NEWS NOTES
Headline from the Sunday Times:
The Two Paths to Wealth: Earn More, Spend Less
See, that’s why college graduates earn higher incomes. They can grasp powerful but subtle concepts beyond the reach of the commoner.
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Bonuses in the News
Stanley O’Neal steps down as head of Merrill Lynch after leading the company to an $8.4 billion writedown in the fourth quarter and a rumored $15 billion loss still to come. He leaves with a severance package worth $161 million. (Had they spent that to send him packing a year ago, it might have been worth it – to head off the $23 billion mistake.)
Timing, as someone said, is the difference between salad and garbage.
Charles O. Prince III steps down as head of Citigroup after losing $64 billion in the company’s market value. He gets $68 million plus a cash bonus of $12 million and an office, car, and driver for the next five years – no, not a Tata Nano.
And Angelo Mozillo, who wrecked Countrywide Mortgages (and a fair percentage of its home buyer customers and its stockholders) gets to leave with $110 million or so after Bank of America acquired Countrywide’s so-called assets for pennies on the dollar (which is like buying the Iraq war on the cheap because nobody else wants it).
The victims lose their homes. The perpetrators walk away with enough money to save at least 15,000 people from foreclosure (my calculations), but you can bet that’s not what they’ll do with it.
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Why do corporate execs get such lavish pay packages?
Are they much smarter than CEOs of the past? Do they work longer hours?
No, but they hire compensation consultants like Towers Perrin, Marsh & McLennan, Hewitt, or Mercer. If the execs take a shine to the consultants, there are many more millions in consulting contracts — for training, marketing, management, logistics, cost control, etc. So the consultants recommend princely compensation packages to directors on the company’s board. The board can’t be faulted for approving such mighty advice, the executives get fabulously rich, and the consultants get tons of additional business. Everybody wins. Except the shareholders. And the rest of us.
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Robert M. Lawless is a professor of law at the University of Illinois law school. He might have changed his name to Lawful, but that rhymes with awful.
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Abstinence makes the heart grow fonder.
The verdict is in on the federal programs now burning up $176 million a year to reduce teen pregnancies by preaching abstinence.
It doesn’t work. Teenage pregnancies are up.
And word on the street is that God said he hates the program and everyone who pushes it – which they do not only in the U.S. but also in other countries, as a condition of foreign aid. If they use condoms, we bomb them.
A new study showed that while President Bush was bragging in 2006 about the decline in teenage pregnancies, they were actually rising by 3% a year after declining during the 1990s, before Bush.
Robert Rector of the Heritage Foundation disputed the findings and said that blaming Abstinence-only programs was “stupid.” Actually, it’s Mr. Rector who is stupid; but that’s understandable because at the Heritage Foundation you’re paid to be stupid.
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Politicians make lousy economists…
Investment analyst John Mauldin dubs Senators Shumer and Graham as “bipartisan economic illiterates.” The two have been urging the U.S. to insist that China raise the value of the yuan by 30% to reduce our trade deficit. Mauldin points out, first, that the Chinese are already raising the yuan’s value – gradually, to preserve their own banking system – and, meanwhile, the dollar is sliding downwards. By the time a new congress takes office, the 30% will have been achieved without any help from the tough-talking senators.
But that won’t lower the trade deficit. The Canadian dollar has risen much more than 30%, and our trade deficit with Canada has hardly budged.
The only thing that can lower the trade deficit is for U.S. consumers to save more and spend less. Not an appealing solution for a politician, but it may happen anyway if we’re heading into a recession.
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…And so do economists
Alan Greenspan kept lowering rates and flooding the financial system with liquidity, creating the housing bubble, then refused to tighten restrictions on home loans – denying until the bitter end that there was a housing bubble.
If, as a result, Ben Bernanke has to keep lowering the Fed funds rate to save the economy, then another flood of liquidity will set the stage for an outbreak of inflation and/or the next bubble.
I give up. Just tell me where the next bubble will be, and I’ll invest in it.
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