio had exploded from 400/1 to 600/1, which can only be described as obscene. These days Companies’ performances don't justify such high rewards. Corporations were run much better and more efficiently in the 1960s.
Award for the best-managed U.S. Auto Industry:
Companies in other industries fail while their workers look for new jobs but the auto industry is rewarded by direct bailouts and subsidized loans, governmental arm-twisting of creditors forced to settle far below their legal rights. Supported by direct subsidies as cash for clunkers to sell their products. As a result of Management’s complacency this industry is one of the worst managed ever.
Award for the Stock Options:
The primus ‘interparis’ under Manager’s remunerations in the industry of recent years in public companies that culminated in legalized theft to flee shareholders' equity. When the stock price crashed, under responsibility from management, the options were rewritten at the lower price, fleecing shareholders value once more. There has been no serious effort made to match stock option rewards related to total financial wealth increase in creating long-term value. Instead, the motto is: grab it today and run away, because tomorrow is another day.
An Award for Maestro Alan Greenspan:
Alan Greenspan received the title of Maestro in the U.S. and is knighted by the Queen of Britain for thoroughly demolishing the integrity of the U.S. financial system. He overtly ignored the great threat of bubbles in asset classes and, in fact, encouraged them.
All done in the spirit of Hyman Minsky* who wrote: "Unless somebody can find a way to change human nature, we will have more crises."
*Hyman Minsky (September 23, 1919 – October 24, 1996) was an American Economist and professor of economics at Washington University. His research endeavored to provide an understanding and explanation of the characteristics of financial crises.
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