Home > Current Affairs / Politics, Economics, Money, Organisations, Opinion, USA > USA Financial Rescue Plan – bumps – and with more to come

USA Financial Rescue Plan – bumps – and with more to come

September 24, 2008 Leave a comment Go to comments

The Administration in Washington are having difficulty in moving the Wall Street Financial rescue plan forward through the Senate.

Just an observation it seems to me that the ability to influence any decisions should be taken away from lobbyists –  and actually given back to the Government and the legislature.

There are several issues, lets have a look at them here..meanwhile markets are getting skittish and very volatile – will they won’t they – and when!!! 

  • The plan is too wide ranging, as well it may take into account some assets that have no value
  • There is no control over the salaries of the senior executives of the companies in trouble that have basically contributed to the problem – there should be severe controls over salaries, shares and bonuses whilst under the government bail out or under government ownership.
  • It may be a blank cheque for further company structures which may be in trouble !
  • Is the package constitutional?
  • There are matters of trust here – the US Administration is trusting the people who generated the mess – that they will get it right this time. (with a blank cheque – could they really stuff it up? )
  • It has no support for the victims of the Sub Prime disaster – the American people – some senior members of the Senate are pushing for support for the victims themselves – with additions to the bill for a way back for many of the home buyers. A clause actioned by a Judge to force the downward re-negotiation of loans that have defaulted, foreclosed or are likely to default –  this would also take the pressure of the current crisis, and the amount of money that the American people will need to pump into the rescue package.

Indicators of the feedback from the US Senate – are as follows: – Sen. Richard C. Shelby (Alabama), the ranking Republican on the Senate Banking Committee, have expressed concerns about the plan’s cost, chance of success and possible unintended consequences. Such opposition could delay passage. “We are being asked to go ‘all in’ with taxpayer dollars, and once our government and the taxpayer is on the hook, there is no fall back option,”

Corporate, Board and CEO in general:

I believe there should be laws enacted or if they exist already they should be acted upon to control this cowboy-bend the rules until they break-win at all costs-no responsibility here mentality on Wall Street – but as usual such as act– would be windows dressing alone – and the real players would escape – or probably die of natural causes before they had to face up to a penalty.  How about confiscation of assets, not all of them – but say 50% of their assets.

See here the list of CEO Executive Pay Packages, for 2008– rated by efficiency, company name – package etc – Number 1 on the listed, the most efficient CEO is Jeffrey P Bezos of Amazon with a total package of USD$1.28 million (plus considerable share holding) to the highest paid executive which is Lawrence J Ellison at $192 million for 2008 – the efficiency rating here is 101.

For instance the Lehman Brothers Chairman and CEO Richard Fuld Jr. made $34 million in 2007. Lehman filed for Chapter 11 Bankruptcy protection earlier this month, others see here  – OK now lets not forget all of the others in a corporate structure that earn multiple millions – for instance the financial controllers.  The current senior corporate structure is and has been a self serving ride to increase Senior Executive income – at the expense of their employers, this even for those who perform poorly or in some cases incompetently.

New rules should be brought in or if they exist actually acted upon to ensure that bonuses are not paid for immoral and perhaps illegal accounting practises – that artificially increase the bottom line. Bonuses should only be paid for actual increases in income via product sales only (not asset sales though) – and it is just too easy to cut costs.  I had other thoughts that bonuses should be directed into retirement funds instead of being readily available – but I am still working on this thought.

It should be noted at this point that the U.S. Treasury Secretary, Henry Paulsen, one of the architects of this rescue plan is on a annual salary of $191,300 – I wonder if they have considered paying him a bonus – what would it be for a USD$700 Billion deal?

On the other side of the coin – Senior executives are always saying and doing everything they can to reduce other overhead, such as fixed costs including labour on the premise that if we were in outer Mongolia it would only cost us ‘x’ – but so why are we over paying employees in the USA x++++y – you know some of the Corporate Senior Executives aren’t too bright are they?

From the White house web site – we find this – President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted.  Unfortunately, these warnings went unheeded, as the President’s repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.  This has had signs going way back that have just been ignored, glossed over or spun away.

January, 2003 : Freddie Mac announces it has to restate financial results for the previous three years
October, 2003: Fannie Mae discloses $1.2 billion accounting error.

Then we read through the various entries – and it gets really busy from 2007 onwards – check this out at the www.whitehouse.gov web site

Back in February 2008 – President Bush put forward a budget which was slated to balance the budget by 2012 – see here  Some pertinent parts of the contents of this budget are as follows:–  to Promote and preserves the American dream of homeownership,  though education and assistance to combat fore closures and to maintain a stable, healthy housing market.   Enough said !!!

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