"When logic and proportion have fallen sloppy dead"

"When logic and proportion have fallen sloppy dead"
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everything that is wrong with the world of wall street in one chart:  

Posted by howard in nyc


adapted from a nice column from Mish:  


what is the job of a CEO of a publicly held company? most books that i have read say 'to maximize shareholder value'. here is the chart of the weekly stock price for a large publicly held company, over the year 2011:

rough year. ex dividends, shareholder value was nearly cut in half. (to be fair, the dividend has held steady at 1.2%. about what you can get risk-free from a 5-year treasury bond.) the board of directors must've been out for blood. if the ceo wasn't dumped, surely he would be on notice. and he could forget about that big bonus, right?

the ceo did have his base salary more than triple, from $600,000 to $2 million, 2010 to 2011. but his bonus was cut. 2010--$12.6 million. his penalty for chopping shareholder value in half in 2011? a bonus of only $7 million.

2010--company performance is basically flat, ceo is paid $13.2 million. 2011--company loses half its value, ceo is paid $9 million.

it gets worse.

this is by far the most well connected, most dominant company in its industry. it is hard to imagine a firm with a more advantageous structure and position to make a profit. yet, if you were a pension fund or mutual fund that invested in this company's stock at the beginning of last year, you lost nearly half your money.

but the ceo doesn't have to worry about being responsive to the shareholders. he gets paid anyway. after all, he is doing god's work.

i'm sure lloyd blankfein earned every penny of that $9 million.  in fact, he was heard to mutter, "now i know how the greeks feel!"


the disconnect between the interests of the top executives of firms from the interests of the shareholders is the single biggest problem in the long-term structure of american capitalism. tightly coupled with that is the focus upon short-term 90 day goals and horizons.

both of these deep, horrific departures from the way business has been done in the usa for decades until recently is ultimately the fault of the shareholders--for allowing the lack of accountability to grow worse, in return for the prospect of chasing near term stock price growth.

ultimately, i blame not the leaders but the voters. in politics, and in finance. if i was lloyd blankfein, and the board of directors/shareholders aren't gonna say shit, i'd pay myself a bundle for failure too. (well, i wouldn't; but i can't blame him for being human.)


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