sambodhi

2 Sources to Blame for the Credit Crunch

Our collective lack of financial responsibility to live within our means may be one of the causes of this mess, but let's look more closely at the reason that financial markets aren't a truly free market system: the mutual funds.

We, the individual investors, carry almost no power when it comes to deciding who runs these companies because the bulk of our stock ownership is through mutual funds in our retirement and savings plans. It is the fund managers, not the stockholders, 401k holders, or pension plan beneficiaries that hold the stock voting power. As such, it is they who are controlling the votes that decide who is on the board of directors of these companies, and these often wind up being their "cronies." This is how we end up with boards of directors that take undue risks or approve contracts to bring in CEOs with multimillion dollar pay packages and severance packages in the tens of millions for CEOs and other company officials that get fired for doing a bad job running the company. I have never had a job that promised to pay me several hundred times my base salary if I got fired for doing a bad job (Home Depot, Black and Decker), and if you can tell me how to get one, please do.

No, this mess was caused by the greedy few, without whom these sub-prime financial instruments would not have existed. And now, in addition to losing a big chunk of my principal to these incompetent bozos, I have to foot the bill to bail them out while Fuld gets his $22M retirement package. Sure, he lost $400M+ in stock value, but here is the big difference: If I lose my job and get nothing but my 401k plan assets, I can last a maximum of 3-4 years if I really cut back (get rid of cable, eat peanut butter and jelly, and live day-to-day doing... not much). On the other hand, if I had $22M in my pocket, I could live a life of relative luxury on savings account level interest from half of what he got- for the rest of my life.

I'm not saying that CEOs don't deserve to be paid extremely well, or that they're not entitled to negotiate the best deal they can get for themselves. My point is that the excess which the system has allowed to grow has not been tempered by any true fear of the consequence of failure on the part of those running the system. The worst consequence these folks have to endure if their company fails is they'll have to downsize their personal lives and take only one or two vacations a year- through a travel agency instead of at their private resort. For the rest of us... we may not be able to keep our homes, or afford the $40 co-pay for our medical care, or send our kids to college, or live a decent and comfortable life despite the fact that we did our jobs well for 60 hours a week for years on end.

I don't wish anything bad for anyone. I just hope that, in the end, each of us will get what we deserve.