The Bailout Plan

A lot of talk had been going around about the entrance of socialism into the markets due to this bailout. I find it mostly empty talk - and when I ask someone to explain it to me in depth, I get evasive answers.

Here is an article by another of my favorite writers -- Richard Sennett -- in today's FT:

Extend state ownership to save jobs

We are entering a period of financial socialism, by which I mean that the government is buying enterprises which cannot survive in the free market - Fannie Mae (NYSE:FNM) and Freddie Mac, the $700bn credit bailout in the US, Northern Rock and Bradford and Bingley in the UK. Most observers look at such financial socialism as an emergency measure - and a bad thing. To me it is a good thing; indeed, public ownership needs to be extended from the financial sector to the manufacturing and service sectors.


The reason for this is that Europe and the US have many industries and service businesses which cannot survive in the global economy. In the 1980s it was often assumed that the developing world would get the poor-quality, grunt jobs and the west would reserve for itself higher-quality skilled labour. This has proved in the past 20 years not to be the case. India, Brazil, China and south-east Asia are more than cheap labour markets; they are increasingly places able to provide high-skill, high-quality work.


At home, many of the new jobs created in the past 15 years are low-skilled service work. These jobs are hostage to the fluctuating credit card debt of local consumers. Job losses in the developed world are a fact of life and those losses are going to increase. My own calculation is that structural unemployment in Britain and the US will rise to about 7 per cent by 2015, and that the rate of underemployment will rise by 30 per cent. This is a conservative estimate; some of my colleagues, such as Robert Reich, the former US labour secretary, put the loss factor much higher. Even at my more modest estimate, these figures will prove a huge drain on unemployment and disability benefits. In Europe, with its increasing numbers of elderly and a shrinking labour force, every notch upwards in unemployment spells further misery. Politics enters the picture: people without work are angry, explosive citizens. And so, too, does simple humanity: people gain self-respect through being productive.

How did we get into this dangerous mess? Both Europe and the US have done a poor job and not invested the necessary sums to create new, sustainable work. Britain, justly famous for technological invention, has failed to develop the green industries such as wind turbines that this innovation has spawned. The US has cut down on the vocational education of skilled craftsmen and reacts with surprise that good-quality skilled manual labour has to be outsourced or imported.


The way companies are run globally has also weakened their viability. Managers have been forced to focus on fluctuations in their share price and continually to reconfigure themselves with mergers and acquisitions, rather than managing for the long term. In the car industry, it is a commonplace to contrast Toyota with Chrysler as a well-run versus a badly run enterprise; an essential difference is that Toyota is much less subject to the demands of its external shareholders than Chrysler.


So why is public ownership a good idea? Chrysler, after all, has been bailed out before. Employee ownership, such as we saw for a time with United Airlines, has also not proved a success. It is a good idea, in my view, once we swallow a large, bitter pill. In our present situation the western economy is not self-sustaining; private enterprise as we know it is a poorly constructed clunky machine and if we do nothing it will shrink opportunities and degrade the lives of its workforce. Still, why public ownership?


Protectionism of the sort advocated by advisors to Barack Obama, the Democratic presidential candidate, seems a weak response to the rising tide of unemployment. You cannot protect jobs by shutting out the world. Protected industries - and there are many in the US - have not added more jobs, proportionately, than free-market industries. Regulation, of the kind the financial sector is now experiencing, is largely irrelevant to expanding the number of jobs. The point is not to restrain risky action, but to encourage investment and innovation. That agenda requires money, more money than can be justified by the austere calculus of the market. This extra cash is where public investment comes in.


If this seems too much to swallow, consider India. Much of its construction, information technology and healthcare sectors have been - on a western calculus - over-staffed and inefficient, supported by government grants. Public investment has, however, developed these industries and as they have grown the need for government aid has declined. Many Scandinavian countries have also added to their growth by making public investments without worrying about interfering with free markets. Industries aided in this way have prospered.
In the case of Britain and the US, I do not foresee such a happy outcome, although I hope for it. To keep people in work, we have to accept that permanent government support of our ailing productive sector is required. Full employment is more important to our societies than efficient profitability. If this seems too much to accept, consider the choice: government can put its money into unemployment benefits or into jobs - jobs which cannot be justified in purely business terms.


To put the matter more positively, in the Great Depression, US society ultimately benefited from the New Deal's massive programme of public works and, in the shorter term, American workers found ways to pay their bills and retain their self-respect. Today, a new deal would work differently but would have the same goal - to give sick private enterprises the cash to stay alive for the sake of their workers.

Needless to say, I agree completely with the writer. An era of unfettered finance capitalism is drawing to a close and the neoliberal ideology of the last thirty years is already being jettisoned. Sooner or later there will be a focus on full employment as a primary responsibility of the state (as there was in the Western world from 1945 to 1973). Capitalism is again going to be carefully managed -- though we cannot see the contours of any emerging system at the moment.
 
AIG execs' retreat after bailout angers lawmakers

WASHINGTON (AP) -- Days after it got a federal bailout, American International Group Inc. spent $440,000 on a posh California retreat for its executives, complete with spa treatments, banquets and golf outings, according to lawmakers investigating the company's meltdown.

AIG sent its executives to the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government it needed to stave off bankruptcy. The resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.



Bailout works :)
 
WASHINGTON (AP) -- Days after it got a federal bailout, American International Group Inc. spent $440,000 on a posh California retreat for its executives, complete with spa treatments, banquets and golf outings, according to lawmakers investigating the company's meltdown.

AIG sent its executives to the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government it needed to stave off bankruptcy. The resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.

That ain't half of it. From the Washington Post:

Joseph Cassano, the financial products manager whose complex investments led to American International Group's near collapse, is receiving $1 million a month in consulting fees.
Former chief executive Martin J. Sullivan, whose three-year tenure coincided with much of the company's ill-fated risk-taking, is receiving a $5 million performance bonus.

What's the use of "outrage?" Do people expect these rascals to be contrite, to suffer pangs of remorse? To subsist on bread and cheese? Hell, no: let the good times roll. That's why every real revolution is interested not only in seizing the reins of power but in catching the rich and powerful and shooting them (the Russian Revolution) or lopping their heads off (the French Revolution). Otherwise the scoundrels just come back. Leaving the American corporatocracy in positions of influence means a similar crisis will occur again in some years (assuming the country and the world manage to weather this one).

The bailout is fundamentally flawed: those who really need it are not being helped. The bailout only helps the rich and the guilty. Hail to the American plutocracy.=D>
 
I can only imagine how the $700B check will be spent. Heres's the consequence of events how this bailout plan was developing:

  1. Former Goldman Sachs head Paulson said that $700B needed to bailout financial industry under no supervision and regulation.
  2. Congress said NO, and Paulson agreed to have somebody oversee sending of $700B.
  3. The person who is going to be a director for the government's $700 billion bailout program is Neel Kashkari, a former Goldman executive.
  4. Under Neel's supervision, there are three more persons going to work on executing bailout program: former Goldman Sachs executives Dan Jester and Ken Wilson as well as Steve Shafran, who focused on corporate restructuring while at Goldman.
Bravo! So we are going to have 5 people executing and supervising $700B bailout program and all five of them are former Goldman Sachs employees. Nobody in Congress says nothing about it. None of the media sources rises questions.
 
The bailout is fundamentally flawed: those who really need it are not being helped. The bailout only helps the rich and the guilty. Hail to the American plutocracy.=D>
Your opinions are stronger in this panic mode. It is easy to shout SELL when everyone scrambles for the exits. Nothing special here.

I am more conservative when it comes to private sector, perhaps since I have experienced communism also (especially through the life of my parents).

First of all, the idea of "helping the rich" is not valid. Financial companies are not run by homeless people nor they should be. If you help a bank that does not mean you are helping the CEO directly. You are actually helping the people tha have money in that bank. Don't worry about AIG executives, they will be prosecuted for misuse of public funds quickly. They are the first, then other executives will follow.

Second, I don't think any american has lived under a socialist regime. One of main ideas is that state was responsible to find jobs for each and every citizen. Do you think that is great? Talk to people that lived in Eastern Europe, were payed same amount, no competition, no way to advanced by your own skills. You were basically career dead starting with 23.

Third, I agree that lack of manufacturing jobs is an issue for U.S. and U.K. However there is no reason to make things tragic. If you outsource a job to India and pay one employee 15K a year, maybe you can pay a senior employee in the States another 15K plus. It is a global economy so it is normal that countries specialize in what they do best. If U.S. strongest sector is research, financial services, business management, then I don't see an issue to focus there.
People are under the impression that outsourced countries are more "stable" due to manufacturing jobs. This is far from the truth.

Lastly, many people stare at U.S. and say: "they've got what they deserve, now they will feel poverty". Ok. The problem is that these people lived in poverty their entire lives. It is not a successful system against a failed one. Even in the midst of this crisis, I say it loud: Capitalism was the best system in last 200 years and it will be in next 100!
Let's take a controversial example: China. Now everyone says that China took all right decisions and this is the correct direction. Look at GDP or trade surplus. I say: what does it do for regular citizen? Except a few cities, citizens are poor as always. Can a standard U.S. citizen envy a Chinese farmer? When we get to these state, I will admit that system is wrong.
In a similar way comparison can be made with other countries ...

I know this post will be controversial, hopefully it makes people think.
 
Bravo! So we are going to have 5 people executing and supervising $700B bailout program and all five of them are former Goldman Sachs employees. Nobody in Congress says anything about it. None of the media sources raises questions.

Q1: Who is being bailed out?
Q2: Why are they being bailed out?

Answering these questions involves making explicit the flawed character of American financial capitalism. Until and unless this flawed character is addressed, nothing will fundamentally change. There's too much disparity between the haves and have-nots: the USA increasingly resembles Brazil in economic disparity. This disparity lies at the root of USA's travails. There's also another sense in which USA resembles Brazil: one can argue that the country no longer has a first-world economy. So Americans, in order to maintain some vestige of their old living standards, have been forced to live beyond their mens. Both the increasing disparity and the offshoring of the country's manufacturing and technical capability have their roots in a footloose financial capitalism.
 
First of all, the idea of "helping the rich" is not valid. Financial companies are not run by homeless people nor they should be. If you help a bank that does not mean you are helping the CEO directly. You are actually helping the people tha have money in that bank. Don't worry about AIG executives, they will be prosecuted for misuse of public funds quickly. They are the first, then other executives will follow.

To paraphrase you, the bailout is designed to help those who already have sizable chunks of money. That seems to be its prime purpose. I'm not bothered with the $400,000 junket for AIG execs as it's a small sum in the overall scheme of things but I am curious about who is directly going to benefit from a sum that is about 2,000,000 times bigger than the measly $400,000.

It's interesting that while hundreds of thousands -- if not millions -- of American homeowners have been losing their houses, no state of emergency, no panic, has been felt by those in power. But when big banks owned by big money are jeopardised then the argument that "we're all in this together" gets trotted out. And yet, why should a person who has lost his job and his house be worried if the whole corrupt corporate and banking system goes belly-up? This bailout is by the rich and for the rich at taxpayer's expense.

Second, I don't think any american has lived under a socialist regime. One of main ideas is that state was responsible to find jobs for each and every citizen. Do you think that is great? Talk to people that lived in Eastern Europe, were payed same amount, no competition, no way to advanced by your own skills. You were basically career dead starting with 23.

Sorry, you're not putting forward a credible argument. Until the 1970s, Western Europe and North America had full employment as a key policy objective. In my humble opinion, this should still be one, along with reasonable levels of pay, and some sort of social security net. Short of a revolution, though, I don't see this happening.

Third, I agree that lack of manufacturing jobs is an issue for U.S. and U.K. However there is no reason to make things tragic. If you outsource a job to India and pay one employee 15K a year, maybe you can pay a senior employee in the States another 15K plus. It is a global economy so it is normal that countries specialize in what they do best. If U.S. strongest sector is research, financial services, business management, then I don't see an issue to focus there.
People are under the impression that outsourced countries are more "stable" due to manufacturing jobs. This is far from the truth.

A line of reasoning that would make Thomas Friedman ("The World is Flat") proud. It's not so straightforward as proponents of comparative advantage would like to think. These decisions have been political and have mostly benefited a small financial elite. I'm not making moral judgements but merely pointing out that there are certain "contradictions" inherent in taking away Western jobs but expecting Westerners to consume as before: it is inevitable that personal indebtedness (house, car, credit card) has to explode and this is what has been happening for the last three decades

Even in the midst of this crisis, I say it loud: Capitalism was the best system in last 200 years and it will be in next 100!

Can you define what you mean by "capitalism?" Then your meaning will be clearer.
 
Q1: Who is being bailed out?
It's clear that $700B is not enough to bailout many companies. In fact, it can bailout very few. Maybe even only one? What is the name of this company? They don't want us to know, that's why the first edition of the plan rejected any transparency. Now, while we were supposed to get some transparency in this, we've got five people running the program. All former Goldman Sachs employees and Paulson brought to the Treasury Department all four of them. So, maybe $699.99 billion will be spent on bailing out Goldman Sachs and $0.01 billion on a party for all involved in this process?


Q2: Why are they being bailed out?
Because they have power to do so.
 
To paraphrase you, the bailout is designed to help those who already have sizable chunks of money. That seems to be its prime purpose. I'm not bothered with the $400,000 junket for AIG execs as it's a small sum in the overall scheme of things but I am curious about who is directly going to benefit from a sum that is about 2,000,000 times bigger than the measly $400,000.

It's interesting that while hundreds of thousands -- if not millions -- of American homeowners have been losing their houses, no state of emergency, no panic, has been felt by those in power. But when big banks owned by big money are jeopardised then the argument that "we're all in this together" gets trotted out. And yet, why should a person who has lost his job and his house be worried if the whole corrupt corporate and banking system goes belly-up? This bailout is by the rich and for the rich at taxpayer's expense.

I agree with you that it is not fair, but do you think it is something new? Throughout history, in any country the bulk of power has been concentrated within hands of few people. From medieval to fascism to communism.
Do they have unlimited power. Not unlimited but we don't really know the limit :)
So I am not really revolted. I find it pretty gullible to say all was fine in last 15 years and just now everyone found out that executives are paid milions.


Sorry, you're not putting forward a credible argument. Until the 1970s, Western Europe and North America had full employment as a key policy objective. In my humble opinion, this should still be one, along with reasonable levels of pay, and some sort of social security net. Short of a revolution, though, I don't see this happening.

I doubt that full employment was a key policy objective in U.S. in 60s or 70s. I agree with you that government was better in this direction however there were conditions that do not exist now so it was an easier task. For instance, borders were partially open, U.S. did not have a wave of Eastern Europeans, Asians, etc looking for jobs. Furthermore it was a period of major public projects, of course it was easier to find unqualified labor.
However, even now unqualified job can be found easily in big cities. The difference is the shortage of qualified well paid jobs.

What you are advertising is pure government socialism, not a government objective. And trust me, it is a very thin line between ensuring jobs for people to controling entire job market.

A line of reasoning that would make Thomas Friedman ("The World is Flat") proud. It's not so straightforward as proponents of comparative advantage would like to think. These decisions have been political and have mostly benefited a small financial elite. I'm not making moral judgements but merely pointing out that there are certain "contradictions" inherent in taking away Western jobs but expecting Westerners to consume as before: it is inevitable that personal indebtedness (house, car, credit card) has to explode and this is what has been happening for the last three decades

I agree that financial elite has made a good profit, but how about regular Joe. Does he live worse than 1940 or 1950 or even 1970? Does regular Joe want to work in a manufacturing plant or a bank? Do you have a significant percentage from rest of the world wanting to be in Joe's place?
I did not say that specializing in some areas is simple. That is why an industry sector may recede but not vanish. On the other hand, the dominance comes from this field. U.S. cannot invest trillions in manufacturing and trillions in services.
You have to make a choice. Here you will probably say that trillions are thrown on homeland security and I fully agree, but that does not deserve an economical analysis. It is purely a political decision.

From a pure economical perspective, the definition of global economy involves specialization whether you like it or not.


Can you define what you mean by "capitalism?" Then your meaning will be clearer.

A quick google will give a definition that I think it is fine. Of course you can start interpreting each word. However, I read a few essential items like private property of free markets. These contradict with state controlled economy.

http://www.investorwords.com/713/capitalism.html
Economic system characterized by the following: private property ownership exists; individuals and companies are allowed to compete for their own economic gain; and free market forces determine the prices of goods and services. Such a system is based on the premise of separating the state and business activities. Capitalists believe that markets are efficient and should thus function without interference, and the role of the state is to regulate and protect.
 
Does anyone know the answer to the second part of my question?

How would this affect the salary of non-executives. A (future) investment banker entering a bulge-bracket firm as an analyst (40K-80K) could reasonably expect to be making $1M+ in 10-15 years. A bulge-bracket quant (programmer, statistician, etc.) could reasonably expect to be nearing $.5M/1M after putting in some good time and pursuing an MBA (and/or PhD).
 

doug reich

Some guy
Pay will decrease in the short term, be unchanged in the long term, but the number of people in those positions will decrease.
 
Hey Doug,

Thanks for the reply. I haven't taken many upper level economics courses (mostly stat and mathematics) - but would short term and long term correspond to short-run and long-run, in this case? In which case long-run is not very relevant?

Also - could you please expand a bit? Why would the number of people in those positions decrease? How much would the pay decrease and for what reasons?

I'm guessing the decrease in those positions is due to the [downsizing] of major banks as they switch into a [safe mode]. i.e. Goldman Sachs . After which they should increase in a bull market?

On another note - the first $250B of the bailout seems to have failed. Now they are going to spend another $250B buying stocks in major banks. Apparently some banks refused at first, but were pressure by Paulson to participate. This is going to be horrible for efficiency.
 

doug reich

Some guy
1. Short term is the next year or two, long term is after that. I'm talking about life, not economics.

2. Numbers will decline because the old business model is gone, regulation will increase, and margins will be squeezed.

3. The rescue plan is not about efficiency, it is about confidence. The treasury is trying to prove to investors and, more importantly, other banks, that lending to one another isn't a problem because everyone's doing it (see, even the government is getting into it!).

I'm not sure what you mean about efficiency here.
 
Salary Bonuses Constitute 10% of the Bailout

Wall Street banks in $70bn staff payout
By Simon Bowers

Pay and bonus deals equivalent to 10% of US government bail-out package

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.

Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.

The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.

At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

In the first nine months of the year Citigroup, which employs thousands of staff in the UK, accrued $25.9bn for salaries and bonuses, an increase on the previous year of 4%. Earlier this week the bank accepted a $25bn investment by the US government as part of its bail-out plan.

At Goldman Sachs the figure was $11.4bn, Morgan Stanley $10.73bn, JP Morgan $6.53bn and Merrill Lynch $11.7bn. At Merrill, which was on the point of going bust last month before being taken over by Bank of America, the total accrued in the last quarter grew 76% to $3.49bn. At Morgan Stanley, the amount put aside for staff compensation also grew in the last quarter to the end of August by 3% to $3.7bn.

Days before it collapsed into bankruptcy protection a month ago Lehman Brothers revealed $6.12bn of staff pay plans in its corporate filings. These payouts, the bank insisted, were justified despite net revenue collapsing from $14.9bn to a net outgoing of $64m.

None of the banks the Guardian contacted wished to comment on the record about their pay plans. But behind the scenes, one source said: "For a normal person the salaries are very high and the bonuses seem even higher. But in this world you get a top bonus for top performance, a medium bonus for mediocre performance and a much smaller bonus if you don't do so well."

Many critics of investment banks have questioned why firms continue to siphon off billions of dollars of bank earnings into bonus pools rather than using the funds to shore up the capital position of the crisis-stricken institutions. One source said: "That's a fair question - and it may well be that by the end of the year the banks start review the situation."

Much of the anger about investment banking bonuses has focused on boardroom executives such as former Lehman boss Dick Fuld, who was paid $485m in salary, bonuses and options between 2000 and 2007.

Last year Merrill Lynch's chairman Stan O'Neal retired after announcing losses of $8bn, taking a final pay deal worth $161m. Citigroup boss Chuck Prince left last year with a $38m in bonuses, shares and options after multibillion-dollar write-downs. In Britain, Bob Diamond, Barclays president, is one of the few investment bankers whose pay is public. Last year he received a salary of £250,000, but his total pay, including bonuses, reached £36m.
 
I would like to know what the average bonus of this $70bn is. I think it's a little unfair to group all of the bonuses together. Compensation on Wall St. has a large bonus component. Sure, a bad exec getting a $20mil bonus while his firm is getting money from the government is bad. But I'm guessing that most of the people getting bonuses earn far less.

Selfishly thinking, that money comes to NYC and is good for our local economy.
 
I would like to know what the average bonus of this $70bn is. I think it's a little unfair to group all of the bonuses together. Compensation on Wall St. has a large bonus component. Sure, a bad exec getting a $20mil bonus while his firm is getting money from the government is bad. But I'm guessing that most of the people getting bonuses earn far less.

Selfishly thinking, that money comes to NYC and is good for our local economy.

I have problems with this viewpoint. The public and Congress were told that the only way a collapse of the system could be averted was by putting $700bn of taxpayer's money into Wall Street. This money was ostensibly earmarked to stave off collapse and paid for by people who generally don't even see a 5-figure bonus, let alone 7- or 8-figures. Additionally, bonuses may have been a component of total Wall Street packages, but the public (which includes myself) doesn't see why it should have to stump up the money for a bunch of incompetent liars and losers to live lavishly in these trying times. These liars and losers can live quite comfortably on their $500,000 salaries; the system is not in jeopardy if they don't get their $3m or $20m bonuses. Finally, as the public is beginning to understand, even if a bank does make money, it's often not because of any special competence on the part of its staff: it can be pure fluke. It's as if I gave $10,000 of my savings to some fast-talking hustler, who went and placed it on red at the roulette table. Red came up and the hustler claimed as his bonus $2000 of the $10,000 profit for his "competence" in choosing red. In short, the bonus system on Wall Street is just another piece of crooked plundering on the part of financial mafia capitalism.

As it is, everything is being done behind closed doors in the land of the free and the home of the brave. I consider Hank Paulson a liar and a scoundrel.
 

CEO Cashes Out as Bank Seeks U.S. Loan

by Dan Freed

The top executive at a midsize bank holding company is retiring with a more than $12 million payday, even as the company is applying for a government investment that could restrict such windfalls.

The South Financial Group on Tuesday said Chairman, President and CEO Mack Whittle had left his post, effective Monday. Whittle had earlier said he would leave by the end of the year, and during a conference call to discuss the company financial results last week he made no indication the timing had changed.

The unexpectedly sudden departure comes just days after the bank announced it plans to apply for a federal investment through the Troubled Asset Relief Program, or TARP, which contains provisions that void existing compensation agreements in order to prevent "golden parachutes."

"The timing is precarious as hell," says Adam Barkstrom, analyst with Sterne Agee.

Barkstrom wonders whether regulators insisted that Whittle be relieved of his responsibilities as a condition of participation in TARP. Another possibility, he suggested, is that the decision was driven by the company to protect Whittle's compensation from TARP.

Asked about the timing of Whittle's departure, the South Financial Group spokeswoman Mary Gentry said only the management transition is "moving smoothly." She downplayed any connection between Whittle's departure and the company's TARP application.

"The company is living up to the terms of an agreement entered into prior to the creation of TARP and we had no choice but to honor our obligations. Mack's the founder of the company and this contract reflects his years of service," Gentry says.

A call to the Treasury Department press office was not returned.

Whittle's stewardship of The South Financial Group, which he founded in 1986, has been less than stellar. The Greenville, S.C.-based holding company that includes Carolina First Bank, Mercantile Bank, Bank CaroLine and SouthGroup Wealth Management, has seen its shares fall from over $25 last year to a low of $2.52 on July 15 due largely to its portfolio of residential construction loans in Florida. Shares closed up nearly 17% to $4.75 Tuesday.

According to a Securities and Exchange Commission filing, the company said it "expects to recognize approximately $12 million in incremental expense" connected to Whittle's departure. Stock options and other benefits could raise the total significantly.

"He's leaving at the request of the board, is how I'd put it," Barkstrom says.

During the call last week, Brian Rohman, an executive at investment firm Robeco Investment Management, questioned the company's plans to allow Whittle to serve out his term on the board, which expires in 2011.

"I understand Mack is leaving the CEO role at the end of the year. But given the problems with the company over the last couple of years, can you justify why he's going to stay on the board?" Rohman asked.

Whittle replied he planned "to serve out the wishes of the shareholders." Pressed by Rohman, Whittle said the company was not pressuring him to step down.
 

bob

Faculty (Undercover)
This is fun! This week's group with their hands out:
automakers, monolines, states and municipalities and (hey, why not?) even taxpayers

I work across the street from the Fed. I expect to step outside one day and see nice wicker baskets full of cash lined up along the street.

Some beautiful bits here:
Treasury, according to GM, needs to help them to the tune of about $10b to acquire Chrysler from Cerberus. Now, at the moment GM has a market cap of about $3b. The Cerberus buyout of Chrysler was, according to the article, financed by $9b in debt. Doesn't it seem like this deal fell through a wormhole from some alternate universe in which 3 > 9 > 10?

If the monolines get in on the act, we'll be one step away from a perfectly risk-free system: Obligor defaults, government adjusts down the loan so that he or she can stay in the house; then, the government pays the monolines so they can make up the shortfall to bondholders in the deal that owns the mortgage; the government is holding those bonds itself (at face, of course), so it's all okay. Too bad I missed the chance to buy a nice brownstone in my neighborhood.

As for states, well, if they'd been using their budgets to buy senior pieces of securitizations of mule-rental receivables from the South Rim of the Grand Canyon, then used them as collateral in leveraged purchase of an option on the number of times it rains during a full moon in Sasketchewan in 2012, we might be more sympathetic. As it is, they're investing in losing propositions like educating children, providing health care for the destitute, and fixing potholes. Sorry, guys, but we're looking to put this money to work.
 
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