CEOs “Cashed Out” Prior To Economic Crisis

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Damnthematrix
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CEOs “Cashed Out” Prior To Economic Crisis

CEOs “Cashed Out” Prior To Economic Crisis By Tom Eley

November 28, 2008 "

WSWS" -- -Balzac’s
maxim that “behind every great fortune lies a great crime” may yet
prove a fitting epitaph for American capitalism. A recent survey by the
Wall Street Journal reveals that CEOs at major US financial and real
estate firms converted tens of millions of dollars of overvalued stock
into cash prior to the eruption of the current financial crisis, even
as many of their corporations approached the precipice.

The
Journal analyzed the fortunes of CEOs from 2003 to 2007 based on
executive compensation and stock sale data. Fifteen of these CEOs took
home more than $100 million in cash during this period. At the high end
was Charles Schwab, who made over $816 million from his self-named
accounting firm, almost all of it from stock sales.

Of the 120
publicly traded firms the Journal analyzed, CEOs cashed out a total of
more than $21 billion. However, data was gathered only from publicly
traded companies, and thus does not include similar fortunes that have
been made by “hedge fund chiefs, Wall Street traders, and executives
who sold their companies outright.” Nor did it include data related to
exit packages, the multimillion-dollar “golden parachutes” awarded to retiring or fired executives.

The
Journal’s findings underscore the parasitism and criminality of the US
financial elite. Defenders have long justified extravagant CEO pay by
claiming that these were the talented “risk-takers” who generated
enormous wealth for investors. But the Journal’s data shows that there
is no correlation between compensation and a firm’s success. On the
contrary, many CEOs rewarded themselves just as their corporations
approached ruin.

These included Richard Fuld, the CEO of Lehman
Brothers, who transformed his firm’s stock into well over $100 million
in cash. When added to his salary and bonuses, Fuld pocketed nearly
$185 million in the five years before 2008, even as he guided his
150-year-old investment bank to ruin. James Cayne of Bear Stearns did
nearly as well at his investment bank, collecting over $163.2 million,
the vast majority of which was garnered from selling stock that would
soon be scarcely worth the paper upon which it was printed.

Maurice
Greenberg of American International Group (AIG) made $132.8 million
between 2003 and 2005, when he was forced to resign. Well over $100
million of this came from windfall stock sales of the giant insurer.
AIG collapsed in September, but was determined to be “too big to fail”
by the federal government, and was bailed out twice in less than one
month to the tune of some $120 billion.

In August, the sub-prime
mortgage giant Countrywide Financial Group collapsed spectacularly, and
was absorbed by Bank of America. In the previous five years, however,
Countrywide’s CEO, Angelo Mozilo, took home $471 million, over $400
million of which came from sales of the company’s soon-to-be-worthless stock.

A
look at the sectors of the economy where these richly remunerated
executives worked, moreover, demonstrates the advanced rot of the US
economy as a whole. Without exception, they represented corporations
that engaged in financial speculation—“industries closely tied to
the financial crisis,” as the Journal puts it—and that produced no real
value. These until recently “vibrant” parts of the economy functioned
only to siphon off enormous social wealth and deposit it in the bank
accounts of the CEOs and big investors.

One example the Journal
considered is the private student loan sector, which made Daniel
Meyers, the CEO of a firm called First Marblehead, a very wealthy man.
Marblehead specialized in servicing loans to students who had
“exhausted the cheaper government-backed variety,” and then
repackaging and selling the debt to big banks such as Bank of America.
Meyers earned nearly $100 million, almost all of it in the sale of
company stock; together with other Marblehead insiders, $660 million
was taken. The Journal notes that Meyers used $10.3 million of his
fortune to buy an ocean-front property in Rhode Island—the state with
the highest unemployment rate. Meyers tore down the villa that was
there and has put up a 38,000-square-foot mansion he named, befitting a pirate, “Seaward.”

Another
sector of the economy that has proved highly lucrative for CEOs is that
of home mortgages. In addition to the aforementioned case of Angelo
Mozilo and Countrywide, the Journal highlights the case of New Century
Financial, the nation’s second largest subprime lender. While the
lender is now bankrupt, over a period of four years its three leading
executives took home a combined $74 million. The Journal also mentions
the case of Herbert and Marion Sandler, who made $2 billion off selling
their mortgage firm, Golden West Financial Corp., to Wachovia in 2005.
This purchase likely contributed to the demise of Wachovia, which
collapsed in October and was bought out by Wells Fargo.

In the field of “credit-default
swaps,” Michael Gooch made $82.5 million through his firm GTI Group.
Over $77 million of this came from a remarkably well-timed sale in May
of 2006. Since then, GTI’s stock has lost over 90 percent of its value.
Gooch owns three mansions, and boasted to the Journal that he could pay
off his only debt, a $1 million mortgage, “with the spare change in my
bank account.”

The Journal notes with some surprise that one of the most highly remunerative fields was that of “home-building.”
The wealth accumulated by CEOs in this sector is a clear byproduct of
the speculative real estate bubble that emerged over the last decade.
Toll Brothers, specializing in building suburban mansions, made Robert
and Bruce Toll three quarters of a billion in cash, largely in stock
sales. The company has lost 74 percent of its value in the past year.

Chad
Dreier, CEO of Ryland Group, made $181 million building homes in “hot
markets” such as Las Vegas that have now gone bust, exposing thousands
of families to foreclosure. Dwight Schar, the CEO of a building firm
called NVR, took home $626 million in 2003-2007, almost all from the
sale of stock. Schar spent about $86 million of this fortune in 2005 to
buy the Palm Beach, Florida estate of billionaire Ronald Perelman. The
Journal notes that the 11-acre oceanfront complex includes two swimming
pools and a tennis court.

It is perhaps a sign of the times that
the Wall Street Journal, long a mouthpiece of US finance capital, would
run a prominent article that questions the enormous personal fortunes
built up by CEOs through dubious means even as their corporations
sailed toward disaster. Running such an article aims in part, no doubt,
to appease the rage of thousands of middling investors who have lost
their shirts in the economic crisis.

In any event, the criminal
methods of these CEOs, who have led their companies and American
capitalism as a whole to the brink of ruin, do not derive from personal
greed alone. In their criminality and nearsightedness the CEOs
reflect, instead, the narrowing horizon and historical decline of US
capitalism, in which the accumulation of extreme wealth long ago lost
whatever connection it had to the creation of real value.

joe2baba's picture
joe2baba
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Re: CEOs “Cashed Out” Prior To Economic Crisis

so in 1929 the morgans , rockefellers , the kennedys etc. all got out of the market before the crash.

now i seem to remember that these scum of the earth agreed to limits on executive compensation in the great sellout bill of 2008

no F&*&&*(*G WONDER THEY ALREADY GOT IT ALL..... WAY TO GO TEAM........ WAY TO GO COACH......(PAULSON)

i guess none of those guys were in line at wal mart this morning for the bargains .

now what was it i did with my guillotine?

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krogoth
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Heads need to roll NOW

Good re-post Matrix,

 

A nice summary of the game

I knew about a lot of these economic vampires, and they actually left out Kerry Killinger from WAMU, which surprised me. These vampires need to have all assets seized, and put back into the bailout package. They need to be on the street or in jail for crimes against humanity and economic treason. I thought some CEO laws had been passed about protection from CEO's capitalizing on failure. I will need to research this a bit.

These are the students and cohorts from the Michael Milken (still rich after jail) and Charles Keating school of screwnomics (my word, screw plus economics), and just are different faces with the same old game and the same old support system in politics, like our good friend John McCain. Part of the Keating 5.

The Keating five was a political scandal, in which five U.S. senators were implicated in an influence-peddling scheme for those of you who don't know.  One of the senators was our recent presidential candidate John McCain. A topic that was barely ever mentioned during his run for president.

The first statement or quote Balzac’s maxim that “behind every great fortune lies a great crime” is the most honest statement of American history you can make. It can be traced to as far back as our founding fathers, to more recent so called hero's of capitalization, like Gates and the bankers.

Gates built Microsoft on a lie to IBM on a system he didn't have or create and ideas stolen from another company, PARC,  as did Steve Jobs. Gates is a Harvard dropout, individual master capitalist machine of a monster, building his life on stealing ideas and hiding behind his foundation of charitable causes (probably a huge tax write-off to offset his massive fortune). These are supposed to be our hero's? These extreme capitalists? These bankers? These politicians? They do nothing but squash or steal the competition, be it bank or software company doing nothing but causing new technoligies to be supressed and people to suffer. They do nothing but lie, cheat and hustle for more power with every breath they take. Think about that when you fire up Windows or play your music on your IPOD.

The game continues

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Re: CEOs “Cashed Out” Prior To Economic Crisis

I believe that this article and the subsequent posts smack of a communistic "envy" based slant.  I am not in favor of stripping corporations of working capital, at the expense of shareholders or employees, but if the board of directors awards a CEO with stocks, shares, or any other remuneration, in what way is he criminal in selling these assets?  My opinion is that the board of directors is at fault for awarding too much compensation to the CEO when they negotiate his contract.  I also take great offense at the implication that any executive who sold his company recently is acting criminally.      

 "Of the 120 publicly traded firms the Journal analyzed, CEOs cashed out a total of more than $21 billion. However, data was gathered only from publicly traded companies, and thus does not include similar fortunes that have been made by “hedge fund chiefs, Wall Street traders, and executives who sold their companies outright.”

Please read that last quote carefully.  I recently sold a company that I founded 21 years ago.  This article is implying that my action was in some way criminal.  Granted, there have been excesses and abuses in the corporate world, but we must not sink into a '50's style communist witch-hunt.    

 

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Re: CEOs “Cashed Out” Prior To Economic Crisis

Personally I have no problem with *anyone* making money. I remember applauding A-Rod when he scored his $100 Million dollar contract, I have no issue with Hannah Montanna making a bazillion dollars singing songs about sunshine (or whatever she does), I applaud Chris Rock, Michael Moore, and everyone else who makes big dollars.

 I hope that they buy yachts(and therefore employee.builders), purchase mansions (and thereby employing homebuilders), and buy cars of their choice (and thereby employ carmakers).

What I absolutely detest is paying one red cent to bail out any executive, or any company that has failed or should fail.

Since I lost that that vote (I called and e-mailed and screamed at my representatives) think that every executive of every company that is getting any government bailout money should have their total compensation package limited to seven times the earnings of their lowest paid employee.

I think that Robert Rubin should be forced to give up his $100 million dollars that he made, as part of the horrible bailout package that we did for Citigroup.

I think that Alan Greenspan should be seen for the fraud that he is.  He is *not* a free market capitalist. He is a big business conservative who thinks that it is the government's job to guarantee that no pain should ever befall our economy, or big business. I am anti-big business, anti-big labor, and anti-big government.  Those three groups have destroyed our country. 

 I could go on, but I hope that I have made my point. I do not begrudge any person any amount of money that they make in a free market system, but I'm steadfastly opposed to spending *any* taxpayer dollars to bail out *any* company.  

But if I am forced to do it, then I want *severe* even punitive limits put in place for executive level compensation. and if the executive leaves that company I want those limits to follow them for the rest of their lives.

Gak

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joe2baba
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Re: CEOs “Cashed Out” Prior To Economic Crisis

i was really relieved to hear you were not against anyone making as much money as they can in a free market system gak

just one question  ...............................where exactly is this free market system you are talking about?

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rlee
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Re: CEOs “Cashed Out” Prior To Economic Crisis

The only thing out of sync here is that they didn't actually cash out PRIOR to the crisis - THEY'RE STILL COLLECTING!!!

Is this a great country, or what?! 

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gak
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Re: CEOs “Cashed Out” Prior To Economic Crisis

I think different markets have different levels of economic freedom. For example, in baseball in the states, athletes are allowed to make as much as any owners is willing to pay them. That market is free in the sense that the owners can pay whatever they want,  but after a certain point, they (the owners) have to pay a luxury tax. So one could argue (based on that one example) that it is not a free market. I would still call it one, because if a team bets poorly on an athlete, the commissioner doesn't bail them out by borrowing money and paying them because they are TBTF, as it were. But purists would disagree that it is a "free" market.

 

The US small business market (dry cleaners, small restaurants, boutique stores, etc) is essentially a free market. That is not to say there is not regulation (which is needed in the same sense that stop lights or a stop sign are needed at an intersection), but I don't think you will see the US gov't saying that Ma and Pa's feed store in Lincoln, Nebraska is TBTF

The US stock and financial markets are *not* free markets and haven't been for a very long time.

 

Gak 

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joe2baba
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Re: CEOs “Cashed Out” Prior To Economic Crisis

baseball is a very bad example gak

it is one of the most heavily taxpayer subsidized industries on the planet and has been given a monopoly by the u.s. congress.

as a matter of fact sports of all kinds are subsidized to the hilt .

how about banking ...................no i dont think so 

oil companies....................nope

real estate.............................fannie and freddie?

bass pro ..............................nope subsidized to the max .....make more money off subsidies than store sales

how about autos.........................no 

oh maybe wal mart...............largest employer in the world .............nope

tyson foods ..........................nope .............lots of govt subs

the kid down the street selling lemonade.....................nope receives subsidies for food shelter and clothing from parents...................................... how can i compete with that ?

uh the feed store in nebraska.................nope..................... farm subsidies 

damn i am having trouble here with this free market thingi

i know we live in a matrix with the illusion of free markets 

glad i got that cleared up

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