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Capitalists and crisis

September 24, 2008

… the administration continues to balk at introducing any legislative curbs on Wall Street salaries. Paulson, who earned up to $30m annually when heading Goldman Sachs, said compensation was an issue to be dealt with separately.

“I’ve heard your concerns on executive compensation and I share those frustrations,” he said, adding that he was equally “upset” by certain examples of excess.

The Guardian Online

I’ve been trying to find a word, or a phrase, to describe the hideously inappropriate levels of compensation provided to people in certain jobs.  That Henry Paulson isn’t the most generously remunerated person in the history of banking stinks.  That, judging from his comment, he doesn’t consider consider $30 million a year excessive reeks. Thirty million dollars a year? I can’t understand how a person’s contribution can valued at $30 million annually; I’m trying to imagine a company budget sheet where one of the salary variables, when replaced by $30,000,000, returns a result that represents the best possible use of $30,000,000.  It’s beyond my capacity, as a pathologically lazy person, to believe that a salary of this magnitude would provide any incentive for the person receiving it to do a good job for longer than, say, a year.  I know that if my employer told me that I’d receive $30 million in the next financial year, I’d be planning my retirement.  In fact, I’d probably try to do them a deal – say, $10 million for six months?

I know that these extraordinary (can I use the word “extraordinary” when, in fact, these obscene amounts appear to be quite ordinary in certain circles?) salaries are made up of bonuses and stock options and other things I know absolutely nothing about, but even taking that into consideration, the weekly/monthly paycheck must certainly inoculate the recipient against the sorts of concerns that harry the average person.  For someone who has revelled in the largesse of an investment bank to then be in charge of the US Treasury, officially styled a “public servant”, and in a position to determine how the money of the average taxpayer might be spent on bailing out an economy run into the ground by people in his former profession seems absurd.

Maybe “paulson” is an appropriate (pejorative) adjective for ludicrously large sums of money.

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6 Comments leave one →
  1. Ed Poline permalink
    September 24, 2008 2:08 pm

    There are several reasons I oppose bailing out the financial instituions using the proposed plan. With this do-nothing Congress, I have no confidence any real action will be taken. Both Republicans and Democrats have failed to do their jobs. If a plan is approved, there must be certain provisions to protect the taxpayers, and those who were victims of fraud. I intend to have a petition signed by as many people as possible, to send to President Bush, my U.S. Senators and U.S. Representatives, by Friday. I urge all to do the same. This is my petition:

    September 24, 2008

    We the people of the United States of America, demand that the current fiscal and financial crises be solved in a responsible manner
    by the President of the United States and his cabinet members, as well as all members of the United States Congress,
    and the Supreme Court of the United States.
    The current plan to provide funds to financial institutions is unacceptable. In essence, it forces taxpayers to invest in
    these institutions with no return on their investments, yet provides renumeration to officers of these financial institutions,
    who were negligent, incompetent, and/or criminal in the manner in which they conducted business

    If this plan is to be instituted, there are several demands by the people.

    1. Any and all renumeration for the outgoing officers of all institutions involved is to be eliminated.

    2. Criminal investigations of all parties involved, including, but not limited to, officers and employees of financial institutions,
    elected officials, and lobbyists.

    3. Criminal investigations into illegally approved, or fraudulent mortgages, by any person or persons employed by any financial institution.

    4. In such cases where guilty verdicts are found, those convicted must immediately repay any commissions earned, and face criminal sentencing.

    5. All foreclosure proceedings be halted. Interest rates are to be recomputed at 3%. Those who can afford the new rates may keep their homes.
    Those who cannot, and have some equity in their homes, including down payments, shall be compensated for such equity, with the option of using
    that compensation to negotiate new terms.
    Those who elect to keep their homes, must purchase mortgage insurance.
    Those who cannot because they did not qualify for a mortgage, and did not make a down payment toward the home, shall face foreclosure proceedings.

    6. All forclosures which were implemented because interest rates were raised to the point that the mortgagees could no longer afford to make full payments,
    shall be deemed null and void.
    All interest from the time of such increases shall be forgiven. Such mortgagees, if so desired, shall resume making payments at a rate that is fixed
    at the time immediately before their interest rates were raised.
    Any period of time between when the interest rates were raised, until the first reassumed payment is due, shall be declared as payment and interest free.
    Those who elect to keep their homes must purchase mortgage insurance.

    7. Any profits made by the United States Government on properties acquired through funding financial institutions shall be refunded to the taxpayers.

    8. Any plan to solve the current financial crises must include an oversight committee made up of disinterested parties.

    9. All future mortgages shall not be approved without the purchase of mortgage insurance.

    10. Any plan must not include additional federal spending.

  2. injera permalink*
    September 24, 2008 3:02 pm

    I’m astonished that mortgage insurance isn’t already a requirement of low/no deposit loans in the US. Banks here (in Australia) require mortgage insurance when deposits are below 20%. We couldn’t find a lender who would give us a mortgage – even with insurance – without a 20% deposit for a property on the “wrong” side of the road (the side of the road it was on put it in the “high risk” city apartments category).

    Hopefully there will be a sensible plan. The fact that people are labelling it a “rescue” plan does not bode well – nobody expects to get the life vests back from a plane crash…

  3. September 24, 2008 7:20 pm

    I have to confess that I don’t understand the current financial crisis. I skip past all the news about it, I go out of my way to avoid hearing about it, and when I have to hear about it I still don’t understand it. Economics was never my strong point!

    I agree that a $30 million salary is extreme, though. While I don’t like economics, I still think that wealth should be distributed more equitably than it is. Every time I hear about some billionaire or multimillionaire, I can’t help but think about how many people in the developing world would benefit from their incomes! Even in the US, there are people who’d benefit from that — say, if the government subsidised health care, or paid people’s college fees (even with a HECS-style system), or built better public transport so people wouldn’t be so reliant on cars. Instead, there seem to be these overpaid old men who hoard all the money. That kind of system seems ridiculous, and I really don’t like it… but hey, it’s the way the world works. Maybe that’s why I could never get into economics.

  4. injera permalink*
    September 24, 2008 9:29 pm

    I did consider an economics degree at one stage. In fact, I was about to enrol in one when I finished school and then somebody told me about the compulsory subject known as “Eco Stats”. It sounded hideous. All the people I knew in Eco hated it. The lecturer put his entire lecture onto overheads and then read through them in a monotone, providing no additional explanation of any of the points raised. Nobody could figure out why he didn’t just photocopy handouts and save everybody two painful hours a week.

    I read an interesting editorial on the US dollar today which provides a potted history of its post-war strength (http://tiny.cc/bd9Oz). The whole concept gave me an attack of vertigo.

    Unfortunately I no longer know who’ll be first against the wall when the revolution comes…

  5. September 25, 2008 3:14 pm

    I don’t think I could ever do economics at university. I even mean this literally: without Maths Methods, I’m not allowed to choose it. Even ignoring that, economics makes my brain hurt. I understand that money is worth only as much as people believe it’s worth, and I understand simple things like how inflation happens. Other things are harder. I sort of get them if people explain them to me really simply and I think about it really hard, but it’s not something I want to spend that much time on. If only it wasn’t so important in international relations!

  6. injera permalink*
    September 26, 2008 8:16 am

    The “value of money” scenario makes me realise that my laughter at the Golgafrinchans stuffing their tracksuits with leaves – once they’d adopted them as currency – should have been a lot more hollow.

    I’m off to collect stones from the side of the road. Just, you know, in case…

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