Bailouts and Meltdowns - Accountability for Leaders

$700 billion this, $800 billion that, $200 billion here, hey throw me $25 billion. The final leg of 8 years of crony capitalism and personal irresponsibility rear their ugly head. During the last 8 years the rich got richer, the stupid get bailed out and if you are too big to fail, you and your company get a free ride from the taxpayers.

Take Citigroup, they have already received $20 billion from taxpayers, now they need another $25 billion. How about AIG, they get $125 billion because the side bets, oh I'm sorry the collateralized debt obligations or CDO, were not truly collateralized by their counterparties. These folks wanted no regulation, got it, but because their system is collapsing, we need to bail them out. Remember, 15 years ago, there was no CDO market, now there are trillons of dollars at risk. That's no mistake my friends, trillions.

People who played conservatively and by the rules have to pay, while overpaid executives take a small hit on their excessive option plans. As an entrepreneur, I've never understood why a Fortune 500 executive gets paid $10, $20, or $100 million a year. These large companies have highly paid staff, brands, customer momentum and during the last 8 years, benefits galore from a bought and paid for government. Anyone that has the luxury to spend millions to hire top firms like McKinsey or Bain to study their company is not really taking personal risk. Oh and if they get fired, there are massive severence packages. The worst of the lot are the Big 3 automakers. They come hat in hand to the taxpayer when they have spent years fighting against fuel economy, safety standards, and legitimate competition. Remember it was not long ago when domestic automakers were able to benefit from voluntary restraints from the Japanese from taking too much market share (remember the 80's). Make crappy cars, get really big, overpay your execs, then come crying to get bailed out.

Unfortunately, these banks and automakers have become too big to fail. It is the government's fault for not breaking them up or regulating them. And the government is made up of the people, so it's all of our fault for allowing our leaders to be corrupted by these companies. It is one thing to let one institution fail, but the whole system collapsing could cause all sorts of unintended consequences.

So if you are going to take government money, then there have to be strings. First, the taxpayers now get to own a piece of the upside. Second, if you are now a piece of the government, then execs should not get more then their government equivalent. Let me repeat this again, if you are part of government, you should not make any more than members of the government. On March 6, 2008 GM CEO Rick Wagoner received a 33% boost in pay to $2.2 million. Given that a US President makes $400,000 and a major Cabinet secretary makes $191,000, the most Rick should make is $200k. I mean running GM is more important, than say, the Department of Defense. Alan Mulally, CEO of Ford, gets $2 mil/year. While it's not culpable for years of Ford mismanagement, don't be coming down to Washington unless you cut salary under the President's. AIG's Martin Sullivan received $44 million with a severance of $15 mil. and bonus of $4 mil after writing down $20 bil of losses. Lately, Martin got press for declining severance, but that does leave $20 mil. At least the current AIG CEO, Liddy, is taking $1, but I'd like to see how valuable the equity grants truly are.

There was a time when a business that became too big would go under antitrust review. High incremental tax rates limited excessive salaries. The bottom line is if risk is low, then reward should be low. And getting fired is not a real risk deserving of a high salary (a typical CEO line). If you want a guarantee, go work for the government. And get government pay.