An Occupier Responds
In a typically snide post a week ago, I embedded a YouTube video interview of a young man who seemed to be saying that he was being "paid" to occupy Wall Street. That, you know, it was a job.
Seemed like nice work, actually. The outdoors. The camaraderie. That sort of thing.
And then via the Ricochet general email inbox, we got this response:
The comments you have made regarding the video are inaccurate. I rely on your sense of judgement and ethics and your intelligent nature to understand the following:
Interesting. First I would like to thank the individual who created this video, it gave me a chance to speak out about the issues that concern me as a United States Citizen. The estimated dollar value of volunteer time is $21.36 per hour for 2010, according to the Independent Sector, a coalition of charities, foundations, corporations, and individuals that publishes research important to the nonprofit sector. This amount is what is given back to the community not to the volunteer. Furthermore, when I spoke of, "overtime," the term was used in the sense that we all have a lot of work that needs to be done and work long hard hours, not out of a pecuniary interest but a patriotic and altruistic nature. It is certain in my mind that a conservative such as yourself would applaud service. I will keep you in my prayers.
I checked into this Independent Sector thing, and was pleased to find that it is, indeed, a thing. A liberal, pro-Obama thing, but a real thing nonetheless. So score one for the correspondent.
I have no idea if he is the person in the video, but I take him at his word. And I'll grant that he's convinced, in good faith, of the rather nutty, to me, idea that "volunteer time" wallowing in your own filth in a downtown park has an estimated dollar value of $21.36 an hour. But still: how, exactly, is the Occupy Wall Street movement earning anybody anything, or creating value of any kind?
That said, as silly and useless as I think all of this nonsense is -- not least because every time I read an article about what the protestors are protesting against and agitating for, I find myself baffled by the kitchen-sink quality of their complaints, and the childishness of their wants -- but nonsense though it be, when you read something like this, from Yahoo! Finance, you do sort of get what the dude is on about:
(Reuters) – Bank of America Corp (BAC.N) will pay $11 million to ousted executives Joe Price and Sallie Krawcheck, a large payout at a time when banks face protests over pay but smaller than the eight-figure packages some executives received before the financial crisis.
Krawcheck -- a former Citigroup Inc (C.N) executive who came to Bank of America in 2009 and was one of the top-ranking women on Wall Street -- will receive a one-time payment of $5.15 million, according to separation agreements filed by the bank on Friday.
Price, a Bank of America veteran, gets $4.15 million. Each will also receive $850,000 over a one-year period.
Price was head of consumer banking and Krawcheck led wealth and investment operations.
The Charlotte, North Carolina, bank last month eliminated their positions as part of a cost-cutting initiative called Project New BAC. Chief Executive Brian Moynihan assigned their duties to two executives promoted to co-chief operating officers.
Bank of America expects to cut 30,000 jobs as part of its efficiency program, which is designed to reduce costs as the mortgage crisis, new regulations, and low loan demand crimp revenue.
Over the past year, Bank of America has lost about 53% of its value, which looks like this, if you're like me and prefer pictures:
So if banking executives are paid millions of dollars when times are tough, no wonder they're paid so much when times are fat. It doesn't justify, or explain, or rationalize the crazy ramblings of the hippie layabouts in downtown Manhattan, or anywhere else. But you can sort of dig where they're coming from, can't you?
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Comments :
May '10
Re: An Occupier Responds
I totally get where they are coming from when they talk about the banking sector being corrupt, about crony capitalism, about politicians bailing out their friends, and so on. This is the one point that the Tea Party and the Occupiers could agree on.
It's where they devolve into all the other crazy stuff that they lose me.
Jun '10
Re: An Occupier Responds
I can understand the protesters relating their dissatisfaction to things that effect them personally, even it the comparisons are irrational. Seeing people who have basically failed in their capitalist endeavors receiving eight-figure compensation for being fired while the government balances the budget by increasing the price of the "free" health care I earned as part of my military service irritates me no end. Camping out in a park isn't going to address my concerns, but I do understand their unhappiness.
Feb '11
Re: An Occupier Responds
The financial industry, like the legal industry, has become too large as a % of the economy, exercises too much political power, and hence pays quite a few individuals considerably more than their market value would be in a more truly free-market economy. See my post about the plague of sticky governors.
An individual's severance arrangements, though, are usually determined at the time the individual accepts the job and signs the employment agreement. If Sallie Krawcheck, for example, was in demand at the time she joined BA, she would have been in a strong negotiating position re severance arrangements. The facts that banks are now less-popular than they were even in 2009, and that BA is having financial difficulties, do not change the bank's obligation to make the payment unless these factors were spelled out in the agreement.
Jun '10
Re: An Occupier Responds
There is a certain type of person, or perhaps a certain personality type, that understands that to make big money you need to get near big money. Once you're on the inside all else becomes politics. There's 'x' amount of money generated by our corporation, now how do we get our hands on the lion's share? I'll vote for your raise if you vote for my bonus. I'll put your wife on the board if you vote for my contract, etc., etc. Ideally, the CEO is supposed to generate profits that result in added value for the stockholders. Jack Welch was a master at this. But his protegee, Jeff Imelt, is a classic crony capitalist. Ask yourself how often you get those ballots in the mail that allow you to vote for the board members of a corporation you hold stock in. Now ask yourself how often you make a knowledgeable choice and actually mail the damn thing back. The problem with capitalism is that corporations are loot-able. The protesters have a point, muddled though they be.
Edited on Oct 19, 2011 at 8:03amAug '10
Re: An Occupier Responds
No doubt, the golden parachutes offered to corporate execs are not what you'd call good PR for anybody espousing capitalism.
Feb '11
Re: An Occupier Responds
Rob, my first inclination is to agree whole-heartedly. But as bad as the lopsided-ness of corporate pay is, the alternative is far worse. Think of the slippery slope! Who gets to decide what is fair? Obama's pay czar?
May '10
Re: An Occupier Responds
I shall fall back on a favorite rant.
Everything that happens in and on Wall Street is ultimately traceable back to normal everyday people. People that invest in mutual funds, 401K plans and indirectly in union and municipal employee pension plans vote with their feet every day, chasing ever higher returns. The pressure to deliver these returns and hang on to these fickle assets drives certain behavior among fund managers, the companies they invest in, and the investment bankers that advise them.
Boards will sign ridiculous contracts for CEOs (including generous termination clauses) in the hopes that these individuals will drive up the company's stock price. In the context of millions of shares and the wealth that can be created by a few basis points in the stock price, these amounts are immaterial.
Of course boiled down to an average wage, they seem obscene. But the principle is no different from that of a highly-paid, left-wing Hollywood celebrity. Relative to the effort expended flipping her hair and playing herself, Jennifer Aniston's paycheck seems obscene. But in the context of all the millions of movie tickets, DVDs and premium cable subscriptions she moves, it's perfectly modest.
Feb '11
Re: An Occupier Responds
"Boards will sign ridiculous contracts for CEOs (including generous termination clauses) in the hopes that these individuals will drive up the company's stock price. In the context of millions of shares and the wealth that can be created by a few basis points in the stock price, these amounts are immaterial."
True...although one could argue that a candidate who is *too* worried about his termination agreement might not be the best one, and that an overly-attractive out may create the wrong incentive structure. As Dr Johnson pointed out, the prospect of being hanged concentrates the mind wonderfully, and there is much to be said for linking an executive's own career prospects with that of his company. (Although there are dangers in this approach as well.)
Also: companies that do a reasonable job of developing *internal* talent are less likely to be desperately looking for a savior on the outside and paying excess $$$ and termination provisions to get it. I'm not much of a Jeff Immelt fan these days, but his *personal* compensation seems quite reasonable and a lot less than GE would have paid absent internal candidates.
Sep '10
Re: An Occupier Responds
I am no fan of executive compensation on wall st nor among most every other public company however I do think we should attempt to discover if these packages were granted to the people when they were terminated or right before or if they were agreed upon compensation up front before they were hired. I think either one is possible. If I were Sallie Krawchek coming into BofA knowing the issues and the scrutiny etc. I'd want some sort of protection so if that is what happened then I'd say they were as stupid as the Redskins who paid Albert Haynesworth $100m to do nothing. On the other hand if they just gave that money away to make them go away quietly then they stole the shareholders money pure and simple. Either scenario is equally possible in my opinion.
May '10
Re: An Occupier Responds
There needs to be some regulation of this stuff- but in a different way than the classic Dodd-Frank manner.
First, the execs definitely do negotiate severance terms up front. Not a lot you can do about this stuff after the fact, but in a free market, the power of persistent shaming needs top be used. Buy bank stocks, and participate in the governance process.
Second, though, if you do some research on too-big-to-fail, there is clearly an intractable issue. Many very solid and experienced people are convinced that there needs to be some discretion available regarding bail-outs, and they will sometimes be needed; listen to this enlightening conversation between Russ Roberts at EconTalk and Gary Stern, former Fed executive, about Stern's book Bail-Out Nation, tracing the history of how we got here since the 1970's.
(cont)
May '10
Re: An Occupier Responds
I guess my point is that this is a market-driven phenomenon that is really no different from what goes on in other sectors with extremely highly-paid performers. Plenty of people bitch about Barry Zito's $126 million, 7-year contract but no one suggests that it represents a breakdown of society or that there ought to be a law to prevent such high compensation for such poor performance.
Nov '10
Re: An Occupier Responds
Let's remember, 5 of 6 operting units at Bank of America were/are making good money, including the ones run by the two that were laid off. The one unit not making money , in a big way, is mortgage mostly due to the Countrywide merger. Strategic mistake, government cramdown, and all else. I am not saying these monies are deserved, I don't know that and neither do you, but Rob's rants against the Banks are pretty selective in terms of overall responsibility for the crisis. Rob, if you knew what Bank of America does for a community the size of RIchmond, VA and other communities like it, in terms of employment, purchasing, foundation support, volunteerism and support for community housing, all during the crisis this never stopped, maybe you would expand your horizons somewhat.
Sep '10
Re: An Occupier Responds
In the settlement of a civil suit with the SEC, Countrywide ex-CEO Mazilo was fined 67.5 million. Estimates are that he made approximately 700 million selling his Countrywide stock just weeks before it crashed. Don’t feel sorry for him, because B of A who purchased Countrywide paid the fine for him. I can’t figure out why anyone would want to protest.
May '10
Re: An Occupier Responds
(cont) The problem is that there are no horrible consequences for bank decision-makers when they take inadvisable risks. Investment banks were privately held till recently, now they are stock companies, so the gambles are with Other People's Money. This needs to change again.
Two possible solutions are:
1) require that each major investment in such high risk instruments require that executives take personal out of pocket stakes (not "fronted" by the bank) as well- skin in the game, and
2) every financial institution must contract up front that they will either abide by special bailout rules, or never be eligible for any bail-out, period. If they decline, they have to have stiff alternate arrangements- high cash reserves ensuring solvency, etc. If they participate, all high management must be fired as a condition of receiving any money, and all such high level employment contracts must have provisions for claw-backs of incentive compensation received over the last 5 years.
If they are going to get massive bonuses for allegedly profitable business deals, they need to accept risk if the deals turn out over the reasonable term to actually be lousy.
I hate regulation- banks are a special case.
May '10
Re: An Occupier Responds
I promise you this was negotiated in advance, not done because they all golf together.
May '10
Re: An Occupier Responds
Trace, that's because we don't bail out the Giants if he does lousy, and if he does, the financial system does not collapse. The analogy is grossly inapt.
If we are going to be involved in the financial sector rather than let it operate and fail, no matter the consequences, we need the right protections as well. Right now, it is still as bad as it was in 2008.
Profits personal, losses socialized, you bet your economy.
May '10
Re: An Occupier Responds
Duane Oyen:
I hate regulation- banks are a special case. · Oct 19 at 9:01am
Duane -- Your proposals are appealing to be sure. But they do not get around the truism that regulated meddling leads to bad unforseen consequences. I can imagine lots of circumstances in which a blanket firing of the senior management would not be advisable. "Render unto Caesar" and do not try to prejudge morality through regs.
Re: An Occupier Responds
Duane Oyen
Trace, that's because we don't bail out the Giants if he does lousy, and if he does, the financial system does not collapse. The analogy is grossly inapt.
If we are going to be involved in the financial sector rather than let it operate and fail, no matter the consequences, we need the right protections as well. Right now, it is still as bad as it was in 2008.
Profits personal, losses socialized, you bet your economy. · Oct 19 at 9:05am
Exactly. But in a way, we do sometimes end up "subsidizing" those player salaries, when we vote on sweetheart bond terms to build a stadium. Not sure about that, either.
Nov '10
Re: An Occupier Responds
"But you can sort of dig where they're coming from, can't you?"
Of course. The tea partiers are just as sick of crony "capitalism" as the smelly hippies are. I a sane world, mismanaged or out-competed corporations are allowed to fail.
Re: An Occupier Responds
Duane Oyen
Trace, that's because we don't bail out the Giants if he does lousy, and if he does, the financial system does not collapse. The analogy is grossly inapt.
If we are going to be involved in the financial sector rather than let it operate and fail, no matter the consequences, we need the right protections as well. Right now, it is still as bad as it was in 2008.
Profits personal, losses socialized, you bet your economy. · Oct 19 at 9:05am
Exactly. But in a way, we do sometimes end up "subsidizing" those player salaries, when we vote on sweetheart bond terms to build a stadium. Not sure about that, either.