CIT's been in deep trouble for way more than a year. Meanwhile, some of its execs have reaped special bonuses. Its H.R. director, Jim Duffy, has received a $450,000 cash bonus for what the company called his "exceptional performance." What did he do? "Mr. Duffy's achievements in 2008 include the design and implementation of a process to reduce our total headcount by 22% ... along with the successful deployment of talent and development programs targeted at retaining CIT's key talent," according to CIT's proxy filing last April. That message to taxpayers was approved by CEO Jeff Peek.
The mutual fund industry will likely survive Halloween without being frightened to death, despite the fact that it's scrambling because the industry's fiscal year typically ends on October 31. But just two days later mutual-fund money-managers are liable to be scared out of their wits, especially those fund advisers who rake in huge fees in the $10 trillion industry. On Monday, the Supreme Court hears arguments in what the WSJ notes is a crucial case on those huge fees.
The Supreme Court's own news service describesJones v. Harris Associates as a case in which the court is asked "to decide whether the federal Investment Company Act limits the ability of investment advisers to charge higher management fees for in-house mutual funds." The suit at the heart of the case also asks for more open disclosure by the funds.
Ooooo! Scary! Especially if you're one of those mutual-fund advisers who earn high-six or even seven figures (and there are plenty of you).
Those of you who are particularly pissed off about excessive Wall Street bonuses might want to follow this case about excessive fees extracted even more directly from your wallet. You've read about czar Kenneth Feinberg's supposed pay caps for the bailout recipients, but this case is bigger. The court is being asked to impose much more wide-ranging caps on money snatched by many more Wall Streeters.
Barack Obama's administration has so far been witless for the prosecution of the goniff investment bankers who crashed Wall Street and has shown no signs of clawing back the wealth that dramatically shifted from households to private equity, hedge funds, foreign bank accounts, and the bailed-out banks themselves.
You might remember Lieber's "What Cooked the World's Economy?" from earlier this year, in which he laid out a groundbreaking, readable analysis of the devilish details.
Obama hasn't exactly surrounded himself with regulators, as Lieber points out.
An argument could be made that the Bush administration's prosecutors were more aggressive against the Wall Street goniffs last year than the current crew. No shit.
Despite caterwauling from some Wall Streeters, pay czar Kenneth Feinberg's looming decision to cut salaries is more of a Band-Aid on an ouchy than the infliction of a gaping wound.
It will affect 175 execs at seven firms. Whoop-de-do. Execs and their representatives were in on negotiations, and the result may assuage public outrage. But Feinberg's action will be no more effective in the long run as a cure for excessive greed than a kiss on your bruised knee from Mommy. Sure, it feels good that someone cares, but it doesn't really help.
[S]ome executives will still walk away with large paychecks. And some big salary cuts might skew overall numbers. Outgoing Bank of America Chief Executive Ken Lewis will receive no salary for 2009. Already, Citigroup Inc. is telling employees the net impact of Mr. Feinberg's rulings will be minimal because the cut salary will be shifted from cash to longer-term stock grants, said people familiar with the matter.
Morgan Stanley CFO Colm Kelleher somehow kept a straight face when he told a Dow Jones Newswire reporter, "We always said 2009 was a year of transition, and what you're getting is a validation of that."
Translation from Streetspeak: "Year of transition" means "business as usual" and "validation" means "profits so big I think I'm going to shit myself."
The WSJ story on this matter notes that Morgan Stanley's risk-taking is paying off, just as it already been at Goldman Sachs. Morgan's just now trying to catch up, being slow on the profit uptake during this year's market rally. Nevertheless, as DJN's Gabriella Stern points out:
Grandstanding for the folks back home in South Carolina, Rep. Joe Wilson shouts, "You lie!" at Barack Obama, and people are mortified. Parliamentary democracies are used to pols publicly jeering and hissing at prime ministers. But the U.S.'s one-party democracy isn't built that way. Rahm Emanuel says afterwards, ""No president has ever been treated like that. Ever." Except at Ford's Theatre in 1865.
"President Obama confronted a critical Congress and a skeptical nation ..." Ordinary Americans apparently decried the complexity and cost of his plan, ignoring the fact that the present system is horrifyingly Byzantine and frighteningly tilted away from doctors and patients and toward the drug and health-care industries. A smoother, smarter, and better-written story in the Wall Street Journal.
"Analysts predict a further increase in poverty and a drop in incomes this year, reflecting the worst job losses of any recession since World War II." Wall Street Journal's version.
And that's a runaway train, powered by artificial and short-term stimulus measures, that could very well crash. "It is difficult if not impossible to deny the firming of economic data in recent months. But that firming has been inexorably tied to a host of fiscal and monetary stimulus measures." Also see the Wall Street Journal's "Banks Face Loss of Debt Guarantee." Alan Greenspan, on the other hand, says the recovery is real.
Frightening foreclosure figures. One in eight households nationwide are in foreclosure or behind on mortgage payments. "Loans extended to borrowers with good credit are deteriorating at a faster clip" than loans to subprime borrowers. Doesn't feel like "recovery." Calculated Risk's detailed breakdown/analysis points out that Alt-A loans are included in the "prime" category, which may make the high numbers a little misleading. More on that (plus this explanation) from Reuters: "That could be skewing things since Alt-A loans by definition are less than prime and extremely loose lending standards during the boom have made them look more like subprime loans. For example, borrowers taking out an Alt-A loan could state their income rather than prove it."
A New York millionaire, football player Plaxico Burress, who wounded no one but himself and threatened no one, gets two years in jail for his gunplay. Other New York millionaires who didn't need to pack heat to cripple millions of Americans are still on the loose on Wall Street.
"... Company insiders are now selling stock at the highest rate in two years. This action does not guarantee a market decline but it does imply the easy money in the current bullish run has been made and downside risks, whether temporary or cyclical, have increased. ..."
Among the collateral damage: Writers will now have to add an asterisk to the phrase "as secret as a Swiss bank account."
UBS got off easy, and so did thousands more rich Americans: The U.S. government had demanded that UBS identify the holders of 52,000 accounts. As part of the deal finalized today, the U.S. is dropping its lawsuit against the bank, and the bank won't get fined.
Be sure to read the backgrounder on Bradley Birkenfeld, the American employee of UBS who blew the whistle. Not that he's a hero, because he was one of the schemers and has pled guilty, but he stands to possibly rake in money for snitching. Birkenfeld is probably no longer welcome in Switzerland.
The high-class watchdog Corporate Library has released its "sneak peek" of the highest-paid CEOS of 2008.
Jesus, what a disastrous year that was, what with the meltdown and all. But check out (and download for free) "The Top 10 Highest Paid CEOs of 2008: Pay hits the gas pedal as the economy hits the brakes." Blackstone's Stephen A. Schwarzman, one of Wall Street's highest-flying vultures, raked in "total realized compensation" of $702.4 million, fairly closely followed by Oracle's Larry Ellison, who garnered $557 million, followed by seven guys from the oil business. And, finally, followed by Abercrombie & Fitch's Mike Jeffries, in 10th place with 2008 gravy totaling $71.8 million.
Special mention to A&F's Jeffries. The teen-apparel outfit's share price was in the high 70s in January 2008 and ended the year in the low 20s. Didn't seem to hurt him any.
And something not in the Corporate Library report: In early June 2008, before A&F's share price started its rapid descent, Jeffries raked in millions of dollars in just a few days by selling a shit pile of stock, not all the sales of the "automatic" variety. (See for yourself.)
Jeffries's timing was impeccable, although maybe it hasn't been so good this year. Only today, Abercrombie & Fitch reported that it swung to a second-quarter loss that seems to be directly tied to some poor management decisions.
Federal prosecutors are supposedly focusing on Bernie Madoff's "close associates." Other people may speculate — not Madoff, who didn't speculate at all, considering that he didn't make a single trade — but the feds know that Madoff couldn't have pulled off his scam alone. At the very least, lots of his fellow traders and other outsiders on Wall Street knew that Madoff's claims of a steady return, year after year, no matter how the market was doing, were bullshit. All credit to Harry Markopolos, but he couldn't possibly have been the only person to have figured it out.
Unraveling the finances of both Madoff and MJ may take forever. Lawyers around the globe are trying to figure out how much money Madoff made off with (and who's got it now). They're searching for documents. MJ's finances are even more complicated, but lawyers already have most of the documents — too many of them, no doubt.
Who's going to wind up with Madoff's wealth? His money spigot has finally been turned off, but there are billions already out there. The only thing we know for sure is that trustee Irving Picard is in line for a 3 percent commission. As law prof Lawrence Velvel says, "Were Picard to recover ten billion dollars in these suits and distribute it to Madoff victims, his personal share, at three percent, would be 300 million dollars. Nice work if you can get it."
Aside from the complex question of lawyers' fees, who's going to wind up with what share of the rest of MJ's wealth? "The settling of his estate will be complicated," the L.A. Times understates. Especially because the spigot is wide open, and the cash keeps gushing out.
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