Occupy: Please classify huge golden parachutes in failing businesses as Ponzi Schemes

Occupy: Please classify huge golden parachutes in failing businesses as Ponzi Schemes
Good Ride on the Down Slope

One of my readers submitted a response to (actually several responses) to comments on my last post, Occupy Haters: Try Arguing with the Math.  I suggested that some of the activity around the bank and corporation bailouts seemed like Ponzi schemes.  Of course my reader shot back that perhaps I should look up the definition of a Ponzi scheme because apparently I didn’t get it.  So, I took his advice and this is what I found.

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors
from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation.

If I read this correctly maybe I wasn’t too far off base.  Let’s look at how some of the financial
collapse and bailouts link to golden parachutes.  First we have to knock out the direct pay to
investors with their own money.  With the exception of one golden parachute recipient I found during my research none of the others seemed to have held on to their stocks during the meltdown.  Thus, we are left with money being paid out from funds that were neither earned by the individual or the bailed out bank or company.  I guess we tax payers could be considered the investors who just didn’t get a return especially not one commensurate
to the parachute group.

I found the following information at ProPublica , a recipient of the 2011 Pulitzer Prize in National Reporting and a 2010 Pulitzer Prize in Investigative Reporting. I think they are pretty reputable.

 

OUTFLOWS: $594 billion includes money that has actually been spent, invested,
or loaned.of total

Banks and other Financial Institutions $245 Billion8%

Fannie and Freddie $183 Billion4%

Auto Companies $80 Billion1.4%

AIG $68 Billion

Toxic Asset Purchases $16 Billion (2.7%)

Other $3 Billion
(0.5%)

INFLOWS: $351 billion Money returned and paid to Treasury as interest,
dividends, fees or to repurchase their stock warrants.

Refunded $279 Billion

Revenues $72 Billion

Net Outstanding
$243 B (40.9% of outflows)

The following information is from mint.com

Golden Parachutes

Mack Whittle retired from South Financial Group days before
it was to apply for Federal loans.  After serving for 22 years, he jumped ship with $18 million

Robert Willumstad after two years and 3 months as CEO parachuted with $22 million in his pocket

Alan Fishman, head of Washington Mutual for a mere 17 days before the collapse, escaped with $19 million

Kerry Killinger was ousted from Washington Mutual after 25 years amidst the worst bank failure in history but with $44 million to pad his landing

Daniel Mudd was dismissed from Fannie Mae after 8 years but he still got $8 million

Richard Syron, of insolvent Freddie Mac, after his 5 year stretch took $16 million

Angelo Mozilo started Countrywide 39 years before he took the leap with the $188 million retirement the day Bank America took over Countrywide.

G. Kennedy Thompson was pushed into his $8.7 million parachute and out of Wachovia after more than 30 years.

James Cayne lost a bunch at Bear Sterns but his leftovers would make me smile, $13 million.

Charles Prince retired from Citigroup in a dismal third quarter but with a cool sum of nearly $100 million.

Stan O’Neal left Merrill Lynch in a lurch of $8 billion but he took $165 million on his way out.

Richard Fuld, after 14 years went down with the Lehman bankruptcy. To his credit, he didn’t sell his shares prior to the Chapter 11 but he had already amassed close to a half billion. This is the one exception to the golden parachute group.

 

In my considered opinion maybe we ought to treat this situation as a Ponzi scheme.  Maybe we could prosecute some of these people who took huge amounts of money from failing or failed institutions.  We invested and they took more than was in the coffers.  The bottom line from the B.U.G. is I don’t give a rat’s petooty what we call this, it’s shameful.  By the way Gary I am in no way demonizing the wealthy.  It’s the lack of ethics and lack of morality that burns my toast.

Filed under: Global economics

Tags: Economics, Politics

Comments

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  • OK. So you've stretched the definition of Ponzi scheme to the point where no one would know what you are talking about but it doesn't really matter because your real point is that you think it's a shame that these executives made money while their companies lost money. And most people would agree with you including me. However, as with most things in life it's a bit more complicated. Those severance packages represent contractual obligations to the executives that can not be broken without a lawsuit. The fact that no lawsuits have been brought to bear is an indication that no one believes they have a case - like it or not. However, the good news is that 6 Fannie/ Freddie executives are being charged with fraud by the SEC.

  • Gary, we agree on something! Just this evening I heard on NPR that the lawsuit against Bank America, i.e. Countrywide was one by Lisa Madigan's office. Could this possibly be the beginning of the lawsuits?

    I think we agree that sometimes things that are "legal" shouldn't be. There were provisions in the contracts of said execs that allowed for this travesty and economics is not my baliwick. I'm just a ticked off member of the 99% who wants justice to prevail.

  • In reply to Danie:

    The Countrywide lawsuit pertains to discrimination in loan originations. It has nothing to do with the severance packages.

  • I know this. But it's nice to see some action is being taken to compensate those people who suffered as a direct result of corporate malfeasance.

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