More Dogs on Main Street
January 30, 2009
For everybody out there whose hours have been reduced, whose job has been eliminated, whose retirement funds evaporated, making even a cat-food-based retirement a stretch, and those who are on the edge of foreclosure, here are a few tidbits of news from the financial pages that you might have missed:
Citibank, the financial giant that has sucked up $45 billion in tax dollars to keep it on life support, has just purchased a new $50 million jet. After blowing through $45 billion, I realize a new corporate jet is more or less pocket change. But it is our pocket change. If ever there was a time for the executives to go Greyhound, this seems to be it. Somebody in the Obama administration called them, and while the contents of the conversation aren’t public, the result is that they cancelled the purchase. "Plane? What plane?" they asked.
There is some justice out there. News reports from Palm Beach, Florida, show that Bernie Madoff is getting his comeuppance. Apparently a group of teenagers, the children of formerly wealthy parents, suddenly realized that they were broke, and would be shopping at Old Navy instead of Abercrombie & Fitch from now on. So they did the only reasonable thing. They toilet-papered Bernie Madoff’s Palm Beach mansion.
The head genius at Lehman Brothers, the old-line investment bank that crashed and burned last fall, is also making news. Richard Fuld, who ran the place into the ground, recently sold his $13.3 million Florida home for $100. Hmm, and people wonder why the bank failed. But it turns out that he sold it to his wife for $100, hoping to hide it from the inevitable claims from people holding worthless Lehman Brothers stock. The guy is clearly a financial wizard.
But none of those ranks as the top financial story. The top story of the week is that John Thain got fired from Bank of America. In this whole meltdown, fueled by incompetence and a sort of stunning absence of awareness of what they were doing, I don’t think there has been another CEO fired. But Thain got canned, and didn’t even score a 7-figure severance package. Security will escort you out now, John.
Thain was the head of Merrill Lynch, another Wall Street name that used to be spoken with reverence. He had only been on the job for about a year before it hit the fan and they were about to go bankrupt. So he claims that the collapse of Merrill wasn’t his fault. In the end, Treasury Secretary and Daddy Warbucks look-alike Hank Paulsen more or less paid Bank of America to buy Merrill.
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There may have been all kinds of things that led to the firing. The most public part of it was that Thain was demanding a $10 million bonus for all his good work in driving Merrill Lynch’s stock from $95 a share all the way to $5. Well, that and the fact that Merrill lost $15 billion in the last quarter of 2008. That’s only $5 billion a month what’s the big deal? Bank of America management, now his new bosses, took exception to that, saying that $10 million seemed a tad generous given the performance of the company under his leadership. One can only wonder how large a bonus Thain would have demanded if he had lost $20 billion. They reached impasse, and Thain is on the street.
I can understand Thain being upset. If I thought I was going to get a $10 million bonus for losing $5 billion a month, and then was told I wasn’t, well, I’d be unhappy, too. But if they are looking to fill the position, I would be willing to lose $5 billion a month for much less than they were paying Thain. It can’t be that hard.
But the real outrage is that while driving Merrill off the cliff, Thain spent $1.22 million to redecorate his office. He paid the decorator $800,000. I’m sure the decorator was worth every penny of that. In the photos of him, he has lots of stuff in his hair and a very large scarf. There was $87,000 for an area rug, a $16,000 coffee table (better use a $500 coaster), $35,000 for a "commode on legs," which is apparently an end table instead of a plumbing fixture. There was a line item for $3,000 in labor for re-lamping the wall sconces. That of course begs the question: how many Harvard MBAs does it take to screw in a light globe? The answer appears to be that Harvard MBAs don’t screw light globes they screw taxpayers. The list goes on and on, including $11,000 for the fabric for a "Roman shade" that must be something right out of Caligula.
The item that caught my eye was $230,000 for a private driver for one year. I’ve never driven in New York traffic, and assume it makes Highway 248 on a snowy day during Sundance look like a picnic. But even if the driver had to pay the tolls, parking, and Valium out of his own pocket, $230,000 seems like a huge salary for a driver. There are NASCAR drivers who don’t make that. But I guess we couldn’t expect Thain to take the subway to work. It’s several blocks.
So it’s nice to see Thain packing off to the unemployment office. After the story broke, he agreed to reimburse B of A for the redecorating costs. The $27 billion loss for last year and all the stockholder equity? Well, not so much. Sadly, he won’t be sleeping in a cardboard box any time soon. You have to wonder what the decorator would charge to do a really first class job on a packing crate and shopping cart.
I suspect that outrages of this sort are common among corporations that are "too big to fail." When you run a corporation that is bigger than most of the world’s nations, you probably begin to feel entitled, important, and maybe a little regal perhaps a little like Louis the XVI.
If you listen carefully, you can hear the ghost of Robespierre sharpening up the guillotine.
Tom Clyde served as Park City attorney in the 1980s and is the author of "More Dogs On Main Street." He has been a columnist at The Park Record for more than 20 years.