the CEO of Lehman Brothers made how much?!?

6 10 2008

Today on TV I saw part of the Congressional hearing with Richard S. Fuld, Jr., the CEO of Lehman Brothers.  His responses were almost humorous, in that he was clearly having a tough time answering the questions.  First (of what I saw), they asked him if the chart showing his compensation was correct.  He said it was.  Then the speaker summed it up, saying Fuld took home over $480 million in compensation since 2000.  As you know, Lehman Brothers went bankrupt, setting off this economic panic, so they are partly responsible.  Since they started it, they are more responsible than others, because the panic snowballed across the industry.

Here’s where it got interesting.  After pointing out that $480 million in compensation (which is almost half a billion dollars), the speaker asked Fuld, “Is that fair?”  Fuld looked quite uncomfortable, squirming around in his seat.  He never did answer that question, but tried to say that he actually made less, somewhere closer to only $300 million.  Okay, whatever.  He didn’t sound convincing.  And regardless of the actual total, the question still applies.

Click here to watch part of the hearing (about 6 minutes).

Lehman Brothers had a compensation committee, to keep the compensation amounts fair.  But then we find out that Fuld was the primary appointee for that committee many years ago.  How ironic…

Fuld also has a huge mansion of a house, plus a $14 million vacation home in Florida and a $21 million apartment on Park Avenue in New York City and another vacation home in Idaho.  Also note that these huge salaries and bonuses were paid out while most of the country was weathering a recession (or downturn, whatever you want to call it).

He made money by taking risks with other people’s money.  And now the company is bankrupt.  He did lose some money in unsold stock options, but that $480 million is still money he’s already received.  Also, he rewarded his employees with stock options, and for anyone unfortunate enough to still be holding onto those, they’re near-worthless now.  (I know something about this, from personal experience.  It really hurts.)

So now what’s happening is that these Wall Street executives / CEOs are privatizing the gains but because of all the corporate failings in the economic world, the losses are being socialized among all taxpayers.  That $700 billion bailout by the government is being paid by us, the taxpayers, while some people made a LOT of money while their ship was sinking.

Normally I don’t like much government regulation, but perhaps on something this big and influential to the national economy, something needs to be done.  Without accountability, greedy people can drain large corporations of profit and then leave people without jobs, with much less retirement, and with a damaged economy.  And as we can see in Fuld’s case, as well as in countless others, greed is part of the human nature.  You always want more.  Fuld could’ve easily stopped at earning $100 million, then decided it would be better for the company, the employees, and the economy, to save some of that excess money.  But he kept taking more and more.  How much money does one person need?  (Certainly nowhere near even $100 million!)  But when blinded by greed, people don’t look at money like that…

Do you think Fuld has any trouble sleeping at night?




2 responses

7 10 2008

No doubt, CEO pay is nothing short of outrageous and if the company still had that nearly one-half billion dollars, perhaps it could have stayed afloat for a little while longer. And I agree with the point that executive and employees shouldn’t be rewarded for running a company in the ground. But it still would have probably gone under for various reasons.

The reason: Liberalism. During the Clinton years, loan conditions and requirements were softened by Congress (prior to the Republican takeover of ’94). They basically made a legislative mandate that credit restrictions should be lifted and that inability to pay a mortgage should not be a factor in your loan’s approval. “Sub-prime” mortgages were thus created with adjustable rates that allowed several years of low interest followed by incremental jumps in interest rates to help banks recoup lost profit from the early, low interest years of the loans. The theory was that people in low paying jobs would be getting a “hand up” and in the ensuing years would begin to make more money, improve their credit, and being able to afford the higher payments in later years or having sufficiently improved credit to refinance at a fixed rate. The quasi-governmental mortgage banks of Fannie Mae and Freddie Mac bought up tons of these loans from banks and covered up the trouble by counting accounts receivable in creative ways under Clinton appointee Frank Raines who walked away from Fannie Mae under a cloud of scandal with $90 million. They encouraged mortgage lenders to continue the current lending practices and investment banks (like Lehman Bros., Merrill Lynch, etc.) continued to be heavily invested in these now doomed mortgages (that were supposedly sound according to Fannie and Freddie) that were packaged together as investment funds. AIG, the world’s largest insurer, continued to sell mortgage insurance (PMI) to these mortgage customers and when the mortgages began defaulting en masse, AIG began hurting (as well as some other mortgage insurers). The government, despite its best intentions, forced private enterprises to make risky loans through threats to the banks’ licensing and charters. Democrats like Barney Frank and Chris Dodd indicated as recently as July that things were cool over at Fannie and Freddie, even though George W. Bush, John McCain, and others warned several times in the previous 5 years that these two government sponsored enterprises needed to be reined in and reform need to take place in their business practices. These efforts were blocked by Democrats by filibuster during their days as the minority party and by refusal to bring out the facts since they’ve been in the majority.

So, once again, well-intentioned liberalism has failed. It has failed in the areas of welfare, social security, national security and intelligence, energy policy, and now housing. We need to hold them accountable for the results of these failed policies and judge their results, not their intentions. Because of their policies, the whole country suffers!

8 10 2008

I ran across this article on the Compensation Committee that approved Fuld’s pay package. Guess who is on the committee–all highly paid CEOs.

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