Tin-eared Titans

Sometimes it's the small gesture that defines the end of an age. Richard Fuld, CEO of Lehman Brothers, the single financial firm the Bush administration allowed to collapse into bankruptcy in what may someday be thought of as the slow-motion Crash of '09, made one of those gestures recently. Just to be clear, we're talking about a man who, between 1993 and 2007, took home a tidy $466 million in pay. (That's no misprint, though it's a pay level that it would take factories of workers cumulative lifetimes to reach.) Then, in 2008, the year his firm would collapse, Fuld was awarded another $22 million in what was called "retirement pay."

But that's the big picture. Here's the small one that catches our shape-shifting moment perfectly. Fuld was recently outed for "selling" his wife their jointly held $14 million, 3.3 acre Florida beach-front mansion -- one of five houses the two of them owned, including their 8-bedroom main domicile in Greenwich, Connecticut -- and the lovely touch is the selling price: $100. That's right, one hundred bucks "in a possible attempt," writes the British Times, "to move assets beyond the reach of infuriated investors of the collapsed bank." Smooth move, Dick! Just petty and sleazy enough for a $488 million man.

Fuld and the other CEOs, who lived fabulous lives in their many mansions and passed out money as if it were sand, have been slow to grasp changing times. After all, as late as last December, according to the Wall Street Journal, John Thain, CEO of Merrill Lynch, "let it be known" that he expected a $10 million bonus in a year in which the company he oversaw had a nifty $28 billion in losses. Like Fuld, these men have proven remarkably tin-eared as well as lead-fingered and, in a season of catastrophe for their firms and for so many Americans, they still managed to pass out a staggering $18.4 billion in bonuses.

It helps, of course, to have a memory. I mean a real memory, a deep sense of what happened once upon a time. Steve Fraser, expert on American Gilded Ages, and author of Wall Street: America's Dream Palace, knows that this country went through such a moment with just such a set of tin-eared former titans once before. And while the two moments, 1929 and 2009, differ in striking ways, it's instructive to know how it all fell out for the Richard Fulds of another age. As Fraser writes in his most recent piece, "The ‘Best Men' Fall":

"After the Great Crash of 1929, those at the commanding heights of the economy who had enriched themselves and deluded others into believing that, under their leadership, the United States had achieved ‘a permanent plateau of prosperity' -- sound familiar? -- were subject to a whirlwind of anger, public shaming, and withering ridicule. Like the John Thain's of today, Jack Morgan, Charles Mitchell, Richard Whitney, Albert Wiggins, and others who headed the country's chief investment and commercial banks, trusts, insurance companies, and the New York Stock Exchange never knew what hit them."

Comments (29)

1. Oh, don't fret it Mr Englehardt, despite that Marxist Donald Trump...

   I'm sure we'll have some "free marketeers"

   ("Marketeer roll call...MAASCHY...HAPP...DarinTT....Cubby, aka SJCHER)...

   showing up to say that Fuld's half a billion pay off was "the free market in action and nothing wrong with that!"

   Posted by Mask at 02/10/2009 @ 4:06pm

2. I think he should be investigated instead of Bush/Cheney...you can always tax him to death.

   Posted by YourJomamma at 02/10/2009 @ 4:12pm

3. Posted by YourJomamma at 02/10/2009 @ 4:12pm

   See?....although MAASCHY really couldn't bring himself to either condemn Fuld nor defend him.

   Posted by Mask at 02/10/2009 @ 4:24pm

4. I think those pay offs are ridiculous...were they promised under contract before the bail out was given?

   If the economy had been great continued growth this pay arrived at private contract would not be an issue... if it were under contract I don't see how you can throw contract law out the window because the result in this case is morally contemptable and obscene...

   if the group went bankrupt then we could actually go backwards into his pay structure and retake money back..

   Posted by YourJomamma at 02/10/2009 @ 4:31pm

5. From Wiki:

   Divestment and independence (1994–2008)

   In 1993, under newly appointed CEO, Harvey Golub, American Express began to divest itself of its banking and brokerage operations..... in 1994 it spun off Lehman Brothers Kuhn Loeb in an initial public offering, as Lehman Brothers Holdings, Inc.[31]

   .....Lehman performed quite well under CEO Richard S. Fuld, Jr......Beginning with $2 billion in assets under management, the firm acquired....These businesses, together with the PCS business and Lehman's private-equity business, comprised the Investment Management Division, which generated approximately $3.1 billion in net revenue and almost $800 million in pre-tax income in 2007. Prior to going bankrupt, the firm had in excess of $275 billion in assets under management.

   Altogether, since going public in 1994, the firm had increased net revenues over 600% from $2.73 billion to $19.2 billion and had increased employee headcount over 230% from 8,500 to almost 28,600....

   =================================

   The reason Fuld had such paydays can be summed as 1) Increasing assets under mgm't from $2 billion to $275 billion,

   2) Increasing net revenues over 600% while headcount increased just 230%,

   And it was very profitable for a long time!

   My last corp. job (ended `97) involved a big RE deal with Lehman, both equity and mezzanine debts....the way it was structured, they got just about all the upside while my side of the table got, essentially, some caretaker/managing fees!

   Posted by Happy at 02/10/2009 @ 5:19pm

6. YOURJOMAMMA, it is funny to watch all the "rule of law" leftist advocate disreguarding all the laws of our land which their Undemocrat cohorts have forced on all with their continuing legislative "gifts" rewarding the ABA for political support!

   You point out to them that contract law is an important and intregal part of the rule of law and all they can do is whine and semper about it when THEY are the ones actually supporting its expansion! Really humorous stuff!

   Posted by comancheamerican at 02/10/2009 @ 5:35pm

7. And Dick Whitney ended up doing prison time some years later.

   But who among today's bailout queens is even being investigated for criminal activity, much less indicted & tried.

   We the Suckers weep.

   Posted by sloper at 02/10/2009 @ 6:17pm

8. We the Suckers weep.

   Posted by sloper at 02/10/2009 @ 6:17pm

   With this package..you have not yet begun to weep.

   Posted by YourJomamma at 02/10/2009 @ 6:42pm

9. ...you have not yet begun to weep.

   Posted by YourJomamma at 02/10/2009 @ 6:42pm

   I rarely get envious....but, given the amount of money flying out the Fed vault, I AM envious of those folks, and God knows there is/are a lot of them, that will have the opportunity of several lifetimes, to strike GOLD as the money flows by.....legality not withstanding!

   The American people are being primed to expect lots of waste and inefficiencies......`leakage' as they call it in the retail industry.

   Posted by Happy at 02/10/2009 @ 7:36pm

10. I can only imagine the graft and waste after this "package" gets delivered. Based on past estimates of govt waste......

    If over 25 % is mismanaged in all govt projects, how much would that be and how much private enterprise would have to be generated to earn the same amount of profit.

    Posted by YourJomamma at 02/10/2009 @ 9:16pm

11. "YOURJOMAMMA, it is funny to watch all the "rule of law" leftist advocate disreguarding all the laws of our land which their Undemocrat cohorts have forced on all with their continuing legislative "gifts" rewarding the ABA for political support! "

    wait a minute, since when was the Democratic party "leftist"? you must be talking about some other party which clearly has no representation on capitol hill.

    Posted by darladoon at 02/10/2009 @ 11:51pm

12. Posted by darladoon at 02/10/2009 @ 11:51pm | ignore this person | warn this person

    Reading is a fundemental skill, but apparently comprehension is optional for you! Try again, maybe you will understand, maybe not!

    Posted by comancheamerican at 02/11/2009 @ 12:56am

13. If over 25 % is mismanaged in all govt projects, how much would that be and how much private enterprise would have to be generated to earn the same amount of profit.

    Posted by YourJomamma at 02/10/2009 @ 9:16pm | ignore this person | warn this person

    Ahhhhhhhhh....it seems only yesterday these were the fools wanting to go after big oil because of their "excessive" 7% profits and refiners who are closing now because they can't even make their measley 6%, yet the Undemocrats are willing to waste 25% of 3 trillion dollars or about 750 billion!

    Posted by comancheamerican at 02/11/2009 @ 01:02am

14. To all of those investors who may be considering legal action....I don't think that shallow attempt to hide the asset would fly.

    If she sells that house, would she have to pay capital gains tax on $13,999,900.00?

    Posted by koroviev at 02/11/2009 @ 01:36am

15. "it is funny to watch all the "rule of law" leftist advocate disreguarding all the laws of our land which their Undemocrat cohorts....."

    uh, seems pretty clear to me, buck-o

    Posted by darladoon at 02/11/2009 @ 02:11am

16. "yet the Undemocrats are willing to waste 25% of 3 trillion dollars or about 750 billion!'

    and your opinions on the alternative "stimulus" which would cut 3 trillion in tax cuts over 10 years?

    Posted by darladoon at 02/11/2009 @ 02:46am

17. Posted by comancheamerican at 02/11/2009 @ 01:02am

    YOU guys wasted $650 Billion killing 4100+ GIs for no good reason.

    Posted by Mask at 02/11/2009 @ 09:18am

18. subject to a whirlwind of anger, public shaming, and withering ridicule....

    They got away with all this crap in the first place due to massive deregulation and wide acceptance of the designation "...the have's and the have mores".

    In other countries these guys would be designated as 'targets'. Here, we offer to attend a counseling workshop so we can work together on our issues. The only real issue is that these guys are still alive.

    Is this the blog where repubs go to hide from the other blog about prosecuting George and Dick? It's funny how, again and again, they take the opportunity to rail against the current administration about fiscal matters just three weeks in, yet eight years went by and it wasn't a problem.

    Can you say 'Selfish myopic sons-of bitches with selective amnesia?'.

    Posted by ficheye at 02/11/2009 @ 6:21pm

19. Wall St. firms are composed of many diverse, autonomous divisions serving a wide variety financial commerce. Should "Executives" of these firms, those in charge, responsible for the P&L (Profit & Loss) of all these varied divisions combined, be paid large year end bonuses when these firms have posted billions in losses? HELL NO !! Shame on the Boards of these publicly held companies for giving executives contracts w/guaranteed compensation rather than pay based on the firm's P&L as a whole. Shareholders should revolt. BUT: It was only one or two small divisions of these firms, those dealing in the toxic, exotic, no-one-can-understand-what-the-hell-they-are, derivatives - invented by computer physicists that wracked up billions in losses. At the same time, other divisions, equity trading, fixed income to name two,

    WERE STILL MAKING BILLIONS IN PROFITS for these firms. Just nowhere near enough to offset the firm's overall losses. How much sooner would these firms have been in trouble, how much deeper would the losses be, if not for the profits made by these other divisions? Should those who were bringing in billions in profits for these firms be rewarded? do they deserve bonuses? HELL YES! When the average person hears a "Star Trader" was paid a $6 million dollar bonus, they scream DISGUSTING WALL ST. EXCESS. Consider this: A trader who's contract calls for $100k base draw against a 20% COMMISSION. That trader got a $6 Million dollar "bonus" because he or she brought in $30 Million dollars in PROFIT FOR THE FIRM. If a Hoover salesman had a 20% payout deal and sold $30 million dollars worth of vacuum cleaners....

    STOP CALLING THEM BONUSES (which implies a discretionary gift) and refer to them as what they are in most cases, COMMISSIONS BASED ON P&L.

    Posted by timbrehse at 02/11/2009 @ 9:54pm

20. The flaw in your argument, "timbrehse," is that you seem to equate profit with virtue and loss with vice.

    The correspondence between profit and virtue, like that between loss and vice, is not perfect even in the middle income classes, where it is the strongest. In the highest income classes, people tend to make more money than they deserve. In the lowest income classes, people tend to deserve more money than they make. There is also of course the question of NEED alongside that of deserving, for example whether we need medical treatment when we are sick. Call it a bonus, call it a commission, as you wish, but NOBODY needs twenty-two million dollars in "retirement pay." However, EVERYBODY needs health care sooner or later. (I'll let you draw your own conclusion from this argument.)

    This is why I favor progressive taxation and am happy that we are slowly moving back toward this practice in these still very plutocratic United States. The result of progressive taxation is not a classless society, but a society in which the richest among us recognize the poorest among us as human beings with virtues, vices, and needs like their own.

    "Commanchenation" is right when he calls contract law an integral part of the rule of law, but there are deeper and more integral parts to the rule of law, particularly for those of us who believe that the law ought to exist for the people, not the reverse. The most important laws are HUMAN RIGHTS. When you elevate property law above human rights, what you get is what our country was before the Civil War -- a slave economy.

    Posted by JakobFabian at 02/11/2009 @ 11:56pm

21. When you elevate property law above human rights, what you get is what our country was before the Civil War -- a slave economy. Posted by JakobFabian at 02/11/2009 @ 11:56pm

    Right on.

    But using comanchenation as a source of any sort has it's problems. He seems, in general, to be against most of what you say in the post above. Even Stalin was right once in a while.

    Posted by ficheye at 02/12/2009 @ 12:49am

22. "Commanchenation" is right when he calls contract law an integral part of the rule of law, but there are deeper and more integral parts to the rule of law, particularly for those of us who believe that the law ought to exist for the people, not the reverse. The most important laws are HUMAN RIGHTS. When you elevate property law above human rights, what you get is what our country was before the Civil War -- a slave economy.

    Posted by JakobFabian at 02/11/2009 @ 11:56pm | ignore this person | warn this person

    Now that is funny that you should argue that from a leftist standpoint! Seems to me I remember the liberals of the SCOTUS recently ruled 5 to 4 that we also have NO private property rights when it comes to "eminent domain". Not only can federal, state, but now even local governments can take away your property just to further economic intrests! You don't have a right to your home if a developer wants to build a shopping mall or Walmart! Welcome to America and "change you can believe in"!

    Posted by comancheamerican at 02/12/2009 @ 01:32am

23. Eminent domain gives us a lot of things, "comancheamerican." The list includes railroads, highways, airports, and national parks. It also includes a lot of giveaways for the greedy and powerful, but there's plutocracy for you!

    Come to think of it, it was probably something like eminent domain that freed the slaves. ("Emancipation" even begins and ends with the same letters. Coincidence?) That and an awful lot of shooting that caused an awful lot of death. The fanatical devotion that some people have to absolute concepts of ownership can be a destructive thing.

    Ultimately, one's ownership of one's property can be no more absolute than one's ownership of one's government. Both kinds of ownership entail both rights and responsibilities, and the former will not materialize unless we accept the latter. Both kinds of ownership are also limited, for the simple reason that we share the world with other people.

    There are those who would like a world with only private contracts and none of our endless quarrels about universals like human rights and the common good. But a social order that rests purely upon contracts has been tried before. Let's see, back in Old Europe, there were the mutual obligations between lord and churchman, lord and vassal, and lord and peasant. The lord was the one who owned the land and made all the rules for those who merely lived and worked on it. Although the church tried to limit the landlords' power, really the church had to play the same land-grabbing game and ended up betraying its supposedly heaven-based principles. I believe this was called "feudalism."

    Capitalism of course differs from feudalism in that it makes land a tradable commodity like any other. But this is small comfort to those of us who've played Monopoly...

    Posted by JakobFabian at 02/12/2009 @ 07:36am

24. Posted by JakobFabian at 02/12/2009 @ 07:36am

    See where that got you?

    Collaborating with the enemy is punishable by abuse from the same party. These are people who supported the ruin of our country and laughed all the way to the bank. Now it's somebody else's fault, as usual.

    Like trying to befriend a snake. You'll eventually get bitten because they're a snake. Human rights? The right to bite anyone they want, I guess. Comanche is the King of Snark here on this blog.

    I love the obvious reality that this guy probably doesn't even vote, yet he's got all the diatribe down pat. My favorite is all the references to 'the left'. That could merely be someone who sits to his left at a picnic for all he really knows.

    Posted by ficheye at 02/12/2009 @ 3:48pm

25. It's not really for people like "comancheamerican" that I write my comments, though I occasionally address my comments to them. I write for people who, like me, are able to see the partisans of the recalcitrant Right generally as nothing more than deterrent examples. In other words, "ficheye," I'm really writing for thoughtful contributors like you.

    There is a fable told in India of a guru who repeatedly rescued a scorpion from a stream. Every time he did, the scorpion stung him. A passerby asked the guru why he bothered to help such an ungrateful creature. "It is the nature of such creatures to sting," the guru replied. "Just as as it is the nature of a guru to help whomever he can."

    Of course, it would be wonderful if more of us could successfully preach outside the choir, so as to bring in a few more singers. But only a few of us are this talented, and I cannot claim this talent for myself. I may be able to win an argument or two, but if I win an argument and lose my audience, what have I gained?

    Posted by JakobFabian at 02/12/2009 @ 4:23pm

26. ...."ficheye," I'm really writing for thoughtful contributors like you.

    Posted by JakobFabian at 02/12/2009 @ 4:23pm

    Are you a koala bear? Time to reload your bong!

    Posted by Happy at 02/12/2009 @ 4:45pm

27. JakobFabian, thanks for such interesting and insightful postings. One of the things I find interesting about current prevailing supply side economic practices (which I consider to have similarities to communist theory, particularly in their nascent totalitarian approaches), is this notion that there is some kind of "pure free market" that is best left to regulate itself, and which can only be led by those few who have the "scientific" knowledge to fathom its mysteries, and thereby are most deserving of its rewards. I took enough of college economics to know that there is no such thing - all economies are regulated in some way to distribute resources. How those resources are distributed are not the process of some "natural" order of things, but rather the result of rules governing or managing that distribution. Without those rules, such as contract law, no economy of any sophistication could function. Some rules are more effective than others in seeking a common good in that distribution. Like you, I see that as a true test of economic performance, not fealty to a mystical invisible hand. Your postings are a helpful reminder of that.

    Posted by Dwight Wall at 02/13/2009 @ 03:17am

28. JakobFabian, thanks for such interesting and insightful postings. One of the things I find interesting about current prevailing supply side economic practices (which I consider to have similarities to communist theory, particularly in their nascent totalitarian approaches), is this notion that there is some kind of "pure free market" that is best left to regulate itself, and which can only be led by those few who have the "scientific" knowledge to fathom its mysteries, and thereby are most deserving of its rewards. I took enough of college economics to know that there is no such thing - all economies are regulated in some way to distribute resources. How those resources are distributed are not the process of some "natural" order of things, but rather the result of rules governing or managing that distribution. Without those rules, such as contract law, no economy of any sophistication could function. Some rules are more effective than others in seeking a common good in that distribution. Like you, I see that as a true test of economic performance, not fealty to a mystical invisible hand. Your postings are a helpful reminder of that.

    Posted by Dwight Wall at 02/13/2009 @ 03:18am

29. Sorry for the double posting! My computer did something weird.... Took me to the Altercation site.

    Posted by Dwight Wall at 02/13/2009 @ 03:21am