Barons of Bankruptcy (NO SPAM)

fable · Post by **fable** » Thu Aug 01, 2002 10:52 am

Donald Lamb, Managing Editor of the US Financial Times, was just on a radio program I was listening to. He referred to 52 executives who walked away with $10,000,000 in bonus money from bankruptcies they were directly or undirectly responsible for, through the over-valuation of poorly-run mega-corporations. He specifically targeted the stock option incentives that CEOs have been offered over the last decade, based on stock value, as responsible. As a result, a bunch of people moved in who artificially inflated the funds, made a killing, then sold high and moved out, taking their bonuses as the bubble burst. None of these incentives, of course, are addressed in the bill Bush recently signed into law.

What do you think should be in the system to prevent this kind of thing from continuing to occur? How would you structure the law? What penalties would you attach to these Barons of Bankruptcy?

Weasel · Post by **Weasel** » Thu Aug 01, 2002 12:09 pm

Originally posted by fable
' through the over-valuation of poorly-run mega-corporations'.

What do you think should be in the system to prevent this kind of thing from continuing to occur? How would you structure the law? What penalties would you attach to these Barons of Bankruptcy?

I would say the whole market was 'Over valued'. The 90's seemed to be the decade of the "Horse Race Gamblers". The brokers and IMHO the people who listen to them forgot the one thing about the stock market, there is no gurantee you will make money. Well let me rephase that, the brokers will make money off of the people no matter what. The brokers will not see a conflict of interest in offering you stock in a company the Brokage Company itself has stock in.

1. I would end stock option incentives.

If the company doesn't have the money up front to hire this person, they don't need him or her.

If the company doesn't have the money to give as a bonus to an employee, the company must not be doing good enough to call for a bonus.

I sometimes wonder has it gotten to the point you have to 'Bribe" or "force" an employee to do a better job.

2. Structure the law? I have no idea,..maybe I would hire someone like HLD.

3. Jail time wouldn't work IMHO, I would hit them where they hurt, take any money made with stock options and throw a fine of 50% of what every they made on these option for good measure.

PosterX · Post by **PosterX** » Thu Aug 01, 2002 1:00 pm

Originally posted by fable
Donald Lamb, Managing Editor of the US Financial Times, was just on a radio program I was listening to. He referred to 52 executives who walked away with $10,000,000 in bonus money from bankruptcies they were directly or undirectly responsible for, through the over-valuation of poorly-run mega-corporations. He specifically targeted the stock option incentives that CEOs have been offered over the last decade, based on stock value, as responsible. As a result, a bunch of people moved in who artificially inflated the funds, made a killing, then sold high and moved out, taking their bonuses as the bubble burst. None of these incentives, of course, are addressed in the bill Dubyah recently signed into law.

What do you think should be in the system to prevent this kind of thing from continuing to occur? How would you structure the law? What penalties would you attach to these Barons of Bankruptcy?

The man who sponsored the bill, Senator Paul Sarbanes (D-MD), could have tried to address the problem but he was too busy coming up with ways to give trial lawyers more ways to make money off of the scandals (resulting in more campaign contributions to the good senator). I'm all for punishing crimes but I find it strange that we send "businessmen" to jail for 20 years but child molesters get light or suspended sentences or get sent to mental hospitals. But I digress.

The real problem I think is that the accounting and tax rules are too convoluted and arcane. Make the accounting rules clear and transparent, flatten the tax code, and punish fraud. The new bill only adds to the problem by putting another layer of rules on an already complicated system.

On a related note, why has Lieberman basically shut down the Enron investigation? I smell a coverup.

fable · Post by **fable** » Thu Aug 01, 2002 2:13 pm

The man who sponsored the bill, Senator Paul Sarbanes (D-MD), could have tried to address the problem but he was too busy coming up with ways to give trial lawyers more ways to make money off of the scandals (resulting in more campaign contributions to the good senator).

And just him, right? What a jerk he is! But wait--why did so many other senators vote it into law, as well, both Republican and Democrat? Come on, @PosterX: I'm afraid your one-party bias is showing.

Please, keep that kind of rhetoric out of a spam-free thread. Set up a new topic to deal with it. This isn't a thread for political preaching, and I'll cut out posts that attempt it, further, regardless of persuasion.

PosterX · Post by **PosterX** » Thu Aug 01, 2002 3:02 pm

EDITED

Originally posted by Weasel

1. I would end stock option incentives.

If the company doesn't have the money up front to hire this person, they don't need him or her.

If the company doesn't have the money to give as a bonus to an employee, the company must not be doing good enough to call for a bonus.

I sometimes wonder has it gotten to the point you have to 'Bribe" or "force" an employee to do a better job.

Sometimes a company can't offer anything other than stock options. If you ban stock options startups couldn't hire people to get them off the ground.Stock options aren't the problem. Like I said, the accounting rules that allow companies such as Enron to hide debt in subsidiaries must be changed. There are also tax rules such as the one where companies are taxed on their profits but get tax write-offs on debt interest. Following the simple logic that if you tax something there will be less, don't tax something there will be more you get companies taking on more debt to get tax breaks.

CM · Post by CM » Thu Aug 01, 2002 3:06 pm

Bonuses should be directly related to growth in company profits. Thus, if the company makes a loss, the CEO loses as well. That way they are tied in with the company. Plus i would think of giving the SEC more powers, and giving it an auditing wing. Not one that does the actual auditing, but overseas the process and the companies involved. So noting like AA happens again. And since there are only 6 companies, they need to monitored more carefully.

Weasel · Post by **Weasel** » Thu Aug 01, 2002 3:30 pm

Originally posted by PosterX
Sometimes a company can't offer anything other than stock options. If you ban stock options startups couldn't hire people to get them off the ground.Stock options aren't the problem. Like I said, the accounting rules that allow companies such as Enron to hide debt in subsidiaries must be changed.

IMHO a start up company shouldn't have stock to give. I guess it would depend on what you consider a start up company.

And I agree stock options to your regular everyday employee is not the problem. It's when you start giving it to the executives, who have the power then to bribe and hide the dealings of the company. The executives used the accounting rules to their advantage and this is the main problem. Change the rules and they will adapt in a different direction.

Any bonus should be in cash to an executive and as CM said based on the growth of the company.

fable · Post by **fable** » Thu Aug 01, 2002 4:44 pm

@PosterX, I've edited your post per what I stated above: this is not a thread for the expression of political viewpoints. If you don't like that, PM me.

I think you had a point though about "Dubyah" being considered pejorative by some folks. I think of it as synonymous with "Bush"--it's not respectful, but then, I've heard it used for years by friends in Texas, both those who voted against and in favor of him. I'll change it to Bush to make it seem more non-biased, here.