Home > Jay Bookman > Archives > 2008 > October > 06
Monday, October 6, 2008
Chambliss on the endangered list
The Atlanta Journal-Constitution
This analysis of the Chambliss-Martin Senate race is plausible to me. It consists of a series of “ifs” regarding voter turnout, which is always dangerous, but each “if” does seem reasonable.
Bottom line: He thinks it’s become a toss-up race, a conclusion supported by three consecutive polls showing the race within the margin of error. It’s also consistent with Democratic surges in places such as North Carolina and Virginia.
A lot depends on whether such surges are temporary or will last into November. Every day for the past two weeks, I’ve thought that this must be Obama’s peak in the polls, and instead every day his numbers get better.
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Wall Street excess: Symptom or cause?
The Atlanta Journal-Constitution
I’ve usually thought of excessive corporate compensation as merely a symptom of larger problems in the corporate world. Among other things, it revealed a lack of proportion, an arrogance and an irresponsibility toward the shareholder, who is the supposed owner of the company. But the compensation numbers, while large in terms of pay, weren’t so large as to do serious damage to the company.
However, in hearings today before the House Oversight and Reform Committee, you heard a case that at Lehman Brothers, executive compensation may have been more than a mere symptom of excess; it may have contributed to the firm’s demise.
According to the New York Times coverage:
“Even as the investment bank Lehman Brothers pleaded for a federal bailout to save it from bankruptcy protection, it approved millions of dollars in bonuses for departing executives, a congressional committee was told Monday….
“One Lehman document among thousands reviewed by the House committee showed that four days before the bank filed for bankruptcy protection, Lehman’s compensation committee was asked to grant $20 million in ‘special payments’ for three executives who were leaving.”
That’s the excess-as-symptom argument: Twenty million in bonuses for people leaving the company? The sum was insignificant in terms of the company’s overall financial health, but it illustrates just how free and easy Lehman execs became with other people’s money. The fact that the bonuses were approved even as the company prepared to beg for a federal buyout from taxpayers only makes it more outrageous.
Now here’s the excess-as-cause argument:
“Another document showed that executives were warned in a January 2008 meeting that the company was facing liquidity problems. Yet the firm moved forward with capital outlays, including $5 billion in bonuses, $4 billion in shares (buybacks) and $750,000 in dividend payments between 2007 and the firm’s bankruptcy filing on Sept. 15.”
They knew they had liquidity issues, yet they paid out $5 billion in bonuses and another $4 billion in stock buybacks anyway? The truth is, those huge bonuses had become so engrained in the Wall Street culture that employees felt entitled to them regardless of how the company itself performed.
The Times made another important point when it reported that committee Republicans used the hearing to call for an investigation into Congress’ role in the scandal involving Fannie Mae and Freddie Mac.
“’The reason we haven’t scheduled hearings on these two institutions, and haven’t requested documents from either, is because their demise isn’t someone else’s fault, it’s ours, and we don’t want to own up to it,’ Rep. Christopher H. Shays, Republican of Connecticut, said.”
Shays is exactly right. There’s a lot of blame to go around in this mess, and nobody, including Congress, should be exempt from exposure. Congress absolutely should hold hearings into the problems at Fannie Mae and Freddie Mac, and if the finger points back at them, so be it. It won’t, but it should.
The Associated Press coverage of the hearing got a little more specific about the discussion of bonuses at Lehman, including the details of a suggestion from inside Lehman that maybe employees should forego the lucrative payouts.
The AP writes:
“That suggestion came from Lehman’s money management subsidiary, Neuberger Berman. (House Committee Chair Henry) Waxman quoted George H. Walker, President Bush’s cousin and a Lehman executive who oversaw some Neuberger Berman employees, as responding with a dismissive tone to the idea of going without bonuses.
‘Sorry team,” he wrote to the executive committee, according to Waxman. ‘I’m not sure what’s in the water at 605 Third Avenue today…. I’m embarrassed and I apologize.’”
You read that right: The idea of foregoing bonuses when the company was in bit of trouble was so clearly foolish and outlandish that it drove an embarrassed Walker to the point of having to apologize.
And you thought they had no shame.
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Thanks, Mr. President, we feel better now (and the Dow closes under 10,000)
The Atlanta Journal-Constitution
In San Antonio today, President Bush made a few comments for the press about the ongoing economic crisis, trying to reassure the American people that he was working to solve the problem.
“That’s why people sent me to Washington, D.C.,” he reminded us. “When you see a problem, put a team together and solve it.”
“I’m glad to be back here in Texas,” the president said. “I miss my friends in Texas. I am — you know, people say, are you looking forward to coming home. Yes, I’m looking forward to living here, but in the meantime, it looks like I’m going to have a lot of work to do between today and when the new president takes office.”
That new president will have a lot of work to do as well. The latest polls portray a continuing, even startling, shift toward Obama. Two polls just released give Obama a double-digit lead in Virginia.
Virginia hasn’t gone Democratic since 1964.
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Does the Dow have a bottom?
The Atlanta Journal-Constitution
DJ Industrials down more than 400 this morning, breaking the 10,000 mark. It’s scary out there, folks.
Just in case you didn’t know that.
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Wall Street crisis will impose new sobriety
The Atlanta Journal-Constitution
In the wake of the attacks of September 11, you heard a lot of musing that our days of frivolity and cynicism had ended with the collapse of the World Trade Towers. Suddenly, it was time to get serious.
“I think it’s the end of the age of irony,” Vanity Fair editor Graydon Carter proclaimed, a statement that would itself looks ironic seven years later.
“To look at anything published before Tuesday at 8:45 a.m. — People magazine’s cover on Ben Affleck’s struggle with alcoholism, Time’s cover on Venus and Serena Williams, Business Week on the ‘Wine War’ — is to realize how suddenly, dramatically, unalterably the world has changed,” wrote Washington Post media critic Howard Kurtz. “And that means journalism will also change, indeed is changing before our eyes.”
“The most important thing is that it will introduce a new seriousness into the world,” another writer proclaimed. “Over the past 10 years, since the defeat of communism and the collapse of the various walls, we have been told that there is no more history and it was all right to indulge in fun and frivolity. A decade of unreality has been blown away.”
It was a nice sentiment, but little of that change proved permanent.
Now, with the crisis on Wall Street and stern-faced warnings from Washington that we teeter on the edge of another Depression-like collapse, you’re once again hearing talk of a cultural sea change under way. As House Speaker Nancy Pelosi warned Wall Street on Friday, “the party is over.”
This time, it might be true.
As traumatic as Sept. 11 had been, few Americans outside of New York and Washington felt a direct impact. The blow had come out of the blue, like a sucker punch, and once we recovered our wits its impact was short-lived.
By contrast, the foreclosure crisis, the collapse of the stock market and the end of easily available credit are being felt first hand in every community and neighborhood in the country. And the effects are likely to be long-lasting.
Jobs are disappearing —- almost 160,000 in September alone —- and many may never come back. Retirement funds are evaporating. Local and state governments are facing significant revenue shortfalls and are having trouble selling bonds on Wall Street. According to Bloomberg News, “tax-exempt borrowers this week sold less than 15 percent of a typical week’s sales” because Wall Street refused to buy their bonds.
The credit squeeze is so tight that California Gov. Arnold Schwarzenegger even warned the U.S. Treasury last week that his state may have to borrow billions from the federal government to make ends meet.
More ominously for the long term, this calamity is going to make the rest of the world look at us differently. We have financed a lot of our prosperity on the willingness of the rest of the world to loan us billions because they saw our country as all but invulnerable economically. Foreign governments and private investors happily bought our government bonds, our corporate bonds and bonds derived from millions of home mortgages.
Last week, just by coincidence, our national debt exceeded the $10 trillion mark, and a lot of that money is owed to foreigners. The tide of money that washed away any sense of proportion or ethics on Wall Street also came in part from overseas. When critics of the $700 billion bailout complain that it was passed just to keep foreign banks happy, there’s some truth to that. It’s a chilling sign of just how much national sovereignty we’ve signed away in return for overseas capital.
With recent events, however, that confidence in the economic stability of America has now been compromised, and once lost, confidence is a hard thing to recover. Unlike Sept. 11, this is a setback of systemic origins, going to the core of what we do and how we do it. We’re going to feel its consequence for years to come.
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