"precipitous loss of shareholder value is enough to "require a change in management and the board," "

should be enough for shareholders and Boards of Directors to act. We may ask why that hasn't happened. Is it partly because shareholders are wallowing in moral hazard, believing the government will bail out the company in a way which retains value for them? Or what?

"If the criterion is diversion of taxpayer money to uses other than Congress intended when it first authorized the $700 billion bailout"

Nonsense. Congress intended Paulson to pretend to be the private market. Nothing in there about killing off bonuses or restricting junkets. Please stop promoting these false narratives! And even after Paulson's Pig was abandoned in favor of stock injection, the same situation obtained. Those companies were expected to run like private firms carrying some preferred stock.

TARP was sold as helping keep up confidence and restore liquidity. It did both.

Sheeesh.

I am not a member of any political party, although consider myself to be strongly libertarian (note the lower case l) in my political world view. At the same time, Liberty if far more than just bellying up to an all you can eat buffet of avarice and greed. I am willing to accept that economic conditions presently are severe enough, the government acting from a motivation to insure domestic Tranquility, and to promote the general Welfare, has a legitimate right to borrow Money on the credit of the United States; using it and the public treasury, to shield lousy businesses from having to face the true free-market liabilities that naturally flow as effect from their past horrible decisions.

My biggest problem with the bail-out is that the government has not been playing free-market hardball in the Major League against these Single A quality players. The government should have been forcing recipients of the public's largesse to completely, honestly and publicly mark-down their liabilities, taking the stock price hit, before coming to the plate for their hand-out, and then should have forced the batters to fork-over sweat equity in a dollar for dollar exchange. After the economy levels out and the markets begin to tick upwards again, the government should start divesting itself of these equities at public auction to the highest bidders, assuring the public received capital gains for its investment in The Nation's economy.

By expending public monies to bail-out public corporations; We, The People, have acquired rightful ownership interests in these ventures, and since America's chief executive is The President, it is surely within his direct or delegated powers to force changes in the make-up of these corporate boards. It would be a dereliction of duty to not do so.

Just think of it as leveraged buy-outs and hostile take-overs by the largest capital management fund in The Nation. Suddenly, deposing members sitting on these Corporate Boards no longer seems to be the evil some would have us believe. Amazing how the former raider scions now squeal in horror after the tables have turned, and they find themselves playing the roles of raidees. Mr. CEO, Trickle On Down!

Yeah, let's chop their heads off Wagoner-style, with a $23 million dollars execution.

What Geithner is doing is putting the CEOs between the pitchforks and himself. Pure and simple.

As for the "heads roll" - paging Bachmann...

Lets call in Robespierre and get the Club Benthorn and the Jacobins going again....

The CEO’s would fire Geithner if he seriously considered firing them. The administration is saying one thing, agreeing with congressional mandates then trying to undercut them outside of public scrutiny. This is the way our politics has worked for some time. The corporate world has its cake and eats it, too, while the public is led to believe that real reform is taking place.

from WaPo 4/4

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.
[snip]
Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

The CEO "controversy" is a red herring. The real problem is Geithner is trying to patch a corpse. Like it or not, the financial system needs rebuilding, not cash bonfires. Nobody on Wall St complicit with this scam should survive. DOJ should be in the middle of this now, and Geithner needs to be replaced with architect(s) designing the new system that is pirate proof.

Folks it's time to think about the effective ramifications of the Obama administration having leverage to take over any industry receiving federal money.... and bypass Congress at the same time. The Chavez model.

Consider this post where Obama won't allow a bank to return TARP money. Doesn't that seem odd to anyone?

This is such crap. No group has been more vociferously critical of Geithner and intent on seeing his credibility undermined than Wall Street (who have literally been lobbying congress to get him axed) and that's because they know, effective or not, Geithner is serious about regulation and reforming the financial sector over time. It's just not a process that can be carried out overnight.

And the absurd thing about it is the left just gobbles it all up. If Geithner doesn't come down hard on the CEOs, he gets accused of being just another member of the club looking out for his own. If he does, then he gets accused of making empty symbolic gestures intended only to distract from the "real" issues.

But what I want to know is this: What, in the nuanced and considered opinions of all the experts who are so quick to condemn Geithner, isn't a red herring? Apparently failures in corporate leadership and governance aren't real issues. Neither are compensation schemes that reward excessive long-term risk taking and fail to disincentivize disastrous decision-making. Oh, and the lack of transparency around hedge funds and the derivatives markets (which Geithner pushed for more regulatory oversight for at the G20) those are all just red herrings, too.

Now I won't defend Summers, but the left is falling hook-line-and-sinker for a sham narrative Wall Street is promoting to undermine the political support Geithner needs to get serious regulatory authority through congress. He's damned if he does, damned if he doesn't, and to some it seems, damned at all points in between.

I don't really care if the CEOs are fired or not but it does really irk me that they are making millions of dollars for leading their company to needing government bailouts.

Capping CEO pay for government bailouts makes complete sense. Structure their salaries so they get paid when the company is profitable and has paid back any bailout money. That should be incentive enough for them to stick around.

If these CEOs and executives reject that offer in favor of easy money elsewhere good riddance - and the government should look at the industries to which they go since they probably need some regulation if the profits come that easily.

With all due respect....

In contract negotiations with the unions (early in my adult life), one factor was always CEO pay versus the union worker. This was decades ago when union membership was much higher--it flirts at 13% now and I suspect it was closer to 25% in the time-frame I recall. I suspect union pressure helped--particularly in industries and corporations with a strong union presence. (As a side note, I also noticed over my career that young folks who graduated from college believed that union membership was a "black mark" and continued to work their 60+ hours while being on call 24/7. The plunge in benefits is known.)

The second issue that I have observed is the declining importance of corporate pension offices, leaving the large institutional investors as municipal, county and state governments. I don't know how much of a brake this placed on corporate pay; I suspect a bit.

And with the reduction of corporate pensions came the rise of 401Ks. I note that the investments available to the employee were at the behest of the company--some had a large selection and others had few. Employees either invested in their own company (and apparently voted those shares) or in mutual funds where only the mutual fund manger perhaps voted those shares. And I wonder just how focused that manager was on the governance of the corporation for the benefit of shareholders. Or even how much that manager could be on the general "side" of the executives. What percentage is this now? Do we even know? How many shares are in the hands of mutual fund managers--displacing the older corporate pension fund managers. I suspect these are factors that impact executive pay.

And, yes, tax policy needs to reflect a better reality and include ALL aspects of pay.

My two cents....

Asked today whether the government would force banks to sell their toxic assets and begin lending again, Secretary Geithner was noncommittal. CEOs of TARP banks need to be instructed by their regulators that if they do not participate in the balance sheet-clearing program they will be treated the same as GM’s CEO Wagoner. In anticipation of the toxic asset sales: 1) banks need to begin the process of adjusting the value of their loans and investments to reflect market-place reality; and, 2) regulators (FDIC, Fed and OCC) must signal their intention to enforce the Prompt Corrective Action provisions of the law.

How newbies happen to wind up here at the Cafe always interests me.

We've got a bunch today: skeptonomist, saulgoodman, and below

A couple of them last stopped by on 12/17-18/2009.

Where did you guys come from?

See? For every comment here taking the treasury to task for being too controlling and asserting too much regulatory power, like ol' Bill up there, there's another accusing them of being complicit in the fraud by not exercising enough authority.

What's that old saw about if criticism is coming from every direction you must be doing something right?

Despite the enormous unpopularity of such steps on Wall Street, Geithner asked congress for broadly expanded powers to take control of large, non-regulated financial firms like AIG when they potentially expose US taxpayers and the US economy to unmanageable risks. Republican leaders in congress (either completely ignorant of or deliberately ignoring the broad sweeping powers Nixon claimed for himself when he declared universal price and wage freezes among other drastic measures during 1971's so-called Nixon Shock) accused Geithner of trying to make "an unprecedented power grab."

Also, over Wall Street's vehement protests, Geithner went to the G20 summit and made good on his pledges to begin developing an international regulatory framework to impose tighter restrictions and oversight on hedge funds and derivatives dealers. He was smart enough to realize that if America implemented new regulations without international cooperation the irresponsible actors would just relocate to less tightly regulated markets and set up shop there.

Generally, Geithner has, in my opinion, been making an earnest effort to address the real underlying problems in the financial sector, but the challenges he faces are substantial.

For one thing, there's probably considerable disagreement even within different quarters of the administration on what approaches to take.

And as far as I know, Geithner's still flying solo at the treasury because the Republicans have been so effective in obstructing all the other treasury appointments, so that's another challenge.

And until we manage to create a regulatory environment that isn't so meticulously stacked in their favor (given the massive financial sector losses that could potentially end up being shouldered by taxpayers as a result of the FDIC's deposit insurance obligations), the financial sector as of this historical moment effectively has a gun to the head of the American economy, so getting the kind of negotiating leverage necessary to resolve this crisis without triggering an even steeper economic collapse is no easy feat.

The failure of AIG alone would destroy much of the state and municipal bonds market (meaning that states, towns and cities would have see their ability to raise operating capital severely curtailed, crippling many state and local governments).

The current financial sector crisis is a thorny problem with lots of nasty little devils hiding in the details; these are not problems that can be solved by clinging to the dogma of a particular economic theory or political ideology.

Every little knot has to be untangled carefully, and its going to take time, and involve lots of messy compromises and provisional measures. Even completely reforming the regulatory system in a way designed to prevent these kinds of problems from ever recurring wouldn't get us out of the mess we're in right now. Doing that is going to take a lot of patience and an almost ruthless degree of level-headedness.

Amazing how an economy already so dependent on taxpayer subsidies has become even more so. All the more reason to seriously consider subsidizing individual taxpayers instead, and allow that money to "trickle up" to those companies who taxpayers choose to support through their purchases of good and services.

Ah... Glib, self-satisfied insult-slinging! The true hallmark of thoughtful and substantive political analysis. Thanks for giving me so much to think about, smart guys.

Ah... Glib, self-satisfied insult-slinging! The true hallmark of thoughtful and substantive political analysis. Thanks for giving me so much to think about, smart guys.

CEO salaries have skyrocketed because the executive management team of any large corporation is responsible to no one but themselves and the board of directors. As a rule, the board of directors consists of.... CEOs of other corporations, many of which have members of this executive team on their boards. I'm speaking in generalizations, but do your own diligence.
So CEOs only have to write up their own compensation packages and have it approved by others like themselves, and as long as they can convince others to avoid doing anything about it (it's called "dancing", to shareholders or various fed groups), they're golden.
We need to fix the rules of governance of public corporations that allow this.