OT, the financial crisis

[leitmotif]

Slight diversion here, but really - what have people got against regulation?

OK Time I will answer. I dont like being told what to do.

Homeland Security and the airport stuff -- do they really think they are effective - a good terrorist will just find another method.

Enron and other companies that cheat and are crooks - no matter how many regulations you write they will (just like a terrorist) find another loophole.

I do NOT have the answer except that if you had an inspection system that targeted only the bad guys and bothered only the bad guys that would be ideal. The stumbling point here is how do you focus only on the bad guys and how do you focus on the times they are being bad?

Kinda seems like management of a 2 year old doesnt it? He wont crayon the wall when you are watching so how do you focus on him only when he is being bad?

Dan Bentler

 

[bkottaras]

Slight diversion here, but really - what have people got against regulation?

OK Time I will answer. I dont like being told what to do.

Homeland Security and the airport stuff -- do they really think they are effective - a good terrorist will just find another method.

Enron and other companies that cheat and are crooks - no matter how many regulations you write they will (just like a terrorist) find another loophole.

I do NOT have the answer except that if you had an inspection system that targeted only the bad guys and bothered only the bad guys that would be ideal. The stumbling point here is how do you focus only on the bad guys and how do you focus on the times they are being bad?

Kinda seems like management of a 2 year old doesnt it? He wont crayon the wall when you are watching so how do you focus on him only when he is being bad? In the old days (when I was growing up) you would beat the living **** out of him. Sure thing, never happens again

Dan Bentler

Just knowing what will happen next time, he/she will stay away!
This may or may not apply, I'm sure there's other ways to "teach" CEOs not to play with "crayons"
Just my 2 cents.

 

[TimothyMoulder]

Hi Dan,

I don't like being told what to do either, and I understand what you are saying. But there has to be a balance.

We don't want a police state at the airport. How many of us lit up in fury at the thought of our laptops being confiscated? We also don't want regulations that make simply doing business next to impossible.

But we must also accept that it's not possible to sort out the bad guys until they do something bad. Our best bet is to discourage them and make it harder for them to accomplish their goals.

In this instance, we have one great advantage over the airline situation - the terrorists are content to blow up along with everyone else in the name of Allah, but corporate fat-cats are not ready to die for Mammon.

I think Peter's original idea was best - half of their personal wealth must be in the form of company stock. Real stock, not options. Stick them on the same plane as the rest of us, and they'll care more if it goes "boom".

TM

 

[TimWilborne]

Neither, we are too small for a bail out and right now we are doing much better than the gov.

I wasn't talking about the bailout. I was just generalizing. I don't think any business, large or small, and especially automotive, should be included in the bailout. It's purpose should only be to shore up the financial markets to get cash moving again

Be realistic. There is no way you have the time or means to investigate each of the senior managers and the board. There is no way you are going to get inside their decision loop. Last year I asked Fidelity if they vote the proxies for the stocks they control. I didn't get a response but I should insist.

Your right, I don't have time to investigate and am probably not informed enough to make a wise decision on who should lead a company, but does that give me the right to wash my hands of all responsibility?

So what! What would hurt is if a significant part of their wealth was on the line. That is negative feedback.

No doubt, but I think they are better to offer more stock and stock options and less cash. Then if a CEO chooses to sell his stock, then that will put up a red flag. All stock sales of high ranking officials are public information.

Poor managers would weed out themselves. They wouldn't put their money where their mouth is the way you do when you and many others here do when they take on a new project.

I see your point, I just don't know how you would do it. Let's face it, the top CEO aren't looking to feed their bellys, only their egos

It must be part of the culture. If everyone does it and it is accepted practice then we will succeed.

Negative feed back works in more than just control systems.

It is a part of many cultures, unfortunately not US culture. Probably the most notable exception would be small businesses, which gets back to your point that top dogs must have something to loose...then back to my question of how can you really do it without just holding a loaded gun to their head or something?

 

[TimWilborne]

I think Peter's original idea was best - half of their personal wealth must be in the form of company stock. Real stock, not options. Stick them on the same plane as the rest of us, and they'll care more if it goes "boom".

TM

The advantage I see in the options is usually they have a vesting term. It makes the person think of where stocks will be years from now instead of months from now.

But let's face it, how many good CEOs are not financially well off before they are appointed? Most are hired based off of good business decisions they have made in the past. If they weren't, would they really be a good choice for a CEO?

 

[Steve Bailey]

I really struggle with any type of government regulation of business. I believe it really stunts growth.

To some extent, that's true. In fact, at some level that's exactly the point of regulations. During the run-up to the situation we're faced with, everybody with a reasonably informed opinion agreed that we were in the midst of an unsustainable bubble in real estate and that prices were getting way out of line with inherent value. Everybody knew it couldn't last, but nobody wanted to be the first to move their money into something more sustainable because they were afraid their stockholders would punish them if they got out too soon while there were still more profits to be made before the bubble burst.

Reasonable regulation could have prevented the bubble in the first place by placing restrictions on the terms of the mortgage contracts that prevented the worst of those mortgages from ever being written. Of course, that would have stunted growth because real estate prices wouldn't have increased at double-digit growth rates.

 

[Clay B.]

Kinda Grey

I have been trying key word here trying to follow this whole mess. To me it strongly resembles the DOT COM crash. You had over investment on over priced stuff. To me it looks like this mess was created by alot of people from CEO's to the people buying the houses. But to me a large part of the blame has to be put on the board and the CEO. These guys should have known this was going to happen. They should be held accountable the same way we are when we make a bonehead mistake. We PAY for it.

My Opinion on regulation:
Yes and No... It has to be balanced we need some sort of check to keep things from getting out of hand. I think accountablity goes a long way on that. The golden parachute needs to disapear. You fail it cost you...better luck next time. Like it or not the Government will have to do that. The board of these comnpanies are not going to do it themselves. The balanincing act is going to do this without crushing free enterprise.

Personally I think it is long overdue. Boards and CEO's should be held responsible for the actions of their companies. Not only finicial mistakes but others as well.

What I think is going to happen... the middle class will get screwed and the jerks that made the train wrech will walk away.

 

[TimWilborne]

To some extent, that's true. In fact, at some level that's exactly the point of regulations. During the run-up to the situation we're faced with, everybody with a reasonably informed opinion agreed that we were in the midst of an unsustainable bubble in real estate and that prices were getting way out of line with inherent value. Everybody knew it couldn't last, but nobody wanted to be the first to move their money into something more sustainable because they were afraid their stockholders would punish them if they got out too soon while there were still more profits to be made before the bubble burst.

Reasonable regulation could have prevented the bubble in the first place by placing restrictions on the terms of the mortgage contracts that prevented the worst of those mortgages from ever being written. Of course, that would have stunted growth because real estate prices wouldn't have increased at double-digit growth rates.

Very good point Steve. And I will agree that it is time to update our 70 year old method of regulation short term growth, mainly the interest rates.

But, especially in government, there is a very fine line between reasonable regulation and it taking 6 months to get a loan.

 

[Tom Jenkins]

More regs are coming, and it's about blasted time.TM

I disagree with the second part of that statement.

Regulations, to a large extent, are like locks. They just keep honest people honest. Sarbanes Oxley regulation was created after the Enron and Comcast messes to prevent problems caused by greedy CEOs like Ken Ley. The net effect has been thousands of hours of lost productivity to create useless reports that won't stop the ingenious crooks anyway.

I would agree that we need more regulators to enforce the regulations we already have. Passing laws is useless unless someone is checking up on the crooks. When the dust settles I'm pretty sure we'll find the real culprits were guys that were cutting corners on existing regulations.

And while we are justifiably beating up on the CEOs lets not forget the folks the press characterizes as "victims" of the real estate collapse. A great many of them bought houses too expensive for their needs and true financial capability because they expected the market to keep going up. We used to call that "real estate speculation". Sometimes you win, sometimes you loose.

And lets not forget that I (and many of you) was tickled pink with the run-up in my 401K stocks that the rampant enthusiasm was creating.

This will pass. The government can help or hinder, but won't be able to drive long term changes if the market forces are against them. Fundamentally we need to build things that people need to use. I think that the basic economy is OK, and we need to get credit back in rational operation because that greases the wheels of the economy.

Don't panic - the pendulum always swings both ways.

 

[Bruce99]

The Mess

Looks as though the bailout needs a rewrite. The Reps voted 2 to 1 Against. Wasnt this their Bill? The TSX is now tanked down 820 points. Maybe the rules needed changing years ago. Remember, the man with the most gold writes the rules... Lobbyists run government, or so it sometimes seems... Hang on, this week will be a little nuts.

 

[leitmotif]

I have lived on a sailboat for 15 years. I started looking into buying a house a couple years ago. Took a couple classes and talked with my credit union. They told me
1. We service our loans ourselves we do not sell them.
2. We will not let you have a house loan you cannot survive with.

This is the largest (next largest?) credit union in Wa state.
I want a bank who will stick with me thruout the loan and one I can go and sit down with if in trouble not some credit collection outfit in California or Timbuktu.

I want a bank that is reliable and is not solely interested in their profit and knows what they are doing. At this time they have on their web page six or so foreclosures. This is the most I have seen ever over several years - most of the time it has been NONE.

As we have seen not all banks did this. Paraphrasing from the electrician world
There are old banks
There are bold banks
There are NO old bold banks.

I read several years ago (cannot recall where) that for a modern manager to be successful he has to make correct and good decisions 55% of the time. If this is modern management then I think we are in trouble. Maybe this 55% includes "well I am not sure if this will work but let us try it and see - if not we will not do that and think of something else". If so then that may not be so bad.

Dan Bentler

 

[mrtweaver]

I agree with the general concensus here in this forum. There needs to be more accountability of top exec's. I mean when an executive can come in run a company into the ground, leaving John Q Public with out employment while he/she walks away with a nice settlement just torques me the wrong way. Another thing is when a company sits there and pleads the blues about finances and such then turns around and gives their execs a nice 6 figure bonus. What they need to do is rein in these offenders by finding a way to make them accountable. If their pay was actually based on their performance and you did the stock items as described here, then maybe they would be more adept in their ability to do the job correctly and with morality.

 

[surferb]

Dan - I agree that the airport regulations are a bit overboard - nobody's stopped to think about the weakest link.

You may be right about the "Enron Types" - However, regulations, oversight, rules, and punishments can help sway the 90% of us in the middle. You don't usually have a whole organization full of crooks and it always takes teamwork to pull off the really good scams. It's like they say about a the purpose of a lock - to keep honest people out.

Homeland Security and the airport stuff -- do they really think they are effective - a good terrorist will just find another method.

Enron and other companies that cheat and are crooks - no matter how many regulations you write they will (just like a terrorist) find another loophole.
Dan Bentler

 

[surferb]

I like-y!

I agree with the general concensus here in this forum. There needs to be more accountability of top exec's. I mean when an executive can come in run a company into the ground, leaving John Q Public with out employment while he/she walks away with a nice settlement just torques me the wrong way. Another thing is when a company sits there and pleads the blues about finances and such then turns around and gives their execs a nice 6 figure bonus. What they need to do is rein in these offenders by finding a way to make them accountable. If their pay was actually based on their performance and you did the stock items as described here, then maybe they would be more adept in their ability to do the job correctly and with morality.

 

[leitmotif]

For some reason or other this thread remind me of the last Boeing strike where management announced a multimillion stock deal for the CEO. They are stupid enough to announce this during a strike??

Dan Bentler