April 20, 2009

Proof of Pudding

The WashPost reports that Chrysler turned down new government bailout money, opting for more expensive private loans in order to avoid the government's caps on executive compensation.

Unfortunately, this report is rather flimsy, full of vague hearsay and unnamed sources whose claims are denied by the company. But if it turns out to be substantiated (and it looks like it could be if Chrysler goes forward with more expensive loan offers), it will be quite damning. For it isn't merely proof of greed, but would actually violate the promissory agreement to uphold the interests of the shareholders--unless of course the company can argue plausibly that it would otherwise lose irreplaceable key executives. But that doesn't seem to be a very convincing argument since the global economic crisis has significantly limited the number of positions where one could stand to "earn" more.

And it would substantiate the WSJ's Thomas Frank on the terms of the original bailout plans under Bush and Secretary Paulson (I commented on in February):
"If the federal bank bailout were to involve a real crackdown on executive compensation, the Bush administration reportedly feared, it might have driven banks away from taking the deal altogether. Bankers would prefer global disaster to a pay cut, in other words, and this obscene calculation needed to be taken into account. Public outrage was apparently nothing by comparison."
Old habits die hard.

No comments:

Post a Comment