Time for Tim to act tough

YES. When our government ‘invests’ in a finance company of any kind, it is because that company has failed and is on its way to the bankruptcy court. We need to be able to replace everyone from the janitor on down to the CEO.

We need to give the FDIC authority to break up the really large finance companies into bite-size pieces, decide which ones are viable and eat the others. Digest them and sell off the assets for as much as we can get, which the FDIC already does for insured banks.

Do it today.

In a word. YES.

I, for one, WANT them to lose their jobs. The financial executives are corrupt, irresponsible and fiscally negligent. Call me ‘pitch fork’ wielder if you so desire. Sometimes a pitch fork and a stake is what some people need.

I have a real problem with the treasury, or any government agency having the ability to take over private corporations, unless public money is at stake. I can understand the government taking over a bank rather than allow it to fail because if a bank fails the public, through the FDIC is on the hook for insured deposits.

Your point about changing management may be valid, but what good does it do to change the faces when the management philosophy and corporate culture remains the same.

Many things are broken in our corpoate and finance system in the US, things like the absurdly huge executive salaries, management focusing on the stock price instead of profitability, and the short term emphasis on quarter to quarter results. These are some of the underlying problems that have led to our current crisis. The best way to fix all this would be for ownership, i.e. shareholders, to take an active role in overseeing the company. Unfortunately it is hard to see how that can happen, with ownership diluted and money managers essantially rubber stamping management decisions. Maybe government could play a role in fixing this. Millions of proxies are voted by third parties hired by money managers. More than anything else these third parties track who qualifies as stockholders when some matter comes up for a vote, like electing the board of directors. Money managers give very little instruction to these people and they usually just vote with management. The fed could require these firms to step into the owners shoes and vote the proxies in ways that would protect shareholders. For example they could endeavor to limit the number of insiders on the board and prevent the election of the CEO’s cronies. A CEO should never be able to dictate to, or manage a board. Another example could be to limit issuing shares or options (especially options)to management. Companies supposedly do this to align management’s interests with the shareholders, but it fails to do that, in fact it encourages short term gains at the expense of long term profitability. A profit sharing plan, based on long term profitablity would work better for the shareholders.

Back to government taking over businesses. It would be much better to create structural limits to the size of banks, insurance companies etc. so they could never become too big to fail. An example of such structural limits would be reintroduction of the interstate banking restrictions. So if an institution cannot become too big to fail then the government could just stand aside and let failing comapnies fail.

A contract quit being a contract and sacred in the 1980’s when UAW contracts were voided and renegotiated at Chrysler. Since then it has been standard operating procedure to use management changes or hard times to void contracts and change the terms. There are hordes of union busting lawyers in this country who could finally be put to good use to figure out how to do it. If the AIG contacts are sacred then tens of thousands of workers across the United States have a basis for lawsuits against lots of companies and managers.

As far as the right to make changes, of course. As far as CEOs in the hot seat, yes, every damn one of them. They are all grossly overpaid and virtually none have been held accountable. Not only should their jobs be at stake but most should be subject to criminal prosecution. There are surely some laws they have violated. If nothing else, they had to be aware of misrepresentations of the value of the assets they sold. This seems like fraud.

Getting government out of regulating business lead to this. We need to quit throwing money at these worthless suits and start holding them accountable. They claim that their monstrously huge salaries are being given for the responsibility they hold and the expertise they have. I see no evidence of either being shown. The salaries need to fall and heads roll.

The decision to support the bonuses was made when the government intervened to prop up worthless institutions, circumventing market forces that would have eliminated the losers properly. The bonuses were a contractual obligation, binding agreements with the law on their side.

Using the “it would have been worse” argument to justify intervention is not only wrong, but whether it would have been worse can never be known or proven because the endgame isn’t here yet.

If you don’t like the ramifications of leaving existing management in place then don’t bailout worthless companies to begin with.

But now, with complaints about bonues and the mention of replacing management lets call it what it is, and that’s nationalization.

All this fretting and fussing over the minutia is ridiculous, the bonus issue was $165 million, what about the billions passed through AIG to others? People are distracted by the piddly crap and law makers are (perhaps intentionally) making a mountain out of a mole hill. What about the trillions that the Fed has guaranteed that no one talks about?

All this intervention will at some point end, and it will end badly. There’s no way to reflate this craptastic bubble and we had better wake up to this fact post haste.

I think you have addressed the concerns fairly, Paul.

So have your readers.

The problem is that everything seems to turn into an adversarial or confrontational grudge match.

It’s clear that government hasn’t got its own internal resources to assign their own person in each case and into each position.

But some oversight and clear directions would go a long way to making the process smoother.

Of course the politicians “have to” pander to an increasingly angry electorate… or do they?

We’re making this all a whole lot more difficult than it need be. It increases the risks of complete failure.

I really don’t think we have such a luxury at this point. It may cost us a whole lot more than making ultimately empty political points will gain any of us. And ultimately we are in the same boat.

Some good people that we need to help us may understandably turn their backs on helping our collective efforts if all they get is grief from politicians and others who offer only suggestions and criticism from the side (including me I suppose).

I don’t know how to cross such a bridge.

If we could only stop throwing bricks for a little while, and really approach the problems with some real degree of camaraderie and cooperation — not just pay lip service to “bipartisanship”.

I don’t think I have an adequate answer here. I am saddened.

These companies are failed businesses and we are not investing in them. We need to take them over (nationalize) and then break them up and sell whatever has value in the free market.

These firms have failed and their management should be all let go. funny how all the “free market” believers are not in favor of this aspect of capitalism.

Still, I’m torn as to whether the Treasury should be given broad powers to “resolve” issues at non-banks such as AIG (AIG, Fortune 500). There is serious concern about giving Treasury too much responsibility. [Paul]

“This is an unprecedented grab of power and before that occurs there ought to be a real debate about whether we should give that authority to the Treasury Secretary,” said House Minority Leader John Boehner, R-Ohio, Tuesday morning.

Paul, you are right to be concerned. While I despise House Minority Leader Boehner I find myself in agreement with him on this score. I must ask him where he was the past eight years when his EXECUTIVE was expanding its powers at the expense of the other two branches of government? But…

There is clearly a constitutional issue here. The EXECUTIVE – commander in chief – is all but SUPREME in the conduct of foreign policy. Now, giving the Treasury such power would greatly expand the executive branch’s reach/scope into the economy at the expense of Congress. How would such authority be controlled and limited? This is a VERY slippery slope and somehow reassurances of Congressional oversight, if any, do not instill confidence.

It simply will not work under the current constitutional framework of separation of powers/checks and balances. Too much fragmentation to effectively supervise/regulate anything and subject to capture by special interests opposed to the PUBLIC INTEREST. It would require a good deal more reorganization – centralization of jurisdictional authority of executive agencies to accomplish such a task – not likely. Moreover, the ideological predisposition to regulate is not in place. There is as yet no institutional gravitas with which to exert such influence in/over economic matters as there is in Western Europe. And do we want to go a parliamentary form of government? A vote of confidence is the only real constraint on a sitting government. Without such a constraint the EXECUTIVE BRANCH – Treasury – will pretty much govern – the economy – as it sees fit. Impeachment is not sufficient recourse here. Congressional censure? Yeah, right.

Trust me, neither Tim Geithner nor anyone else for that matter can be trusted with this much authority yet. Such experience does not exist in this country.

Companies that are too big to fail should be broken up. Companies that pose a systemic risk should be broken up. We break up monopolies to protect the public, we should break up unstable behemoths as well.

If the default swap division of AIG had been a separate company early on, then two things would have been radically different. First, all the European banks would have done a better job of assessing whether the company could make good if the assets defaulted. This would have indirectly limited the size and number of the swaps. Second, the US govt would not have to save the default swap company to protect shareholders in the life insurance company.

Smaller companies fail earlier and fail more often, which can only be a good thing in today’s fast paced financial world.

New perspective on the Glass-Steagall Act and the Gramm-Leach-Bliley Act…

If we let Congress micro-manage the banks and financial companies it has “invested in’ then we deserve to fail. Congress can’t manage ITSELF, let alone a company in the private sector!

TurboTax Timmy get tough on whom? The taxpayer, the permanent sap. He is a finesse player (shades of Jimmy Cayne); he played the pols like a violin about the numerically insignificant bonuses while sneaking through a bonanza for Wall Street.

A bailout is not an investment – it’s a loan to try and help a company through a temporary rough patch. I’ve said it before, but there is no reason why the government should be able to remove management at a company if it deems that company and it’s management sound enough to receive a loan. If the company is not sound enough to take the loan as is and offer a reasonable shot of repayment, then that company should be allowed to fail.

Private equity firms invest in companies, change management and processes and hope to sell the company for more later – this is a fairly risky undertaking and not something that the government should be involved in at all.