No Equality in Bailout

Which industry had executives and their board members raking in millions in compensation while presiding over their declining business prospects? Whose employees were also well-paid, even if the products they made were faulty? And who faced declining revenue and certain financial ruin before running to Washington seeking bailouts?

The switcheroo
You'll be forgiven for thinking it was the automobile industry, whose CEOs were in Washington last week pushing their doomsday scenarios. Undoubtedly, the executives of General Motors (NYSE: GM  ) , Ford (NYSE: F  ) , and Chrysler have presided over the collapse of their businesses while their boards stood idly by, all while collecting their handsome compensation packages. But that sad story equally describes the financial-services business.

Richard Rubin collected some $115 million over the past nine years to do, according to his own admission, basically nothing. He had no line responsibilities for Citigroup (NYSE: C  ) , so he says he can't be blamed for its collapse, even if he did push for it to take on more risk.

And as much as people complained about the day spa retreats to which American International Group (NYSE: AIG  ) treated its executives on the taxpayer's dime, that didn't stop the Treasury from bailing out the insurer three times. Nor did the Fannie Mae (NYSE: FNM  ) , Freddie Mac (NYSE: FRE  ) , and Countrywide Financial shenanigans stop the government from making explicit what we knew to be true all along: Taxpayers were liable for gazillions worth of mortgages.

Some bailouts have a price
We're inching closer to a bailout of the automakers, perhaps as early as today. The Band-Aid approach would give the Big Three an initial $15 billion lifeline, and it may include a "car czar" -- someone who would oversee their restructuring -- along with the Big Three giving up a lot of their autonomy. You might even see a CEO or two lose his seat. It's possible the loans Washington is extending could be called in early for political expediency, i.e., if the automakers fail to meet the conditions the government sets. Welcome to U.S. Car, Inc. where business is done based on government whim.

This is better than the bankruptcy Detroit has been fighting to stave off? It's time the federal government allowed some business -- any business -- to fail. But given the similar circumstances, it would have been more equitable if the ranks of failures included just a few more of Hank Paulson's buddies on Wall Street besides Lehman Brothers.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (9)

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.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 789994, ~/Articles/ArticleHandler.aspx, 9/16/2014 5:40:18 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement