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Beware Executives' Double Standard

"Beware a man in whom the urge to punish is strong." Friedrich Nietsche

Louis Gerstner, former chairman of IBM, wants short term capital gains (for stocks held less than a year) taxed at up to 80% (although he made a "concession" of only a 60% tax for stocks held 6-12 months). That is a punitive rate, not merely a deterrent. In essence, a former CEO wants to punish his own STOCKHOLDERs for not acting in HIS best interests.

Basically, executives don't want you selling their stock, at least not before they do. That's why they stall and hem and haw when putting out bad news. The longer the public can be persuaded to hold on, the more time (and at higher prices) the executives have to dump their own stock. Eventually the truth will come out, but not before the "transfer of wealth." Fortunes were made around the turn of the century by executives who pumped up their companies' stocks through verbal or non-verbal means, and then unloaded them on the unsuspecting public.

Such executives' hypocrisy may come back to bite them. The short term capital gains rate may indeed rise to 80%, because the ordinary income rate could rise to 80%. That would be the natural result of past executive greed, which in turn would be a deterrent to future executive greed. But people like Gerstner want the burden to be shouldered by later generations.

And shareholders should have no compunctions about limiting executive pay. If they don't rein in greedy, overreaching executives, they may find themselves roped in by those same "greedy, overreaching executives."