Many CEO’s and corporate executives are way over compensated. No corporate executive is worth $50 million a year regardless of how much money they make for a company. When they are fired for making mistakes – no one deserves to walk away with $150 million – regardless of the money they made or lost for a company.

These inflated pay packages are approved by the board of directors. Positions held by good old boys that are or were in similar positions. One hand washes the other.

( Example in 1995 when Michael Eisner hired long time friend Michael Ovitz for the position of President at Disney Co. – Ovitz was fired for poor performance after 14 months – taking with him a $140 million severance package. ) I mean honestly Yadgyu – you think Ovitz deserved this level of compensation? Did he deserve every penny that was owed to him?

Legally yes – that is what was in the contract. But was he worth that level of compensation. Is any executive worth that level of compensation received by Mr. O’Neal? I find this highly unlikely. But corporate boards filled with CEO and past executives would like you to believe this. Successfully corporate executives in other countries, which have made large profits for their companies, make far less in compensation than American counterparts. But they still get the job done.

And yes Yadgyu is correct – nobody complains when times are great – but that doesn’t make it right. It just shows how greedy we all are. Mr. Yadgyu states that it was not Mr. O’Neal fault things got bad. Well yes Mr. O’Neal was part of the reason things got bad – he was way too greedy like many of his counter parts in the industry fuelled by us greedy investors. There were some CEO’s in other Banks that did not make the same mistakes. For the level of compensation Mr. O’Neal receiving – he should not make that magnitude of a mistake.

One other statement by Mr. Yadgyu – “I have seen unhappy rich people, but I have never seen a happy poor person. “

I’ve met and known many poor people and some of these people are very happy and live full and rich lives. Not rich as in $$$$’s but rich in life. I’ve known many very wealthy individuals who have everything and are not very happy. People who equate happiness with material possessions are seldom ever happy for long – enough is never enough – you will always need and want more.

So O’Neal – does he deserve that level of compensation – In my modest opinion – not in a million or should I say 140 million years.

Once upon a time there lived a happy people in the Village of Overlyoptimistic. A few good citizens (and a lot of them non-citizens, but we’ll save that for another parable) of Overlyoptimistic starting building a widget called, oh I don’t know, we’ll call them IDKs. Those who could afford them paid cash and they were the envy of the neighborhood. Soon, more and more people wanted them.

After a short while, more people wanted IDKs and the demand went up while supply was still quite moderate so banks stepped in to help the people who couldn’t pay cash finance it over a large amount of time. The bank would be careful who they would loan to because IDKs were pricey so they had a few requirements… like a good credit history and a sizable down payment. This worked well for decades.

But the banks of Overlyoptomistic started to notice that even if the borrowers defaulted on their loans they still came out ahead because the value of the IDKs continued to rise. So banks got sloppy and loaned money to people they shouldn’t have made loans to without verifying income or requiring some cash up front.

But also the citizens were told that IDKs would always continue to go up in value so buying an IDK should be considered not only a convenience but also an investment. Seeing the safe investment and being able to afford more IDKs on leverage (borrowing the perceived increase in value of an original IDK to buy more IDKs on even more credit) the citizens (and again, non-citizens) bought as much as they could.

And the few who made IDKs attracted more IDK manufacturers because of the high profit margin of making an IDK. The market was soon flooded with IDKs. To make things worst, banks started loaning money so that people could make even more IDKs. In time, a large chunk of the population was involved in either making, selling, or loaning for IDKs.

One citizen of Overlyoptimistic Village sold his IDK and realized, “Woa, wait a minute. I just lost money. I better warn the neighbors.” And that is when Overlyoptimistic started going to hell in a hand basket because perceived value suddenly shrank.

The first thing that happened was that people didn’t want to hold on to their IDKs for a long period of time anymore and put their IDKs up for sale. Some were even desperate and put them up for less than the perceived value in order to make a quick sale. The sudden increase in supply with many more IDKs being produced worried many and even more IDKs were put up for sale. Almost overnight, IDKs lost half their demand while tripling the supply and the perceived value dropped tremendously.

In poor timing, inflation started to rear is ugly head at this time because monetary supply was quite high and the dollar was losing value so the Feds raised interest rates. Loan prices suddenly jumped and what was once affordable home loans became unbearable for some people who shouldn’t have had the loans in the first place.

Most people, recognizing this for a cycle, decided to hold on to their IDKs and wait it out. But some are not in a position to do so.

For instance, those who received loans to build IDKs now had an IDK or two or twelve they couldn’t sell for the price of the original loan. Having thought the IDKs would sell themselves overnight they had not budgeted for a longer window to sell the IDKs. The banks wanted their money, the manufacturers said, “We can’t give you money but you can have my IDK since that was what I used as collateral. If you have any questions, here is the card to my bankruptcy lawyer.”

Some citizens who bought more IDKs than they could afford, even if it was just one, in hopes that they could sell an IDK when things got rough made the same decision. These included those who bought several on leverage as explained above.

And all at once people are shouting in near unison, “This is not fair. We were mislead. I shouldn’t have to suffer this mess because somebody else made a poor decision,” so everybody is trying to find somebody else to bail them out of their whoas and misery. But banks are losing money, people are losing their houses, and a few are even losing their jobs. Who can they turn to?

People suppose that Bush should have seen this coming so it is his fault (as well as everything else that makes people unhappy) and they expect the government to pay for it. Therefore they are looking at the government for an IDK loan bailout which will costs the loving tax-paying citizens (but not the non-citizens grrrrrrrr) a trillion dollars to get out of this mess. That will lead to higher taxes, more government involvement, a lower value of the dollar, a higher deficit, and even more troubles.

Clear as mud?

Sounds a little like the sub-prime mess. History repeating itself ?

A McSalary cannot support a McMansion.

Exactly!

Investors want to make a ton of money when things are good, but do not want to lose money when things go wrong. Many investors are not very smart when it comes to money and will throw their money into the pot as long as things look sweet.

Why villify Mr. O’Neal because things got bad? He deserves every penny that is owed to him. He did a good job. It is not his fault that things went bad. When things were going good, no one had any complaints.

Money is the key to happiness. If you have a ton of money, you have access to happiness. But you have to use the key to get to the promised land. Those who are rich and unhappy are just not going through the correct doors. I have seen unhappy rich people, but I have never seen a happy poor person. Poor people are locked out of the good life. Get the money, use it correctly and all troubles and concerns disappear.

You obviously do not have a clear concept of the reality of money.”

Perhaps, Yadgyu, you have an immature or unevolved concept of soul. And your concept of money seems rather shallow and superficial, for that matter. All of which reminds me of a lawyer joke about replacing lab rats with lawyers because there are some things that a rat just won’t do.

The challenge is both practical and human. If you see a comparable security sold under “forced” circumstances (e.g., margin call) into a market without any liquidity, is it correct to use that price to value your portfolio? Management believes it is being conservative and takes a partial writedown to reflect what it believes to be a permanent loss in value but does not write the asset down to the price to reflect the lack of liquidity in the market. This is where the human factor comes in. Managment rationalizes that their bank is not being forced to sell these assets and as such does not need to writedown values to that artificially depressed” price. So they wait and hope that time will bring rationality back to the market and bolster prices.
Unfortunately, most markets do not recover quickly enough and the bank will end up taking its writeoffs on the installment plan.
The bottom line is to expect that we willl not see the end of these massive writedowns for quite a few calendar quarters. As an investor, I have learned that it is near impossible to know whether a financial firm has taken sufficient writedowns to reflect the issues in its porttfolio because managment and the board have no idea either.

because of how obscure and byzantine the CDO structures are, its very difficult to find the correct price for securities (other than, as buffet says, “sell some”) no one really trusts banks to mark them correctly(lower), and banks have no incentive to do so. so no one knows who’s good for how much. combine this with over-the-counter derivative markets that allow institutions to relatively anonymously make large bets, and hedgefunds that have a penchant for making big long-short bets and you have a possibly volatile situation to unwind. its quite possible that a hedgefund that went long-short on some of these CDO’s went way past bankrupt, and they’ll fail to pay some small bank, which will inturn fail, and then default on its obligations to a larger institution ( little domino’s knocking over bigger dominoes).

an institution may be in a position with 10 billion in assets and 9 billion in liabilities, but if just some of the (sometimes semi-anonymous) counter-parties that the bank bet with to build its 10 billion pile of assets welch on the bet, the banks 1 billion in equity can get wiped out. with all this turmoil its difficult for a bank to asses the probability of a counter-party welching.

basically everyone could have made a bunch of big offsetting bets in the dark, and now don’t know what they’re worth because they don’t know who will pay and who won’t.

As for the going away money, I guess he is just supposed to leave it on the table. Would you leave it on the table? How come no one understands that this going away money is agreed to prior to taking the job, and by law he is entitled to it? This is no different from any of all the other ceo’s who have been shown the door in the past couple of years. They didn’t rob the company on their way out, and neither will Stan O’neal.

Yes, I too would like a job like that.

You obviously do not have a clear concept of the reality of money.

There is nothing wrong with Mr. O’Neal’s exit package. He got paid a large sum of money for being terminated because that is what the company decided to pay him. Why be mad at him for taking the money? If you were laid off of your job and you were offered a large compensation package, wouldn’t you take it? Of course you would. A CEO position pays a lot of money. Instead of complaining about the large pay, how about trying to become a CEO? It makes no difference whether he got $154 milion or $1540,000. No rank-and-flie employee will ever get any of the difference. If it didn’t go to O’Neal, it would be used to fund some other project. People need to stop complaining and crying about what others are doing and start to make wiser educational, financial, and career choices.

When it comes to money, there is no such thing as “selling your soul”. Either you have a lot of money or you don’t.