Juriscribe checks in with a great post on executive pay. Lesson of the financial crisis #1: Why good corporate governance matters to everyone.

FORGET HEALTH CARE, IF THE CRAZIES WANNA LOCK AND LOAD LET ‘EM TAKE A BEAD ON CORPORATE EXECUTIVE PAY

Ever wonder why you just paid $2.75 a gallon at the discount Kroger pump? Oil went from $145.00 a barrel in July 2008, down to $34.00 in December. And, when the recession hit, domestic consumption went way, way down. So . . . how does this supply and demand thing work anyway . . . shouldn’t the price be really cheap right now?

Well, here’s a possible answer that the feds are saying they’re gonna look into. There are these super rich corporations, investment bankers and hedge funds that manipulate the commodities markets, and make money from us by keeping the prices of things we gotta have, like gasoline, artificially high. In other words, they flip the supply and demand rule upside down, and hijack the market. A Los Angeles Times Business column Money and Company reported about 30 days ago that a report was coming out soon that will show oil traders, aka “speculators” are to blame for the oil prices’ spike ups in 2008.  Imagine the profits – let’s say you and buy all the oil contracts we can get our hands on at $50.00 p/b and by the time we sell, we’ve spiked the market to $145.00.

So who are these traders or “speculators?” If you ever saw the documentary film “Enron: the Smartest Guys in the Room” you’d know. Watch this You Tube clip, or if you’re really intrigued, watch the whole film some time. (Personally, I think it ought to be part of the core curriculum in every high school). There’s a scene in the You Tube clip where some Enron energy traders are laughing about manipulating California’s electricity grids to jack prices up. If you wanna cut straight to the chase, start watching at about the 2 minute mark.

[youtube=http://www.youtube.com/watch?v=dvLZBv8HsO4]

Right now there’s a lot of grousing by corporate execs over this Citigroup oil trader, and his bonus pay for the fine work he did for Citigroup in 2008-2009.  The execs claim the government is unlawfully tampering with his pay package, and illegally taking away his “earnings.”   This particular vampire is named “Andrew Hall,” and he does his “work” through a corporation called Phibro LLC, a sub of Citigroup. It’s a highly secretive oil trading operation located on a former dairy farm in Connecticut.  Andrew’s bonus for 2008-2009 is 100 million dollars, or, if you wish, on an annualized basis: $383,141.00 a day, or $15,964.00 an hour. That was Andrew’s pay for jacking the price of gasoline that you and I buy at Kroger, and he’s seriously pissed that some people wanna take away his paycheck.  Never mind that the parent vampire, Citigroup, Inc., wouldn’t have a desk chair to sit in right now if the US Treasury hadn’t given it 45 billion of our tax money last year.  We’re funding Citigroup with socialized loss bailouts so they can use people like Andrew to rob us blind on gas prices.  But what would justify paying anyone 100 million a year?  What can a person possibly do to “earn” 100 million a year?  Simple, they can steal 60 or 70 times that amount for their corporate employer using inside trading, and never raise an eyebrow. And, the beauty of it all is . . . there’s nothing our government is really able to do about it.  One positive note here: the US Supreme Court has agreed to hear a 7th Circuit case where the majority voted to allow a giant executive fee to a mutual fund adviser.  In a dissenting opinion, conservative Judge Richard Posner of the 7th Federal Circuit — one of the few truly brilliant and honest judges in the federal court system — said that executive compensation is out of control, and that free market regulation is not working. (The astounding thing is  Posner is a big law and economics guy, and free market advocate).  Sorry to say that it takes a squabble between investors and a fund manager over whether 1% of 2 billion is reasonable, before the big court shows any interest in pathologic corporate greed.

We hear these corporations crowing all the time: “look, we’ve got to keep talented people on board, and that’s why they get paid like they do.”  Wait a second, I know what talent is and all, like some pro athletes got talent, but exactly what is it that defines this ethereal money making talent?  I’ve got an idea . . . how about insider contacts all over the planet, membership in the global billionaires’ club and ability to steal like a kleptomaniac high on steroids . . . and still not get caught. Now I see what they mean . . . that’s a talent they’re willing to pay 100 million a year for.

3 thoughts on “Juriscribe checks in with a great post on executive pay. Lesson of the financial crisis #1: Why good corporate governance matters to everyone.”

  1. Nassim Taleb mentioning risk-reward and its alignment to executive compensation can found here.

    The other key idea to understanding how things got so screwy can be found in the concept of corporatism:

    Contemporary popular (as opposed to social science) usage of the term is more pejorative, emphasizing the role of business corporations in government decision-making at the expense of the public. The power of business to affect government legislation through lobbying and other avenues of influence in order to promote their interests is usually seen as detrimental to those of the public. In this respect, corporatism may be characterized as an extreme form of regulatory capture, and is also termed corporatocracy, a form of plutocracy. If there is substantial military-corporate collaboration it is often called militarism or the military-industrial complex. The influence of other types of corporations, such as labor unions, is perceived to be relatively minor. In this view, government decisions are seen as being influenced strongly by which sorts of policies will lead to greater profits for favored companies……..

    Many left wing critics of free market theories, such as George Orwell, have argued that corporatism (in the sense of an economic system dominated by massive corporations) is the natural result of free market capitalism. Many supporters of the free market see this as unnatural and due to extensive state intervention.

    Critics of capitalism often argue that any form of capitalism would eventually devolve into corporatism, due to the concentration of wealth in fewer and fewer hands. A permutation of this term is corporate globalism. John Ralston Saul argues that most Western societies are best described as corporatist states, run by a small elite of professional and interest groups, that exclude political participation from the citizenry.

    Other critics say that they are pro-capitalist, but anti-corporatist. They support capitalism but only when corporate power is separated from state power. These critics can be from both the right and the left.

    It is in the last paragraph where my beliefs on the subject are formed.

  2. “Other critics say that they are pro-capitalist, but anti-corporatist. They support capitalism but only when corporate power is separated from state power. These critics can be from both the right and the left.”

    Yep. They support capitalism but only when corporate power is separated from state power. This is the only way to ensure the corporation is the servant to the people and not the people the servant to the corporation. Alternatively, worse the government the servant to the corporation and not the people. We the people is not we the corporation. Fox News is the news of and by the corporation and the combo corpgov movement—Corpgov AKA fascist.

    The Tea Bag movement is great but it needs to watch its OWN leadership to make sure they are not being used to obtain goals which are different than intended. For example they need to make sure some predatory lending fool does not lead them into attacking politicans who want to end predatory lending. This would not serve the movement but only some fool who is a preditory lending jerk. Think guys and look at yourself along with the others.

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