Watching tonight’s presidential address, there was one sentence that stood out-an admission of a fundamental flaw in the system- yet, no one is talking about the real problem: Wall Street isn’t a financial market anymore- it’s a casino.
I’ve been saying this for years. Now, with this bailout being rushed through, I’m waiting to hear what fundamental changes will be proposed.
Here is what Bush said:
I’m a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America’s financial system are at risk of shutting down.
Transcript – President Bush’s Speech to the Nation on the Economic Crisis – Text – NYTimes.com [1].
To restore stability to the markets, we must once again connect investment and share price to actuall financial performance of a company- hard numbers, not emotions.
To do that, investments must be based on long term outlooks, performance and financial success. All stock bought by large investors must actually be an investment – i.e. longer than a year.
To have access to capital via the equity markets, companies must stop handing out stock as compensation, except when it is evenly distributed throgh an Employee Stock Ownership Plan. No more wild handouts to the chiefs while the indians toil. Investors must have first dibs at profits and executive compensation must be approved by a majority of stockholders- not the owners of a majority of the stock.
It’s time to remove golden parachutes altogether from allowable compensation packages. The simple solution to stop corporate takeovers (the supposed “poison pill” reason behind these massive handouts) is to either own a controlling interest in the stock (through an ESOP) or to take the company private. At no point, should any executive be able to cash out, unless they were the founder or an early investor.
Lastly, ratios on compensation should be put in place, limiting compensation based on total US payroll, job growth, profit growth. If all three aren’t growing, executives pay shouldn’t be either.
Lastly, corporate exec pay should never exceed the corporate tax bill. If you are going to profit wildly from being part of the greatest nation on the planet, the company should foot its share of the bill for our infrastructure, defense and economic strength. The days of setting up offshore subsidiaries to dodge taxes, laws or reporting of income must stop.
Without these changes, no amount of economic bailout will be much more than a temporary band-aid.
We also need to prosecute to the fullest extent of the law, anyone who took more than a million a year in compensation while working for a company that is now being asked to be bailed out. If my business goes under, I lose my house. When Bear Sterns went under- did any of the jokers working there lose theirs? It’s time to collect.
Remember, George Bush himself said “I believe companies that make bad decisions should be allowed to go out of business.” So, if he’s asking the taxpayers to pay for their failures- I want to own the fat cat’s houses first.