Monday , December 23 2024
Home / SNB & CHF / Crony Socialism and Failed CEOs

Crony Socialism and Failed CEOs

Summary:
Blind to Crony Socialism Whenever a failed CEO is fired with a cushy payoff, the outrage is swift and voluminous.  The liberal press usually misrepresents this as a hypocritical “jobs for the boys” program within the capitalist class.  In reality, the payoffs are almost always contractual obligations, often for deferred compensation, that the companies vigorously try to avoid.  Believe me.  I’ve been on both sides of this kind of dispute (except, of course, for the “failed” bit). So where’s the liberal outrage with a story like the pension swindle in El Monte, California?  This is about a dying town, with a per capita income of ,316 and a quarter of its population below the poverty line, that is paying a pension to one of its retired (at the age of 58) city managers of more than 0,000 per year.  Adjusted for inflation.  With medical for him and his wife.  And survivorship benefits.  And to which he contributed nothing. People are usually struck by the seeming injustice of CEOs running companies into the ground and then getting paid obscene amounts in the form of “golden parachute” type good-bye presents. Often there is no other way to get rid of a bad CEO though – if his or her employment contract guarantees a large termination benefit, the company may have little choice in the matter.

Topics:
Roger Barris considers the following as important: , , , ,

This could be interesting, too:

Nachrichten Ticker - www.finanzen.ch writes Krypto-Ausblick 2025: Stehen Bitcoin, Ethereum & Co. vor einem Boom oder Einbruch?

Connor O'Keeffe writes The Establishment’s “Principles” Are Fake

Per Bylund writes Bitcoiners’ Guide to Austrian Economics

Ron Paul writes What Are We Doing in Syria?

 

Blind to Crony Socialism

Whenever a failed CEO is fired with a cushy payoff, the outrage is swift and voluminous.  The liberal press usually misrepresents this as a hypocritical “jobs for the boys” program within the capitalist class.  In reality, the payoffs are almost always contractual obligations, often for deferred compensation, that the companies vigorously try to avoid.  Believe me.  I’ve been on both sides of this kind of dispute (except, of course, for the “failed” bit).

So where’s the liberal outrage with a story like the pension swindle in El Monte, California?  This is about a dying town, with a per capita income of $10,316 and a quarter of its population below the poverty line, that is paying a pension to one of its retired (at the age of 58) city managers of more than $250,000 per year.  Adjusted for inflation.  With medical for him and his wife.  And survivorship benefits.  And to which he contributed nothing.

Crony Socialism and Failed CEOs

People are usually struck by the seeming injustice of CEOs running companies into the ground and then getting paid obscene amounts in the form of “golden parachute” type good-bye presents. Often there is no other way to get rid of a bad CEO though – if his or her employment contract guarantees a large termination benefit, the company may have little choice in the matter. As a rule, private shareholders are bearing the cost of such transactions, and they are in this position voluntarily (after all, they could sell their shares or vote against generous CEO payment packages at shareholder meetings). We realize of course that in the age of crony socialism, one usually has to judge such things carefully on a case by case basis. Still, it is a far cry from the misuse of taxpayer funds, which are appropriated by coercion and offer those bearing the costs no opportunity to “opt out”. - Click to enlarge

Or another retired city manager who collects $216,000 per year, allowing him to “take some things off his bucket list” such as golfing at the Old Course at St Andrews.  And it looks like the public is paying for more than just green fees.  His retirement came shortly after he was swept up in an anti-prostitution sting operation.

More broadly, with Trump’s cabinet nominations and his presidency, there is currently an enormous amount of discussion about conflicts of interest in the public sector.  All of these discussions completely ignore the most flagrant example.

Crony Socialism and Failed CEOs

Squeezed by cronyism - Click to enlarge

Public Sector Union Thugs

Many politicians, especially Democrats, get elected with huge support from public sector unions.  When it comes to negotiating the compensation of public employees, the unionists sit, in essence, on both sides of the table.  The politicians buy the support of the unions with public money.

The favorite coinage for this corrupt bargain is pension and other retirement benefits since the real cost of the bribery is easily obscured with bogus assumptions, especially about expected investment returns.[1]  The end result is public pension plans that are underfunded by trillions and the occasional bankruptcy in a place like Detroit.

This is such a glaring conflict that I have tried to find if there are any laws against it.  So far, I have found nothing.  I have, however, found an Atlantic article by a clearly left-wing journalist who started off very sympathetic to public unions but who had a Damascene moment when he was a reporter in a small California town:

“Over the next couple years, I nevertheless came to see the several downsides of the union’s influence. Contract negotiations were held in private, with the City Council representing Rancho Cucamonga residents and union reps representing the firefighters. This posed a structural problem, for the interests of elected officials weren’t particularly aligned with the public, whereas the union negotiators had a personal stake in whatever compensation package was adopted.

“To be more specific, if a City Council member behaved in a fiscally irresponsible manner, it wouldn’t matter for at least a few years, by which time ambitious pols would have moved on to a county post or the state legislature. And lavish compensation packages could easily be obscured by combining what appeared to be a reasonable salary, the only number the public was likely to hear, with exorbitant pay for overtime or over the top fringe benefits.

“But if a City Council member crossed the fire union? The consequences were immediate. As soon as the next election rolled around, they’d face a well-financed challenger. On his campaign mailers, he’d be photographed flanked by handsome firefighters. On weekends, friendly guys in fire-coats would go door to door on behalf of their would be champion.  “We’re very concerned that Councilman X is endangering public safety by refusing to do Y,” they might say. Or else, “Challenger Z is a crucial ally in our effort to make this city safer.” The incentives were clear.”

Crony Socialism and Failed CEOs

The costs of surreptitious vote buying via the detour of public sector unions supporting politicians, who then provide enormous taxpayer-funded benefits to union members have become increasingly obvious to the tax cows in recent years. Ever since the bubble era has begun to be frequently shaken by financial crises, many pension funds had to abandon their fictitious return assumptions. Suddenly it became clear that maintaining the generous benefits and pensions of a great many “civil servants” would require vast sacrifices. Alas, those asked to do the sacrificing can only dream of receiving even remotely similar benefits. - Click to enlarge

Conclusion

The left goes nuts when a private company is contractually obliged to use its own money to pay off a failed CEO.  Or the leftists dust off their little-used copies of the Constitution and start quoting the Emoluments Clause when there is the prospect of a foreign visitor to the presidential inauguration taking a bag of peanuts from the minibar in a Trump hotel.

But when left-wing politicians collude with their public union supporters to rack up unpayable pension bills in the trillions, we get… crickets.

So I ask…where’s the outrage?

Crony Socialism and Failed CEOs

Well – at least someone is outraged. Sorry, “boss” – but you actually have no say in the matter. Image captions by PT - Click to enlarge

Footnote:

1] Probably even accurate accounting would not be sufficient for voters to apply effective control. Voters only really pay attention when something hits their wallets through taxes. Therefore, they are unlikely to control future promises even with accurate information. What is required is 100% pre-funding of these liabilities on a completely arm’s-length basis, in cash and when they are granted. Or, as the private sector is increasingly doing, the conversion of defined benefit to defined contribution pension plans.

Roger Barris is an American who has lived in Europe for over 20 years, now based in the UK. Although basically retired now, he previously had senior positions at Goldman Sachs, Deutsche Bank, Merrill Lynch and his own firm, initially in structured finance and latterly in principal and fiduciary investing, focussing on real estate. He has a BA in Economics from Bowdoin College (summa cum laude) and an MBA in Finance from the University of Michigan (highest honors).


Tags: ,,,
Roger Barris
Roger Barris is an American who has lived in Europe for over 20 years, now based in the UK. Although basically retired now, he previously had senior positions at Goldman Sachs, Deutsche Bank, Merrill Lynch and his own firm, initially in structured finance and latterly in principal and fiduciary investing, focussing on real estate. He has a BA in Economics from Bowdoin College (summa cum laude) and an MBA in Finance from the University of Michigan (highest honors).

Leave a Reply

Your email address will not be published. Required fields are marked *