Sure, I’m a pragmatist first and a Gaullist second.
This is a symptom of the bloated monstrosity that has become insurance. There is no reason at all that these services ought to cost as much as they do. We could start alleviating this by entering a reasonable award cap for all non lethal medical malpractice suits, and enforcing a higher standard of evidence. Combine that with strict oversight of the insurance companies and heavily subsidize companies who produce useful products instead of designer drugs.
Or we could just get universal healthcare and join the rest of the civilized world.
Speaking for myself–and assuming I was convinced it was the best thing for the economy–I’d be all for it. My problem with the solution is that it reinforces bad decisions. The people who made bad business decisions–bankers, consumers, politicians–must suffer some pain or we’ll be back in the same position, only next time with a higher federal deficit. The trick is to not allow the pain to get so bad that it drags everybody else down with it.
What currently galls me is the huge bonuses that some business execs are pulling down despite the spectacular collapse of their companies. As has been already been mentioned by others, what is to keep execs from pulling this off again in 10 years?
Here’s the problem :
CEOs deciding their own salary/bonuses/etc.
It’s so stupid, people can’t believe it’s true. I’ve had reasonable and intelligent people say “That can’t be right, there’d be rules against that or something…”.
Nope, it’s true. When you can just vote money into your pockets, guess what, that’s a temptation nobody will be able to resist.
Combine that with deregulation in the financial industry, and laws passed to more or less make sure shareholders are powerless, and you have a recipe for complete and total corruption.
My understanding is that CEO’s set their salary in coordination with the board and (presumably) stock-holders. It is common practice to stuff the board with fellow cronies who all give each other raises. If we assume that the (lack of) a link between long term health of the company and salary is a root cause of the problem then I would expect (hope?) future stock-holders to pay more attention to CEO compensation.
But then congress hands over $billions to execs to pay their bonuses…gah!
The thing is, stockholders are treated like fatted veal. They are actively encouraged to take the attitude that “as long as the stock price stays high, I don’t care what happens in the company”. This means that essentially, they provide absolutely no oversight for the companies whose stock they own.
Furthering this, of course, is the mind-searingly corrupt practice of board members also being major stockholders. I don’t think companies should be able to hold their own stock in the first place (sell it, yes, but not hold it). But having the board members collectively own the company is pure insanity. It’s letting the foxes run the henhouses.
I don’t see how barring board members from being stockholders would change anything. A board memberwith a large ownership stake in the corporation would be the ideal board member, in theory, because he would have extra incentive to making sure the company was run well. The problem is that gains in the price of a corporation’s stock doesn’t always mean what we think it means. An average shareholder sees an increase in the price of their stock and thinks the company is making the right moves, when the gain could actually be a short term gain arising from management actions that are destructive in the long term. If there’s no barrier to the executives being paid bonuses and seeing gains in their options for these types of actions, and if they always get away with it, nothing’s going to change.
The board is supposed to be able to make impartial decision based on what is best for the company and the stockholders. If the board is also the stockholders, then as you point out, there’s every reason fro them to run things so that it benefits them personally, and hang what is best for the stockholders. They ARE the stockholders.
Why should you care if the company goes down the tubes and takes the American economy with it, if you made out like a bandit and looted the vault while you were in charge? You’re stinkin’ rich now.
If the stockholders were NOT on the board, their long-term interests might trump the greed of the board.
But of course, people do not buy stock in companies any more. They invest money in little symbols on a computer screen based on what they think all the other greedy sheep will do. And as long as THEY make money in the short term, why should they care if the stock tanks after they’ve sold it, and the entire company goes into the crapper?
They’re rich too! and that was the entire point of all this, right?
Um, yes.
Pretty much *any *income tax cut will always benefit the rich the most, since they pay so much more. Reduce my income tax by 90%, while reducing Bill Gates’ by only 1%, and Gates will get the vast majority of total dollars cut. It doesn’t mean I’m getting screwed – it just means I wasn’t paying much money to begin with (comparatively), and so there’s only so much they can give back.
I think it’s possible that your assumptions and “feelings” about the people we are talking about might be based on unrepresentative data and prejudice. What about the people who did all the things you did but needed a place to live and took out a mortgage on a very modest house, because that’s what everybody was telling them they should do? Yes, that house had an inflated price, but everyone was saying that this was a sign of better things to come. I can’t remember how many times I heard people say “Rent is just money thrown away.” And, with conditions the way they were, monthly payments were pretty much equivalent between renting and buying. What about balloon payments? “Oh, you’ll be able to refinance before that kicks in.”
CEO compensation at a public company is set by the compensation committee of the Board of Directors. The membership of that committee is disclosed in the Proxy. For example, Apple Computer:
The members of Apple’s Comp Committee:
Finally, since someone here will always bring up that everyone takes care of each other:
So the CEO does NOT set his own pay, nor does he set his own bonus or stock awards. He can negotiate for higher pay, he can hire a compensation consultant to argue on his behalf, he can purchase enough shares to swing the vote - but he does not set his own pay.
Yup pardner. There’s a new banker in town.
I do believe capitalism runs on a demand economy. And while some of the ideas floated here are interesting, they would still be only provide a short time boost. First, we need to remove the problem whereby it’s pretty much impossible to live in America without incurring quite a bit of debt unless you live within your means and you make pretty good money as well. Where oh where in the free market have there been the credit cards for good customers that competed on low rates? Maybe in the lower single digits. You’d think competition would drive rates down beyond the 0% sucker rate for six months hoping to get you up to 18%. It never happened because they had the market cornered.
We need some control over lending and have the means to walk away from it. Why shouldn’t people with great credit histories be getting cards at 4%, 6%? Perhaps a bit higher with some significant extra’s thrown in. Even new customers should start with really good rates low rates (and limits which raise over time) unless they screw up. If so, then they they’re at 8% and 10% and /or stricter limits. They should be able to work their way back down to the lower rates. But it’s the higher rates, often much higher, that choke lots of capital out the consumer. I’d like to see a ceiling on credit card rates. No one is talking about any of that disappearing. Lenders should be forced to recoup the money that the lend quicker than they do. If that’s the environment, they’ll find ways to compete.
More to the point, why can’t we raise the wages of those earning under $200,000 a year? That’s the way to truly reduce the need for debt. Start with turning up minimum wages that are living wages quickly, within a couple of years or so. Perhaps in on a sliding scale; some places aren’t as expensive to live in as others are. We might be talking in a couple of years a $2.00 to a $5.00 jump in some places to make a minimum wage everywhere not far from being out of poverty. That should be the new minimum. Out of poverty would be even better. Now we have a floor to walk on for 15 million consumers. And establish higher prevailing wages with money being given out. It would need to be self sustaining. This pushes the next 2 or so tiers of workers up too because the new guy earning $8.00 an hour is making what you’re making. This won’t effect the upper tiers as they get away from lower wages, other strategies like higher prevailing wages will need to be established. The point is, if the better part of 100 million taxpayers have money to there will be a lot of new business before long. Sales will make up for the higher wages. And let consumers buy up some of the bad debt at discounted prices. They’d get something for the goods and as painful as that will be, it will also provide a floor between old bad debt and upward mobility for new good debt. The government will eventually own numerous foreclosure and repossessions. Let people with the best credit histories get first dibs at the lowest rate.
The more people can start paying out of pocket expenses and have money left over, the economy swings back. Even better, if we stop being super-consumers, buy more for quality than cheap, and save for better deals on bigger items than we did before. When lots of money is flowing at the street level, everybody does well. But nothing will really work well until everybody has changed the model they live under. Any plan, and I like the notion proposed by Stewart, is going to pan out before we eliminate the need to be in debt to live.
There are many who did have credit card debt who could easily make the payments when employed, but can’t now that they have been laid off. There are others who can still pay, but the fall in real estate prices and losses in 401 K mean that they no longer have the nest egg they once had and any set back could be the one that sets them over the edge and means they won’t be able to pay. Also, credit card interest rates are rising despite the prime lending rate going down. Banks are very reluctant to make new loans and have canceled many line of credit, so I wonder if some are using credit cards to pay for repairs that would have gone on a line of credit backed by their house or a straight home improvement loan. Not all credit card debt is a sign of irresponsibility.
Assuming my house did not go down in value, I planned to be able to drop the PMI this March. I don’t know the exact terms of the loan, but if it is based on equity rather than time I won’t be all that surprised if I need to continue paying it. I did what I could to avoid paying too much for my house. I obtained a third party estimate of the house’s value, someone not associated with any of our lenders. I also found a third party inspector to tell us of any issues they could find, and I negotiated the price down below the appraisal value and I have a 30 year fixed mortgage. I also chose a house well below the upper limit of what the bank said we could afford. Still, we are much worse off financially than when we chose to buy our house and our house is probably worth less than we paid for it. Our credit card debt has been steadily decreasing, but a set back could well change that and set backs are much more likely now.
What gets me about the compensation decisions of the last ten years is not the CEO salaries alone, but that middle class salaries have been losing ground to inflation at the same time that salaries of the top earners have risen much faster than inflation, sometimes to the extent that the increase in salaries for those few at the top could have been used instead to give raises in line with increases in productivity to all of those in the middle and the bottom. One reason this is bad is that it means that money is going to those who have so much they are unlikely to spend their raises buying good and services, and they are reducing the real salaries of those in the middle and the bottom so they have to cut back consumption in order to stay steady financially. They can do this because everyone was doing it, but right there is a plan to shrink the overall economy. My company told me that even though we are more productive than ever and meeting or exceeding our earnings goals, they won’t be giving even cost of living raises to most people because average industry pay has not increased. I like my job, and my company generally, but this stinks on ice and it isn’t going to change anytime soon. Even a promotion is unlikely to net me an income boost as I will lose overtime. So, I will continue to do my best and we will still have to reduce our spending to keep on keeping on, but I can’t even say keep afloat because we may be underwater on our mortgage.
The American people tried to borrow their way to prosperity individually and ended up in the bottom of a pit. So the idea now is to collectively borrow their way out of the pit and then up to prosperity.
The American people do not want to face reality and do not want to understand basic math. They do not want to undertand that you cannot forever spend more than you make just like they do not want to understand that you cannot eat more calories than you burn and be thin. These facts are repulsive to the American people. They believe they are not like other people of this world and they are entitled to be immune from these pesky and inconvenient laws.
Now, how can a politician get elected on a platform consisting of “you need to work more, spend less, save more, eat less, exercise more and stop being idiots? And now we need to really tighten our belts to pay for past foolishness.” ?? No way it will happen.
America will hit the bottom before the people will react. It has happened to every empire on Earth and I have no reason to believe America will be an exception.
Depressions happen when large amounts of money suddenly disappear from the economy. In previous cases, this was in the form of stock value. When the stock market dives, people’s stock portfolios, which are treated just like money in many many ways, suddenly lose a ton of value. Poof, money gone.
But people expect to be taking a risk when they invest in the stock market. They DO NOT expect to be taking a risk when they put money in a bank.
This was not a case of all the sheep panicking and stampeding on Wall Street.
These problem was NOT caused by excess consumer debt, either.
It wasn’t caused by “the people” at all. It was caused by a very small number of very stupid, very corrupt, and very greedy people betting the people’s own money, given to them to hold in trust, that bubbles never burst, markets never correct, and you can ride the same pony forever.
So no, you can’t go to the people and say "Well, we all screwed up, and now we all have to pay the price. "
The people did nothing wrong, and they don’t see why they should have to pay for the insanity, greed, and stupidty of a small group of extremely, blatantly corrupt people who ***somehow *** got the impression that competence and intelligence don’t matter, there is no law and order in the white collar world, and that it’s perfectly fine to bet the farm and lose, and pay yourself a million dollars a day to do it.
After all, it’s not their farm.
I’m not 100% sure of this, but when the US “gives” money to banks, isn’t it a loan rather than a full-out grant? Or at least isn’t there a pretense that the US is acquiring something for its contribution, equity, or at least the paper that the toxic debt is written on?
I understand that a considerable sum of the bailout money is going to be gone for good, but at the time of the original bailout bill, there was the thought that at least some of the toxic loans actually had worth, the problem was that no one knew how to value it.
So there’s a difference between giving big gobs of money to banks who, at least in theory, are on the hook to give it back, and giving gobs of money to consumers who will just spend it.
While there is a certain amount of truth to this, there is some responsibility to be shared around, at least for being gullible. The bubble was built on consumers believing, and acting as if, owning a home was building wealth. Not building a home, or renting out a home, or paying down a loan on a home, but the home itself was a wealth generator. Buying your house may save you money over the long term (we have discussed this before and I believe the magic number is somewhere between 7 and 10 years, depending). But owning your own home does not generate income. But for the last 10-20 years, home prices have gone up significantly faster than inflation, and few people were willing to question if it was sustainable.
So a lot of blame goes to the financial gurus for creating the conditions, and to the institutions that told us this was the smart thing to do, but shame on us for believing it.
You are correct. It is either a loan (sometimes at high interest) or they are buying equity in the enterprise. If none of the banks go under, the U.S. government (and therefore we the people) will make a profit, just like we did in the Chrysler bailout in the 70s.
Jonathan
I disagree. The people want to be fooled. The people want to believe they can get something for nothing. The people vote for politicians who tell them what they want to hear. The people got into debt they should not have gotten into because they also thought the bubble could last forever. It was wilfull ignorance and now they want to shift all the blame to the bankers (who, of course, are also to blame). Like the woman who is complaining about her man because she ignored all the obvious signs which everybody else could see. She wanted to believe just like the American people wanted to believe. The fact is Americans do not save enough and they mostly live beyond their means.
It is not fair to make those who were prudent pay for those who were risky, even if they did it out of ignorance. If I did not know that the red light means “don’t cross the street” I will get hit by a truck all the same. The American people WANT to remain ignorant and believe you can, indeed, get a free lunch and they will vote for whoever promises that. And if it’s a bank they will take out debt which is beyond their means. A lot of prudent people did not do it.
I have to give a little slack to many of those who were fooled. While I saw this bubble coming a mile away, back when the prime was getting down to 2%, I also saw that the idea of turning one’s house into another 401K was everywhere. There were no government watchdogs telling people to be careful. Nearly all lenders were pushing subprimes or some sort of variable low, low interest rate. When it seems as if these loans were as common as oranges are at the grocery store, when you don’t hear the govt. or media or industry watchdogs or economists saying that something is systematically out of whack, it’s easier to be taken in.