TonyCinTX

Has the Market Decoupled from Economic Reality?

The answer is simple; the government has proven by its actions that they have decided the Fortune 100 companies must not fail. The decoupling mentioned by User 353732 above is decoupling risk from performance. As has been said before, the Fortune 100 has pretty successfully privatized profit while making all risks a public responsibility, with losses now borne by taxpayers in the form of government bailouts, stimulus, zero-interest loans, and on and on.

The value of the DOW and S&P 500 companies has risen because risk has been abated, and in some cases eliminated. Smart, big-money investors discount prices for business risk, but when risk vanishes the discount is zero and the price rises.

This is why stock prices jump (in either direction) after a contract is signed or declined, or the FDA approves a drug or decides against it, or a lawsuit is settled in favor of or against a litigant: Until the final signature, bets exist on both sides, after it, all bets are settled up.

Well, my fellow citizens, we have collectively spent about a trillion dollars this year defining a whole brand new class of corporation in this country:

Too Big To Fail.

Insiders Confirm: Rally Is Fake, Economy Is 'Getting Worse'

I have received stock options in three companies that I worked for. Seriously, folks, sell 'em when you get 'em, I did not in the first and that was a mistake, I did in the 2nd and 3rd and although I could have made about 50% more by holding a year or so, I made twice as much as the people that held two years or more. Trying to guess the peak is a loser's game, my recommendation (which I followed myself) was to get OUT of the company I was working for and buy dividend producing companies that are already about as big as they can get.

Yes it is wonderful if you can ride a rocket to the top, but the sad fact is that most companies are too greedy and try to grow too fast and are managed incompetently; and that means the odds are very good they will falter and fall long before they dominate a market. As DVK says before me; finalize your compensation and diversify. If your company really does grow, your options that mature next quarter or whatever will be worth more. Why bet everything on one unproven long shot that is likely to fail?

CEO Pay and the Reverse Robin Hood

@Jack789:

Ah, well, I once believed Obama's rhetoric, enough to vote for him, but I am disillusioned now. You have no need to worry, Obama is just as much in the pocket of big business as any other politician. I have no doubt he will protect the existing system of ripping off the common man to benefit the wealthiest corporations; for the latter it will still be ice cream and cake, perhaps different flavors but just as delicious.

Obama's rhetoric is for the common folk like me, but as he has proven at least a dozen times already by signing statements, orders, and secret deals, his words are just words. Whatever "fundamental change" he claims to accomplish is going to be superficial and cosmetic, I feel certain.

And let me preempt any that disagree: I speak as a hard left liberal that donated $500 to the liar. Obama will protect the WORST of the capitalist system. I thought differently during his campaign, but the day he voted for telecom immunity after promising to *filibuster* over it, we knew for certain who was buttering his bread.

On Sep 05 09:00 AM jack789 wrote:

CEO Pay and the Reverse Robin Hood

@GALT:

You miss a crucial difference between actors, actresses, news anchors, sports stars, music stars and other celebrities and CEOs.

Not one of these celebrities, including the ones you mention, has any responsibility to others when allocating their own pay. Katie Couric is not responsible to the shareholders of CBS for using their money wisely; she is an independent contractor. She demands a salary and perks, and the fiscal geniuses at CBS decide whether her services are worth it to them.

Julia Roberts doesn't own a movie studio. Somebody else owns the studio, approaches her (through an agent), pitches their picture and her share. She is an independent businesswoman with her own staff, lawyers, and negotiators. Somebody else decides whether she commands enough audience to be worth $20M, and that person has the fiduciary obligation to spend the money of their shareholders or investors wisely.

In all of your counter-examples, not one of those celebrities has any fiduciary obligation to the shareholders of the company paying them. In all of those cases, somebody else is trying to get the most bang for the buck out of their money, or the money of their investors or shareholders. Call that "maximizing value."

In the case of the public companies, The BOD and C-Level officers ARE specifically responsible for maximizing value, and setting their own salaries is a direct conflict of interest.

@Wisdom vs... saying "don't buy their stock" is like saying if you don't want to get mugged, stay in the house. I have a fundamental right not to be robbed, defrauded, misled or lied to by companies in which I invest, and I believe I have the right to not get mugged by CEOs or boards that are supposed to be representing my interests, even if that mugging is only 1% of my profits.



> On Sep 04 03:04 PM John Galt wrote:

CEO Pay and the Reverse Robin Hood

It is pretty simple, really. Once you get to these levels of compensation, the best interest of the Cxx and BOD is to maximize their own short-term compensation even if it screws the stockholders, investors, lenders, workers, and society. They can get their money and walk away from a total train wreck. We rely upon their honor and integrity and the potential for shame, but at our peril, because some of them HAVE NONE.

We may know who they are, but nobody gives a crap, because the big traders only own the stock for a few months before selling; they are all short termers too. Corporate governance be damned, that is always the next buyer's problem. I admit I am always surprised to receive a proxy statement to vote on the corporate executives; I usually don't know them and don't care, I just happened to be holding the stock on the day of record.

The problem is one of scale, that is all, and the way to fix it is to limit the SCALE of public companies. I am not sure what the best measure of that is, but perhaps we limit them to 1000 employees, or $1B in revenue, or both. If they grow larger than that, we require them to split in two with equal assets and equal rights to any intellectual property and to be completely independent. The shareholders get a share of each stock in return for their original share, but no officer of one can vote any shares in the other for at least three years. Let them compete with each other.

Then the companies always have competition, they must compete for the workers who now have a choice, the shareholders have more than one company to choose to invest in, and consumers can choose between their products and be rewarded by price competition.

If a company doesn't want to split equally, let them spin off independent public firms before they get to that point, but require true independence of the spin offs with no possibility of manipulation by the parent: All they get is non-voting stock.

And for any private company, no such limits, except for anti-trust laws already in place.

Keep companies small, and this runaway compensation will come to a halt.

Has the Rally Already Exhausted Itself?

People don't need companies to work for. They can work for the military, work for the federal government, work for the state government or highway department, and work for the county government. All those pay money. I work for a state college and I am proud of my work (and I pay my taxes), it isn't a "company."

'Green Shoots' Are a Mirage: Economy Will Deteriorate Further

Of course you can't get something for nothing; I don't think anybody expects that. Nobody expects Walmart to start handing out free TVs. The question is always whether what you bought was worth the money, and this is true whether it is a country doing the buying or a six year old.

Personally I'd rather have let the bastards go bankrupt and let the chips fall where they may. On the other hand, if the economy really needed a stimulus, I'd rather we spent three trillion flat out on infrastructure and energy independence research. THAT would have been worth the money; I fear Mr. Kim's predictions will come true because we have failed to let the free market work and let the rich bastards blackmail us and hold us hostage for a trillion dollars in bail outs, when they should have gone bankrupt. Even if that DOUBLED my taxes I'd rather have dealt with the fallout of that problem. Instead we just perpetuate the rip-off for another decade.

Gary Shilling: Say Goodbye to the Great Gatsby Era

Just to counter the blithering political idiot above; I am a C-level executive in a corporation and I earn in the top few percent of the country and I voted for Obama without any expectation of a handout. He has reversed field on a few things I find important, but I was and remain willing to pay DOUBLE my current taxes if it would produce universal health care and eliminate our dependence on Middle Eastern oil, preferably replacing it with wind, geothermal, natural gas and thermal solar power. We have enough of these home grown energy sources to power the entire USA 250 times over our current usage.

So no, I and my colleagues did not vote for Obama looking for a handout at the expense of the rich, we ARE the frikkin' rich, and we want a government that isn't wasting trillions on wars and debt when a few hundred billion can solve the problem here at home AND boost the economy at the same time.

Economic collapse will devalue my assets just like anybody else's, and I want a government that does what I frankly cannot do, which is to pool my taxes and invest billions in basic research and science and development, so we can get divorced from the Middle East altogether.

The U.S. on the Precipice

huangjin: Programs such as Social Security and Medicare do exactly the opposite of what you claim, they force people TO "save". Yes, I know they are not actually saving and their contributions are redistributed to the elderly. But historically, the problem was that *nobody* saved for retirement. If they did anything, they relied on lifelong employers to fund their retirement, and when those all went under in the Depression everybody was screwed.

We have already tried the alternative to SS, it fails miserably and creates poverty, disease, homelessness and crime. When it comes to planning for retirement, people are no smarter now than they were a century ago. They won't do it! They ignore their financial future and bet on schemes and wild chances and lose all their money! If you completely eliminate their taxes they will bet and lose that, too.

Politicians and corporations are just as bad as individuals, short term thinking is inherent human nature. There is absolutely no evidence that people are "discouraged" from saving by SS, in fact among people under 35 that firmly believe SS will be gone before they retire and they will have to fund their own retirement, they still do not save or invest anywhere close to what that would cost. Education is not the answer either, this same thing holds true for professors and college graduates. THEY JUST DON'T CARE ENOUGH to sacrifice this year's comfort for their future comfort, and NEVER WILL.

Some sort of mandatory, inescapable long term investment combined with a social safety net is the answer, and SS and Medicare taxes are the closest we can come. The big problem with SS and Medicare is they are managed by appointees and politicians that never have to face any consequences for their own short term thinking. But something must be done and this is as close as we get.

Global Stock Markets: We All Fall Down!

Thanks, that's a lot of useful information. So when can we start saying "recession"?

Friday's Employment Report: A Sobering Dose of Reality

We HAVE been in a recession, the current administration has used threats, power and outright lies to rewrite every governmental economic report that might tell the truth, and distort statistics with new rules about what data should be discarded, weighted, or just invented to make things look one edge away from recession.

Then they dismiss all third party reports of the obvious as "partisan". This administration has redefined Republican as wildly fraudulent, and has made a fine art of lying, and then when somebody points out the facts, saying that person is lying, partisan, unpatriotic and soft on terrorism!

I used to respect the Republican position of controlled spending, small government, low debt and free markets while enforcing anti-trust. I cheered Reagan's deregulation of the airlines. Too bad they are gone, replaced by plutocrats bent on robbing the country and pandering to a thoroughly duped religious right.