Last visit was: 26 Apr 2026, 20:49 It is currently 26 Apr 2026, 20:49
Home
Messages
Tests
Schools
Events
Close
GMAT Club Daily Prep
Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History
Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.
Go to My Error Log Learn more
Close
Request Expert Reply
Confirm Cancel
User avatar
Jerz
User avatar
Joined: 09 Dec 2008
Last visit: 28 Jan 2017
Posts: 1,221
Own Kudos:
254
Given Kudos: 17
Concentration: Health Enterprise Management, Marketing, Strategy, Finance, Analytical Consulting, Economics
Schools:Kellogg Class of 2011
GMAT 1: 770 Q49 V47
Posts: 1,221
Kudos: 254
Exec Comp Restrictions Get Tougher 16 Feb 2009, 15:10
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Toubab
Paulson, Geithner, Summers - those guys know how corporate America works, and they clearly don't think that an exodus of talent is really that much of a risk.
Show more

When Paulson was Treasury Secretary he fought against salary caps as a condition of TARP money. More recently Geithner and Summers both unsuccessfully lobbied Congress not to include a pay cap in the stimulus.
User avatar
maverick2011
User avatar
Current Student
Joined: 27 Feb 2008
Last visit: 06 Jun 2011
Posts: 296
Own Kudos:
71
Given Kudos: 15
Concentration: Finance, International Business
Schools:Kellogg Class of 2011
Posts: 296
Kudos: 71
Exec Comp Restrictions Get Tougher 16 Feb 2009, 15:37
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Toubab
I'm not in banking, but I also have a hard time believing the federal government "forced" any banks to take TARP funds. Rather, they bailed them out with my taxes to prevent a massive round of bank collapses that would've shaken the foundations of the whole economy, and found banks more than ready to accept them.
Show more

I'm not going to argue the issue. Just for your own information though, it's a fact that Wells Fargo was forced to take the funds against their will.

https://online.wsj.com/article/SB122402486344034247.html

Quote:
After Mr. Kovacevich voiced his concerns, Mr. Paulson described the deal starkly. He told the Wells Fargo chairman he could accept the government's money or risk going without the infusion. If the company found it needed capital later and Mr. Kovacevich couldn't raise money privately, Mr. Paulson promised the government wouldn't be so generous the second time around.
Show more
User avatar
IHateTheGMAT
User avatar
Current Student
Joined: 10 Jun 2006
Last visit: 25 Jul 2011
Posts: 623
Own Kudos:
61
Concentration: Investment Banking or Investment Management
Posts: 623
Kudos: 61
Exec Comp Restrictions Get Tougher 16 Feb 2009, 15:40
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Jerz
Toubab
Paulson, Geithner, Summers - those guys know how corporate America works, and they clearly don't think that an exodus of talent is really that much of a risk.

When Paulson was Treasury Secretary he fought against salary caps as a condition of TARP money. More recently Geithner and Summers both unsuccessfully lobbied Congress not to include a pay cap in the stimulus.
Show more

This is true. It's been reported on Bloomberg, CNBC, WSJ, etc. Geithner and Summers were adament that the new restrictions not be included in the stimulus legislation but they failed in that effort. The Obabma administration was very upset they were included and plans to work with congress to find a way to water them down. The original salary caps put in place by the Obama administration a few weeks ago (led by Geithner and Summers) was just a smoke screen. It was to appease the masses that Wall Street was being punished but in reality it did nothing. It was only for firms that took exceptional assistance in the future, it was only for the very top executives, and it allowed for unlimited bonsues paid in restricted stock. However, these new restrictions put in place by congressmen that have never worked in business, never taken a business course, never taken economics 101 are far more stringent then Obamas original comp restrictions and are widely agreed by economists, business leaders and the Obama administration to be a terrible idea.
avatar
pu2003
avatar
Current Student
Joined: 26 Jan 2009
Last visit: 02 Jan 2010
Posts: 143
Own Kudos:
3
 [1]
Schools:Stanford, Wharton, Booth, Kellogg
Posts: 143
Kudos: 3
 [1]
Exec Comp Restrictions Get Tougher 16 Feb 2009, 18:47
1
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Toubab
Re: "unintended consequences" - I have a hard time believing the incoming administration just doesn't understand how executive compensation works. Paulson, Geithner, Summers - those guys know how corporate America works, and they clearly don't think that an exodus of talent is really that much of a risk. Even at "only" half-a-million-dollar per year salaries, I think any firm will be able to attract a ton of quite capable talent.

I'm not in banking, but I also have a hard time believing the federal government "forced" any banks to take TARP funds. Rather, they bailed them out with my taxes to prevent a massive round of bank collapses that would've shaken the foundations of the whole economy, and found banks more than ready to accept them. While I clearly don't think the federal government should begin micromanaging an industry like banking, the executive compensation caps make sense as a way to prevent unscrupulous folks (of which there are obviously more than a few on Wall Street) from milking the federal cow for all it's worth before (golden) parachuting away.

Again - no sympathies here for anyone crying about a $500,000/year salary cap, or not getting a bonus this year. The
sense of entitlement makes me gag.
Show more

Agreed 100%.

Plus, it might be a good idea for all this "talent" to go elsewhere - most of the current executives oversaw this collapse in the first place and I don't have a lot of confidence in them anyhow. They will not be missed.
avatar
pu2003
avatar
Current Student
Joined: 26 Jan 2009
Last visit: 02 Jan 2010
Posts: 143
Own Kudos:
3
Schools:Stanford, Wharton, Booth, Kellogg
Posts: 143
Kudos: 3
Exec Comp Restrictions Get Tougher 16 Feb 2009, 18:49
Kudos
Add Kudos
Bookmarks
Bookmark this Post
maverick2011
Toubab
I'm not in banking, but I also have a hard time believing the federal government "forced" any banks to take TARP funds. Rather, they bailed them out with my taxes to prevent a massive round of bank collapses that would've shaken the foundations of the whole economy, and found banks more than ready to accept them.

I'm not going to argue the issue. Just for your own information though, it's a fact that Wells Fargo was forced to take the funds against their will.

https://online.wsj.com/article/SB122402486344034247.html

Quote:
After Mr. Kovacevich voiced his concerns, Mr. Paulson described the deal starkly. He told the Wells Fargo chairman he could accept the government's money or risk going without the infusion. If the company found it needed capital later and Mr. Kovacevich couldn't raise money privately, Mr. Paulson promised the government wouldn't be so generous the second time around.
Show more

That doesn't sound "forced" to me. Mr. Kovacevich could have rejected the offer.
User avatar
RoseSignet
User avatar
Current Student
Joined: 24 Apr 2008
Last visit: 08 Apr 2009
Posts: 8
Location: NYC
Concentration: Marketing Management
Schools:Cornell
Posts: 8
Kudos: 0
Exec Comp Restrictions Get Tougher 17 Feb 2009, 23:12
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Toubab
Re: "unintended consequences" - I have a hard time believing the incoming administration just doesn't understand how executive compensation works. Paulson, Geithner, Summers - those guys know how corporate America works, and they clearly don't think that an exodus of talent is really that much of a risk. Even at "only" half-a-million-dollar per year salaries, I think any firm will be able to attract a ton of quite capable talent.

I'm not in banking, but I also have a hard time believing the federal government "forced" any banks to take TARP funds. Rather, they bailed them out with my taxes to prevent a massive round of bank collapses that would've shaken the foundations of the whole economy, and found banks more than ready to accept them. While I clearly don't think the federal government should begin micromanaging an industry like banking, the executive compensation caps make sense as a way to prevent unscrupulous folks (of which there are obviously more than a few on Wall Street) from milking the federal cow for all it's worth before (golden) parachuting away.

Again - no sympathies here for anyone crying about a $500,000/year salary cap, or not getting a bonus this year. The sense of entitlement makes me gag.
Show more

I completely agree. If your company is on it's knees begging for a bail out: YOU HAVE FAILED. Your "executive talent" doesn't exist.
User avatar
IHateTheGMAT
User avatar
Current Student
Joined: 10 Jun 2006
Last visit: 25 Jul 2011
Posts: 623
Own Kudos:
61
Concentration: Investment Banking or Investment Management
Posts: 623
Kudos: 61
Exec Comp Restrictions Get Tougher 18 Feb 2009, 00:28
Kudos
Add Kudos
Bookmarks
Bookmark this Post
RoseSignet

I completely agree. If your company is on it's knees begging for a bail out: YOU HAVE FAILED. Your "executive talent" doesn't exist.
Show more

These kind of comments drive me nuts. It's become so in vouge to just say "they have no top talent, their banks are in trouble" without any kind of actual thought or analysis. It just strikes me as a meaningless off the cuff comment thrown out by the populist we hate bankers and want to blame them for all of our problems crowd. I mean give me a break. It's like saying "Why should we pay Kobe Bryant 10+ million? He shot 1-20 tonight and only scored 3 points. He has no talent". Just because Kobe had some poor performance does not mean that he has no talent. He is still one of the greatest players in the game today I don't care if he averaged 3 points a game for the last month. Similarly, just because some bankers screwed up (and so did the government, consumers, mortgage companies, etc, etc by the way) does not mean there is no talent there. I mean these guys all went to HBS, Wharton, etc (earned the degrees we dream of), landed the toughest jobs out of those schools (BB IB) and worked their way up to the top of highly competitive organizations where they were surrounded by (and competing with) some of the top people at the top schools that we all plan to attend. If these guys are talentless bums what are we?
User avatar
Jerz
User avatar
Joined: 09 Dec 2008
Last visit: 28 Jan 2017
Posts: 1,221
Own Kudos:
254
Given Kudos: 17
Concentration: Health Enterprise Management, Marketing, Strategy, Finance, Analytical Consulting, Economics
Schools:Kellogg Class of 2011
GMAT 1: 770 Q49 V47
Posts: 1,221
Kudos: 254
Exec Comp Restrictions Get Tougher 18 Feb 2009, 04:40
Kudos
Add Kudos
Bookmarks
Bookmark this Post
IHateTheGMAT
RoseSignet

I completely agree. If your company is on it's knees begging for a bail out: YOU HAVE FAILED. Your "executive talent" doesn't exist.

These kind of comments drive me nuts. ... If these guys are talentless bums what are we?
Show more

It's more than that. I'm sure you could make a compelling case that Richard Fuld or John Cayne turned out to be less talented CEOs than they should have been (I'm not saying they had no talent at all, just that they weren't very good CEOs). But first of all this paints a very broad brush. Is Jamie Dimon talentless? So far JPM has made it through pretty well, even well enough to help the government by taking over a failing bank or two. Second, it's not even just about the current CEO. It's about the people 2 to 3 rungs down on the ladder, who may or may not have had a role in this mess, who are looking at future earning potential and now have an incentive not to stay at a bailed out bank. Third, it's about bad incentives for current CEOs. CEOs now have a strong incentive (to the tune of a few million in personal income) to give back the govts money as soon as possible, and avoid any future govt intervention, even if it is in fact in the bank's best interest to participate in the govt program.

Maybe the market isn't the best way to set executive compensation, but it's better than any other approach out there.
User avatar
maverick2011
User avatar
Current Student
Joined: 27 Feb 2008
Last visit: 06 Jun 2011
Posts: 296
Own Kudos:
71
Given Kudos: 15
Concentration: Finance, International Business
Schools:Kellogg Class of 2011
Posts: 296
Kudos: 71
Exec Comp Restrictions Get Tougher 18 Feb 2009, 06:20
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Jerz
...Third, it's about bad incentives for current CEOs. CEOs now have a strong incentive (to the tune of a few million in personal income) to give back the govts money as soon as possible, and avoid any future govt intervention, even if it is in fact in the bank's best interest to participate in the govt program...
Show more

Jerz, all great points. IMO, this one might be the most important, one which most people seem to overlook during this debate.
avatar
atlmba2009
avatar
Current Student
Joined: 24 Oct 2008
Last visit: 26 Oct 2009
Posts: 103
Own Kudos:
16
Given Kudos: 2
Posts: 103
Kudos: 16
Exec Comp Restrictions Get Tougher 18 Feb 2009, 08:23
Kudos
Add Kudos
Bookmarks
Bookmark this Post
IHateTheGMAT
RoseSignet

I completely agree. If your company is on it's knees begging for a bail out: YOU HAVE FAILED. Your "executive talent" doesn't exist.

These kind of comments drive me nuts. It's become so in vouge to just say "they have no top talent, their banks are in trouble" without any kind of actual thought or analysis. It just strikes me as a meaningless off the cuff comment thrown out by the populist we hate bankers and want to blame them for all of our problems crowd. I mean give me a break. It's like saying "Why should we pay Kobe Bryant 10+ million? He shot 1-20 tonight and only scored 3 points. He has no talent". Just because Kobe had some poor performance does not mean that he has no talent. He is still one of the greatest players in the game today I don't care if he averaged 3 points a game for the last month. Similarly, just because some bankers screwed up (and so did the government, consumers, mortgage companies, etc, etc by the way) does not mean there is no talent there. I mean these guys all went to HBS, Wharton, etc (earned the degrees we dream of), landed the toughest jobs out of those schools (BB IB) and worked their way up to the top of highly competitive organizations where they were surrounded by (and competing with) some of the top people at the top schools that we all plan to attend. If these guys are talentless bums what are we?
Show more

I don't think that what unfolded at the failed Investment Banks can be compared to a few bad performances by an athlete. For one, Kobe Bryant plays 82 games a season, so if he has 15 bad games, that still leaves 67 games to redeem himself. Also, if Kobe never redeems himself, the Lakers will still survive financially. On the other hand, the failed Investment Banks fully invested themselves in mortgages that they didn't properly investigate. I fully agree that the SEC, consumers, and mortgage companies deserve their fair share of the blame, but the bottom line is that these "geniuses" at the top banks didn't do their due diligence to properly research just what they were purchasing, and the amount of money that was leveraged was just staggering. And what difference does it make where they went to school? What does that prove? A degree from HBS or Wharton is impressive, but certainly not a litmus test for capability, and it definitely doesn't make them infallible. One only has to look back 10 years to the fall of LTCM to see that. Now the CEO's want to continue to be rewarded the same way they were 5 years ago, even as the government has to prop them up. Just like Toubab said, the sense of entitlement is ridiculous. I also don't buy the argument that there will be complete "brain-drain" if caps are instituted. You're telling me that they won't keep and continue to attract top talent just because they won't earn millions of dollars in the short term? I'm sure there are plenty of very smart execs that would love to be in charge of turning around a top bank. Plus, if the turnaround is successful, then they will pocket millions of dollars later. If it isn't, then they didn't deserve millions in compensation anyway. Since when is it okay for CEO's and executives to eschew responsibility for the failure of their companies? Nobody should be rewarded for failure, and I don't see why the banking industry is any different.

Both Republicans and Democrats agree that there has to be some cap to executive pay, the main sticking point is the level of the cap. Taxpayers are not going to stand by and watch the government hand over $700 billion and later find out that the executives are pocketing millions of dollars of that money while the economy is still in shambles.
User avatar
Toubab
User avatar
Current Student
Joined: 23 Jan 2009
Last visit: 07 Oct 2014
Posts: 117
Own Kudos:
41
Schools:Fuqua
Posts: 117
Kudos: 41
Exec Comp Restrictions Get Tougher 18 Feb 2009, 08:52
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Quote:
After Mr. Kovacevich voiced his concerns, Mr. Paulson described the deal starkly. He told the Wells Fargo chairman he could accept the government's money or risk going without the infusion. If the company found it needed capital later and Mr. Kovacevich couldn't raise money privately, Mr. Paulson promised the government wouldn't be so generous the second time around.
Show more

I can't read the whole article you linked to, since I'm not a subscriber to the WSJ. But this excerpt certainly doesn't sound like the government is forcing any money down any bank's throat. Like I said - the bankers were chomping at the bit to get taxpayer money. Between that and insolvency, their choice was clear.

Quote:
I mean these guys all went to HBS, Wharton, etc (earned the degrees we dream of), landed the toughest jobs out of those schools (BB IB) and worked their way up to the top of highly competitive organizations where they were surrounded by (and competing with) some of the top people at the top schools that we all plan to attend. If these guys are talentless bums what are we?
Show more

I agree that this isn't simply a case of utter incompetency at the upper echelons of investment banks, mortgage/securities firms or whatever else. Those guys were plenty smart - I'm sure that there were lots of guys (most of them MBAs) at Countrywide, Lehman Bros, Bear, Wells Fargo and whoever else who saw this crisis coming. But they didn't do anything about it. As long as the cash was rolling in, no one cared about the sustainability of the system or the people who were going to be seriously effed over when the chickens came home to roost.

So the problem isn't stupidity - it's a lack of ethics and vision. All of these ^&*!ers were more than happy to trade long-term growth for short-term gain, and it's all of the rest of us who have to pay the price. It's not that the "top talent" at these firms should be booted out of their offices because they're dumb, but rather because they've demonstrated that they don't really care what happens to this system as long as they get a bigger bonus this year. That's why people hate bankers.

Of course, in a free market, it's the government that needs to regulate the industry so that it doesn't collapse in on itself every now and then. Republicans began forgetting that twenty years ago, and some still don't believe it. But then, I guess there are also some folks who believe the earth is flat.
User avatar
jb32
User avatar
Joined: 20 Feb 2008
Last visit: 06 Jun 2010
Posts: 773
Own Kudos:
155
Given Kudos: 9
Location: Texas
Concentration: Finance
Schools:Kellogg Class of 2011
Posts: 773
Kudos: 155
Exec Comp Restrictions Get Tougher 18 Feb 2009, 11:26
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Quote:
On the other hand, the failed Investment Banks fully invested themselves in mortgages that they didn't properly investigate. I fully agree that the SEC, consumers, and mortgage companies deserve their fair share of the blame, but the bottom line is that these "geniuses" at the top banks didn't do their due diligence to properly research just what they were purchasing, and the amount of money that was leveraged was just staggering.
Show more
You obviously have no idea how this works. Investment Banks for the most part didn't invest in MBS, they originated, sold, and traded them. They didn't buy them to hold for investment purposes (for the most part). What happened in 2007 was the market for these products collapsed and the firms holding the largest amount were stuck with illiquid assets. Namely, the largest players in the origination and trading of MBS then had the most exposure. Imagine it as a game of musical chairs where the number of players you have on your team is directly correleated to your market share of the MBS market. Well, when the music stopped in late 2007, there were no chairs for anyone to sit in. Basically, the larger percentage of the market you owned, the more of these 'Toxic Assets' you had on your books at the time when the music stopped and thus the more likely you were to go bankrupt. Lehman, Merrill, and Bear were the largest players in that market, and thus had the largest concentration of MBS. As you know, they are all gone. The problem was that no one thought the music would stop, but may slowdown a bit.

Check out this article about MBS from 1994: https://query.nytimes.com/gst/fullpage.html?res=9B02E5DE1F3BF933A1575AC0A962958260&sec=&spon=&pagewanted=all

The banks have been doing this kind of business for 25 years, it's really hard for any person on the inside to foresee this kind of disaster. They figured a repeat of the early 90's was in order, maybe a little worse this time. Do you recognize any of the names mentioned in that article? Hindsight is 20/20 of course, but to think ALL of the executives are idiots for not seeing this coming is both stupid and ridiculous on your part. Fire the ones that could have done something, which for the most part they have, i.e. Sandy Weill, Richard Fuld, John Cayne, Stan O'Neal, etc. I just would be careful about blaming the current management for the most part when many weren't around for the trouble part, or weren't in any position to do anything about it. Would you fire the heads of HR, Technology, or Strategy for an accounting scandal? No, and you shouldn't fire the head of M&A, Capital Markets, Brokerage, or Technology for the current credit crisis when it isn't their fault. Just give this populist bull$hit a rest, I'm sick and tired of listening to it. It's pointless and ignorant.
User avatar
domtri33
User avatar
Current Student
Joined: 09 Nov 2008
Last visit: 06 Nov 2011
Posts: 216
Own Kudos:
30
 [1]
Given Kudos: 2
Location: Evanston, IL
Concentration: Strategy, Finance
Schools:Kellogg '11 (MMM)
Posts: 216
Kudos: 30
 [1]
Exec Comp Restrictions Get Tougher 18 Feb 2009, 11:35
1
Kudos
Add Kudos
Bookmarks
Bookmark this Post
I blame the Beltway politicians for this whole Wall Street mess. While ultimately, homebuyers, local banks, and investment banks also played their part in this mess, to pin this entirely on the executives on Wall Street is ridiculous.

If we look at the toxic mortgage securities that have pretty much crippled Wall Street we must trace this trail back to Freddie Mac and Fannie Mae. Freddie and Fannie were established as a mechanism for a quasi-governmental organization to buy mortgages from banks in order to free up bank capital to lend to more prospective home owners and then sell these mortgages on the secondary market. Fannie (chartered as a GSE in 1968) and Freddie (chartered in 1970) had a perfectly viable (though somewhat controversial) business model that worked well for 20+ years. The reason I say controversial is because from the outset, Fannie and Freddie answered to two (sometimes competing) masters: the federal government and shareholders. So for 20+ years, banks exhibited good lending practices, homebuyers had to front large down payments and had to cover closing costs etc, and investors in the secondary mortgage back securities market (IBs, etc) could feel confident that the assets they were buying had been vetted both by the banks originating the loans, and also by Freddie and Fannie who purchased these mortgages from the banks.

In my opinion, where things began to unravel was in 1994 when Clinton directed HUD to come up with a strategy to get more people into homes. HUDs response was the "National Homeownership Strategy" (which by the way HUD proudly displayed on there website until the end of 07 when things started to get ugly). To get an idea of the intent of this strategy, here is a brief excerpt:

"For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership."

Um..."lack of cash to cover downpayments and closing costs", "households do not have sufficient available income to make monthly payments" if I was a bank why on earth would I ever lend to someone like this? The answer "financing strategies, fueled by the creativity and resources of the private and public sectors." So why would Washington back something like this? VOTES. Getting every American, regardless of if they can afford it or not, into a home gets politicians elected.

So Washington puts pressure on Freddie and Fannie to ease its standards on the quality of the mortgages that it purchases from banks. While I'm sure many of the top folks at Freddie and Fannie probably realized the risks involved, at the end of the day they knew that the government had a stake in keeping them solvent if things were to get turned upside down (stockholders didn't mind either because business is booming - I use to be a stock holder in Freddie when business was booming). Banks, realizing that pretty much any mortgage that they create (regardless of how "creative" the terms on the loan were) would be gobbled up on the secondary market, start making increasingly risky loans. Throw into the mix that in the late nineties and early 2000s there was a world wide $7 trillion surplus on investment money looking for a home, IBs jumped at the opportunity to increase there investment in the mortgage backed securities market. Should Wall Street have known that the quality of these securities was tainted? Probably, but again, think from whom they were buying these securties, Freddie and Fannie, a agent of the federal government right? Should IBs done the due diligence on every single mortgage bundled in the security? Could they have even done so if they wanted to?

This sequence of events also has an effect on the real estate market. As the pool of potential homebuyers (many unqualified) demand for homes grows artificially. Prices also grow artificially. Thus the bubble grows.

Then the bubble bursts are we find ourselves in our current condition. Homeowners default on their loans, banks go under, Freddie and Fannie cannot back their securities and secondary market investors get screwed. The credit market freezes, and IBs start going under.

So, tying this back to the orginal post, now the federal government, the very same one that sowed the seeds of this mess to begin with, are going to ride in on their white horses to save the day. Are they coming in saying, "wow, we really had a large part to play in this mess to begin with, let us help you?" No, they are coming is saying "Wall Street, you guys f'ed up and it's all your fault." Why? VOTES!!! It would be interesting to go back and see how many of the democratic congressmen that are now reaming Freddie/Fannie and IBs used the 1994 National Homeownership Strategy as crowning example of how they were doing good for their consticuencies.

Washington is using Wall Street as a scapegoat for their own failed strategy. Capping executive pay is just another example of the hypocracy that exists here in our nations capital. Its makes great press, shows how Washington is looking out for America, and gets vote but in the end it doesn't even start to address the deeper problems. I was not a huge fan of John McCain, however I agree with him that we all have individual responsibilities. To say that the individual homeowner that took out a bigger loan than they could manage, and the banks that originate these loans are blameless is just down right rediculous.

There is plenty of blame to go around, and clearly, many on Wall Street are in it for the money. But isn't that the point of Wall Street, to make as much possible for investors? Perhaps we would all be better off sharing a bit of the blame.
avatar
atlmba2009
avatar
Current Student
Joined: 24 Oct 2008
Last visit: 26 Oct 2009
Posts: 103
Own Kudos:
16
Given Kudos: 2
Posts: 103
Kudos: 16
Exec Comp Restrictions Get Tougher 18 Feb 2009, 12:33
Kudos
Add Kudos
Bookmarks
Bookmark this Post
jb32
Quote:
On the other hand, the failed Investment Banks fully invested themselves in mortgages that they didn't properly investigate. I fully agree that the SEC, consumers, and mortgage companies deserve their fair share of the blame, but the bottom line is that these "geniuses" at the top banks didn't do their due diligence to properly research just what they were purchasing, and the amount of money that was leveraged was just staggering.
You obviously have no idea how this works. Investment Banks for the most part didn't invest in MBS, they originated, sold, and traded them. They didn't buy them to hold for investment purposes (for the most part). What happened in 2007 was the market for these products collapsed and the firms holding the largest amount were stuck with illiquid assets. Namely, the largest players in the origination and trading of MBS then had the most exposure. Imagine it as a game of musical chairs where the number of players you have on your team is directly correleated to your market share of the MBS market. Well, when the music stopped in late 2007, there were no chairs for anyone to sit in. Basically, the larger percentage of the market you owned, the more of these 'Toxic Assets' you had on your books at the time when the music stopped and thus the more likely you were to go bankrupt. Lehman, Merrill, and Bear were the largest players in that market, and thus had the largest concentration of MBS. As you know, they are all gone. The problem was that no one thought the music would stop, but may slowdown a bit.

Check out this article about MBS from 1994: https://query.nytimes.com/gst/fullpage.html?res=9B02E5DE1F3BF933A1575AC0A962958260&sec=&spon=&pagewanted=all
Show more

Actually, they WERE purchasing mortgages, and by the thousands. How do you think they were creating mortgage-backed securities? In fact those mortgages accounted for so much of their business, that when the people who took out the mortgages defaulted, the IB's lost most of their revenue stream. Also, when the housing market collapsed, the IB's were holding mortgages that they were leveraged to the hilt to purchase, which now had almost no value. If they didn't know that they were putting their firms at risk, then they should have, and to say that it was impossible to know is BS. There are plenty of people who forecast this collapse a long time ago. The executives were reckless and lacked the proper foresight to see that it was foolish to be so heavily invested in sub-prime mortgages.

jb32
The banks have been doing this kind of business for 25 years, it's really hard for any person on the inside to foresee this kind of disaster. They figured a repeat of the early 90's was in order, maybe a little worse this time. Do you recognize any of the names mentioned in that article? Hindsight is 20/20 of course, but to think ALL of the executives are idiots for not seeing this coming is both stupid and ridiculous on your part. Fire the ones that could have done something, which for the most part they have, i.e. Sandy Weill, Richard Fuld, John Cayne, Stan O'Neal, etc. I just would be careful about blaming the current management for the most part when many weren't around for the trouble part, or weren't in any position to do anything about it. Would you fire the heads of HR, Technology, or Strategy for an accounting scandal? No, and you shouldn't fire the head of M&A, Capital Markets, Brokerage, or Technology for the current credit crisis when it isn't their fault. Just give this populist bull$hit a rest, I'm sick and tired of listening to it. It's pointless and ignorant.
Show more

What's stupid is you misquoting me and making absurd implications like I am suggesting that everybody be fired. If you READ what I wrote, I actually never said that "ALL of the executives are idiots for not seeing this coming," and I never said that everyone should be fired. I merely said that nobody should be rewarded for failure. It's true that not everybody is responsible for the failure, but surely nobody can be credited with saving them either. If employees who preceded the collapse are able to turn the banks around, then they should be rewarded accordingly, but not before.
User avatar
nink
User avatar
Joined: 07 Nov 2008
Last visit: 05 Jun 2014
Posts: 2,395
Own Kudos:
782
Given Kudos: 548
Status:Burning mid-night oil....daily
Schools:Yale SOM 2011 Alum, Kellogg, Booth, Tuck
WE 1: IB - Restructuring & Distressed M&A
Products:
My Reviews
GMAT 1: 770 Q44 V50
Posts: 2,395
Kudos: 782
Exec Comp Restrictions Get Tougher 18 Feb 2009, 12:41
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Calm down you two.

This is just a thread to discuss the recent change in executive compensation. Not a place to criticize each other's opinions.
User avatar
jb32
User avatar
Joined: 20 Feb 2008
Last visit: 06 Jun 2010
Posts: 773
Own Kudos:
155
 [1]
Given Kudos: 9
Location: Texas
Concentration: Finance
Schools:Kellogg Class of 2011
Posts: 773
Kudos: 155
 [1]
Exec Comp Restrictions Get Tougher 18 Feb 2009, 12:49
1
Kudos
Add Kudos
Bookmarks
Bookmark this Post
I apologize, but I'm just sick of the populism in the media, Washington, and everywhere else. It just doesn't belong in an intelligent discussion on executive compensation. If you can give me a good reason why we should lower Wall Street comp without speaking about wealth envy and making generalizations about everyone being a crook, then I'm happy to listen and I'll value your opinion, but I'm just tired of the jealousy and envy crowd standing on the moral horse of righteousness and blaming compensation and greed on Wall Street. Were there things they could have done better, sure, but in the end it doesn't do any good in solving the problem to start with crucifying Wall Street.
User avatar
Toubab
User avatar
Current Student
Joined: 23 Jan 2009
Last visit: 07 Oct 2014
Posts: 117
Own Kudos:
41
Schools:Fuqua
Posts: 117
Kudos: 41
Exec Comp Restrictions Get Tougher 18 Feb 2009, 13:07
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Quote:
While ultimately, homebuyers, local banks, and investment banks also played their part in this mess, to pin this entirely on the executives on Wall Street is ridiculous.
Show more

Of course. The U.S. consumer is to blame too, obviously - but there are 300 million of us, all unequally culpable, so that's out. Greenspan, Clinton, all the representatives who Countrywide's lobbying arm coddled - they all deserve some grilling. I'd love to grill Paulson on this (heck, I'd like to drag Bush to The Hague in chains and a bright orange jumper) - but ultimately, they were all "fired," were they not? Did they create the housing bubble, or merely open the door that the banks then walked/raced right on through?

I don't think you need to simply decry as "populism!" demands that people who work at now-publicly-owned banks don't overcompensate themselves lavishly at taxpayer expense before jumping ship to avoid the consequences later. As long as bankers are playing with public money, they don't have the same incentives to avoid failure - especially since many of them probably expect their banks to go under anyway.
User avatar
Jerz
User avatar
Joined: 09 Dec 2008
Last visit: 28 Jan 2017
Posts: 1,221
Own Kudos:
254
Given Kudos: 17
Concentration: Health Enterprise Management, Marketing, Strategy, Finance, Analytical Consulting, Economics
Schools:Kellogg Class of 2011
GMAT 1: 770 Q49 V47
Posts: 1,221
Kudos: 254
Exec Comp Restrictions Get Tougher 19 Feb 2009, 06:49
Kudos
Add Kudos
Bookmarks
Bookmark this Post
CNBC reports that JP Morgan Chase, Goldman Sachs and Morgan Stanley are all working up plans to return the TARP money ASAP because of Congressional meddling, including pay restrictions.

https://www.cnbc.com/id/15840232?video=1039429423

My favorite part:

Jamie Dimon, JPM CEO, at a JPM employee townhall meeting
While I was sitting [in front of Congress] I was thinking "I should raise my hand and say 'I will wire you back the (TARP) money if you let me leave right now.'"
Show more
User avatar
Rubashov1
User avatar
Joined: 14 Sep 2007
Last visit: 29 Sep 2016
Posts: 864
Own Kudos:
107
Given Kudos: 15
Schools:Kellogg '10
Posts: 864
Kudos: 107
Exec Comp Restrictions Get Tougher 19 Feb 2009, 13:18
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Jerz
CNBC reports that JP Morgan Chase, Goldman Sachs and Morgan Stanley are all working up plans to return the TARP money ASAP because of Congressional meddling, including pay restrictions.

https://www.cnbc.com/id/15840232?video=1039429423

My favorite part:

Jamie Dimon, JPM CEO, at a JPM employee townhall meeting
While I was sitting [in front of Congress] I was thinking "I should raise my hand and say 'I will wire you back the (TARP) money if you let me leave right now.'"
Show more

Wow, cool if they can pull it off.
User avatar
AlexMBAApply
User avatar
MBA Admissions Consultant
Joined: 26 Dec 2008
Last visit: 07 Aug 2025
Posts: 2,458
Own Kudos:
601
 [1]
Given Kudos: 2
Location: Los Angeles, CA
Posts: 2,458
Kudos: 601
 [1]
Exec Comp Restrictions Get Tougher 19 Feb 2009, 13:36
1
Kudos
Add Kudos
Bookmarks
Bookmark this Post
I encourage every one of you who gets indignant about "public outrage" to spend a day with a local Sheriff who has to evict families out of foreclosed homes.

Yes, daddy and mommy screwed up by taking on more money from Countrywide to redo their kitchen. Now, daddy doesn't have a job or has his hours cut back to part-time. Daddy is trying to find a job after getting laid off. He feels ashamed in front of his children. The family has no where to go. They might go live at his brother's, or maybe in the basement of their parent's place so the kids. Every day, the kids ask why daddy isn't at the office.

They continue to "squat" in their own home until one day the Sheriff comes. The kids answer it.

Now, I want some of you MBA-types to look these kids in the eye, and tell them that they have to leave the house because their daddy and mommy got a little happy and tried to redo the kitchen. I also want you to look the mother in the eye and tell them they have to leave.

And most importantly, I want you to tell them that their anger at hearing Wall Street execs getting huge compensation to be silly.

Or tell a plant worker in his 40s with an associates degree that tough is tough -- this worker did the best he could, and is about to get laid off. His wife has diabetes (yes, their eating habits may have contributed to it) and they have two young kids. He has absolutely no idea what he can do in the town that he's lived in all his life.

Now, I want you highly educated types to tell them that they are fat, lazy and stupid. And that if they would stop eating at McDonald's and start living with some more pride, maybe the father can go to a state school and get his bachelors. I want you to look them in the eye, and blame them for all their suffering. More importantly, I want you to tell that to their kids about how their parents are such losers. I want you to look him in the eye and tell him that he can just pick up and move, just like us MBA-types. It's hard, but so what? If we can do it, so can he. And also, I want you to completely dismiss his outrage and anger as "irrational" and not "in line with economic theory of incentives".

I don't want to get overly accusatory here, but having heard enough of these discussions from MBA-types and other highly educated professionals wax poetic in an academic way about the "crisis", remember that not everyone in this world is a young, upwardly mobile, educated and cerebral professional with a 700 GMAT who is expecting an upper middle class lifestyle.

When folks in the upper 15% screw up (i.e. those who make more than $100K per year according to the US Census), they may see a blow to their ego, pride and lifestyle temporarily - they may freak out emotionally just as badly as someone with much less, but overall they will get through it. But when regular folks screw up (or things screw up around them), they don't have many options and the harsh truth is not all will get through it.

Regular folk aren't angry because they're jealous. They're angry because many folks in the upper 15% are living in a self-referential bubble. They are angry because they feel they are suffering the brunt of it and most importantly, they are angry because there is a perception that the upper 15% have very little compassion or even a willingness to really understand what the "rest of the country" is really going through emotionally, mentally, physically.

When an MBA-type or executive gets laid off, their kids can't go to private school.

But when regular folks get laid off, their kids can barely eat. And no, I'm not talking about the "poor".

I really encourage all of you to spend some time volunteering or working with people outside the "yuppie" MBA crowd. Have some compassion -- because it WILL color how you see this whole policy discussion about the banking crisis, executive compensation, economy, etc. It's no longer just a dry, academic argument of cold logic.

Remember: taxpayers are footing the bill. It's coming out of the pockets of the regular folk who are about to lose their jobs and health insurance and homes.

No matter what the academic argument is, executives (and their Wall Street ilk) aren't really in a position to b*tch and moan. In fact, b*tching and moaning about it only exacerbates the anger and outrage. Regardless of whether it's right or wrong, they have to suck it up.
   1   2   3   4   5   6   7