Sick Bits From the Congressional Hearings

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We need to cure chronic "smartest guys in the room" syndrome.

Congress is holding hearings to find out how we got to the point of pushing for a $700 billion-plus bailout that has many people outraged and feeling as if they just got sucker-punched. Some of the tidbits coming out of these hearings absolutely nauseate me. It all reminds me of why our society simply has to stop excusing -- and in good times, idolizing -- selfish losers who display no trace of personal responsibility and accountability.

First of all, while Lehman Brothers' Dick Fuld did express some weak version of being "sorry," that sentiment doesn't seem to complement the rest of his testimony. First, there's the gist of the whining going on: Why didn't we get a bailout, too? Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) did, and so did AIG (NYSE: AIG  ) ! And now, so's everybody else! Why are Goldman Sachs (NYSE: GS  ) , Bank of America (NYSE: BAC  ) , Morgan Stanley (NYSE: MS  ) , and JPMorgan Chase (NYSE: JPM  ) all still around? Why, God, why?!

Then there's the blame game. Fuld blamed rumors, short-sellers, and bad regulations for the company's demise. He left out poor decisions entirely. It's everybody else's fault.

"Special payments" are "special," all right
Check out some scary signs of entitled attitudes, to boot. Apparently, Lehman sought millions in "special payments" for several executives who were leaving -- even as it was pleading for government financial assistance. I don't know why these clowns just don't get that if you're dipping your hand into the public-funds cookie jar, nobody should be leaving with millions in "goodbye" pay.  

Meanwhile, the Associated Press reported that some people at Lehman subsidiary Neuberger Berman suggested that executives could take pay cuts to "send a strong message to both employees and investors that top management is not shirking accountability for recent performance." Apparently, the very notion was viewed as absurd. George H. Walker, a member of Lehman's executive committee -- and President Bush's cousin -- was quoted as being "embarrassed" at the notion and said in an email, "Sorry, team. I am not sure what's in the water at" Neuberger Berman.

So, some sense of ethics and fair play means somebody's water's been laced with wacko juice? The implication just blows my mind.

Last but not least, Fuld himself was caught pooh-poohing the idea of conciliatory pay cuts. He said in an email on the topic: "Don't worry -- they are only people who think about their own pockets."

Um, yeah, I guess it takes one to know one, buddy.

Blatant disregard
AIG's CEOs have also taken their turn on the hot seat, with Hank Greenberg blaming subsequent CEOs, and those dudes pointing to mark-to-market accounting rules. Even worse, it came to light that after the government in effect nationalized AIG, executives went on a resort/spa retreat, living it up with spa treatments, banquets, and golf, to the tune of $440,000. I guess when your company just got bailed out by taxpayers, there's simply nothing for it but a pricey massage on the taxpayers' dime. You have got to be kidding me. (Please note that AIG has since clarified and defended the event, saying it was for independent agents, and only included 10 AIG employees, none of which were executives from AIG's headquarters. Still, any such lavish party thrown after the nationalization of a company would inevitably raise eyebrows, not to mention provide a bitter reminder of the high-rolling attitude that has been so prevalent.)

Bill Mann made a good point in his commentary "Sunset for Sociopaths": "Wall Street is full of people who would step over their grandma's body to grab another buck."

Indeed, check the definition of "antisocial personality disorder" from the Mayo Clinic, and peruse some of the symptoms, such as "indifference to the needs of others," as well as a "blatant disregard for what is right and wrong." I think we're seeing plenty of symptoms that could rightly get folded into the Diagnostic and Statistical Manual of Mental Disorders.     

Getting over "smartest guys in the room" syndrome
This behavior is exactly what I railed about in my recent article "Trashing Milton Friedman." Our marketplace is screwed if ethics and fairness continue to be considered quaint, out of vogue, or even kind of nutty in business dealings. Fuld's flippant "pocket" comment really fries me, but he was kind of right in one sense: An awful lot of people have let short-term profits lull them into excusing all sorts of behavior. We all need to search within and remember that we are part of this equation, too. Shareholder activism and good corporate governance are ways we can start trying to push back, and we must begin in earnest. Rewarding bad behavior has to stop.   

It's difficult to get over the sick feeling and the distinct impression that our culture learned nothing from Enron and WorldCom -- the "smartest guys in the room" syndrome (as coined by the 2005 movie on Enron by that name). Now we face a recession that will probably be extremely painful as we wring out the excesses that have built up in recent years. Maybe this time, we'll focus once again on the difference between honest success and greed, and why humility, personal responsibility, and accountability -- indeed, at times, shame for screwing up -- need to come back into style.

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Alyce Lomax owns no shares of any of the companies mentioned. The Fool has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 08, 2008, at 3:13 PM, amz002 wrote:

    I believe your facts are incorrect on the $440,000 resort expenses for AIG executives. There were only 10 AIG sub employees present at this meeting for top insurance producers.

  • Report this Comment On October 08, 2008, at 4:18 PM, TMFLomax wrote:

    Thanks amz002, I do see a subsequent article that gives a different dollar figure and says only 10 employees were present as you say, so we are looking into this. Thanks for the heads up.

  • Report this Comment On October 08, 2008, at 4:30 PM, brsglobal wrote:

    Either way, CEO need to take accountability and as Carl Icahn has called for, paying back executive bonuses and pay for failed institutions that are directly and indirectly costing the American taxpayer.

  • Report this Comment On October 08, 2008, at 4:56 PM, TMFLomax wrote:

    OK, re-checked and added a clarifying section. Thanks again for the heads up.

    And brsglobal: Thanks for the comment, too, it looks like we are agreed on this topic!

  • Report this Comment On October 08, 2008, at 5:31 PM, anon104 wrote:

    Re AIG conference, this is a normal event that many insurance companies hold for their top producers. It can be considered a bonus for a job well done, as you typically have to sell a significant amount of product to even be invited. If anything, what message do you think cancelling this event would have to AIG salesmen (note these are not AIG employees, but are general agents who can sell many companys' products)? You do not want your salesforce to bail on you, especially if the parent unit is trying to sell you (future new business is often a significant portion of the purchase price of the operation). If it makes you feel better, consider expenses arising from this event as part of their commission schedule (of course, this wouldn't generate as much press...). It should also be noted that this event was not a corporate or FP event, but part of the life sub's operations (i.e., none of the govt's loan money was required for this sub).

    The other misleading reference is to the $85B, as a handout. In very few recent articles, do you actually see the terms of this LOAN. 2% origination fee, 8.5% interest on the unloaned amount, 11+% interest on the loaned amount and an 80% equity stake. Loansharking operations would love to get these terms. If the govt made more deals like this, we could knock down the debt in no time (tongue in cheek)...

  • Report this Comment On October 08, 2008, at 5:38 PM, LisaPA wrote:

    If it's any conosolation, someone at Lehman felt the same way about Fuld. After his testimony, he was punched in the face in the employee gym.

  • Report this Comment On October 08, 2008, at 6:43 PM, bce1 wrote:

    So Alyce Lomax is now blaming President Bush for the actions of his cousin. Why don't you put the blame of our economy where it belongs with congress and the senate.

  • Report this Comment On October 09, 2008, at 9:56 AM, TMFGoldenGirl wrote:

    Alyce, I love your articles. Keep telling it like it is.

  • Report this Comment On October 09, 2008, at 7:23 PM, naplash wrote:

    I’ve been going over what various Fools have had to say about the crises and been properly infuriated, that is until I gobbled up everything you had to say. I would have recommended your other articles but wasn’t sure how and was afraid doing so would get me spammed to death but your incisive commentary got me to figure it out and what do you know? I didn’t get bombarded with your noble founder’s advertisements.

    Thank you ever so much for what you’ve written!


    Perhaps you should consider either rereading the article and apologizing to the author for accusing her of saying something that doesn't bear the slightest resemblance to what she said or... well, the other option would be to print this page out and take it into your doctor and ask them once again, if this medication is right for you. Then, apologize.

    No offence, I'm just kidding, actually some of my best friends have gone mad as hatters, so you're in good company.

    I'm sure Mr. Bush appreciates your loyalty in defending him against attacks that nobody made and will reward you if you can prove a direct line to the Mayflower and can show the old money in your wallet. ;)

  • Report this Comment On December 19, 2008, at 12:42 PM, sabresoft wrote:

    We are all to blame somewhat indirectly for the problems that we are facing today. We all expect that the companies that we invest in either directly, indirectly through retirement investment tools (401K is the US, RRSPs in Canada), or via company pension plans grow, and grow handsomely. This creates a climate for companies where planning is reduced to the short-term bottom line. Spectacular returns "this year" make executives look like heros, even if these gains are made at the expense of the long-term viability of these organizations, with long-term planning, employee and customer loyalty all ignored for the "right now" bottom line.

    What I like to call the Cult of the Superstar CEO has been a big factor in this mess. Bonus schemes are a major factor too (often driven by the Superstars). Not to say that bonuses are wrong. Correctly designed bonus schemes are a good idea, but often they reward the wrong people (executives who get paid handsomely as a status perk, not because they have really done something great for the long-term health of the company), or they reward the wrong behaviours. A former great name in the manufacture of farm equipment paid huge bonuses to salemen to increase sales. This worked very well, so much so that they added significant new manufacturing capacity. Unfortunately this "growth" saturated the market, and so after a few years farmers who had taken on significant debt to buy the latest and greatest machines stopped buying and in the matter of a few short years this former great vanished from the scene.

    Most of us want to make enough money that we can retire comfortably, possibly to somewhere where the climate is a little more friendly and maybe travel a little more. This takes a significant nest-egg and we may be tempted to go for the high-return vehicles out there (high return = high risk), and this often opens the door to the sociopaths who feel that there are no limits to the financial wealth that they can amass, and as they initially succeed, they increasingly believe their own lies, and eventually believe that they are entitled to this wealth even as the organizations around them crumble (hence the golden parachutes that you often see deployed as once great organizations collapse).

    Lending to the uncreditworthy was something like taping thumbtacks onto the side of an uninflated baloon, and then blowing into that baloon. A guaranteed failure mechanism was built-in. There have been regional realestate bubbles before, but this one was larger because of artificial demand (sub-prime lending), which drove excess capacity (i.e. number of homebuilders, building more and more homes each) and as soon as the inevitable inflation started, causing interest rates to climb, which immediately took the marginal buyers out, causing a glut of inventory, and then.....bang! The creation of the bundled up low quality mortgages into so called asset backed entities is somewhat like taking rotten kitchen scraps and dowsing them in strong perfume and calling it potpourri. It is only a matter of time before the real stench would emerge. The fact that so many supposedly smart money people were fooled is probably due to a combination of greed and fear; fear of missing out on the next great thing. But as one Canadian bank president said something to the effect, "I didn't understand these instruments so we didn't touch them...........".

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