Nader Greed Without Accountability Economic Domino Theory

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Counterpunch                         July 02 2008

Economic Domino Theory

Greed Without Accountability

by Ralph Nader

The worst top management of giant corporations in American history is
also by far the most hugely paid. That contradiction applies as well
to the Boards of Directors of these global companies. 

Consider these illustrations: 

The bosses of General Motors (GM) have presided over the worst
decline of GM shares in the last fifty years, the lowering of GM
bonds to junk status, the largest money losses and layoffs of tens of
thousands of workers. Yet these top executives are still in place and
still receiving much more pay than their successful counterparts at
Toyota. 

GM's stock valuation is under $7 billion dollars, while Toyota is
valued at over $160 billion. Toyota, having passed GM in worldwide
sales, is about to catch up with and pass GM in sales inside the
United States itself! 

GM's executives stayed with their gas guzzling SUVs way beyond the
warning signs. Their vehicles were uninspiring and technologically
stagnant in various ways. They were completely unprepared for
Toyota's hybrid cars and for the upward spiral in gasoline prices.
They're cashing their lucrative monthly checks with the regular votes
of confidence by their hand-picked Board of Directors. 

About the same appraisal can be made of Ford Motor Company, which at
least brought in new management to try to do something about that
once famous company's sinking status. 

Then there are the financial companies. Top management on Wall Street
has been beyond incompetent. Wild risk taking camouflaged for years
by multi-tiered, complex, abstract financial instruments (generally
called collateralized debt obligations) kept the joy ride going and
going until the massive financial hot air balloon started plummeting.
Finally told to leave their high posts, the CEOs of Merrill-Lynch and
Citigroup took away tens of millions of severance pay while Wall
Street turned into Layoff Street. 

The banks, investment banks and brokerage firms have tanked to levels
not seen since the 1929-30 collapse of the stock market. Citigroup,
once valued at over $50 per share is now under $17 a share. 

Washington Mutual - the nation's largest savings bank chain was over
$40 a share in 2007. Its reckless speculative binge has driven it
down under $5 a share. Yet its CEO Kerry Killinger remains in charge,
with the continuing support of his rubberstamp Board of Directors. A
recent $8 billion infusion of private capital gave a sweetheart deal
to these new investors at the excessive expense of the shareholders. 

Countrywide, the infamous giant mortgage lender (subprime mortgages)
is about to be taken over by Bank of America. Its CEO is taking away
a reduced but still very generous compensation deal. 

Meanwhile, all these banks and brokerage houses' investment analysts
are busy downgrading each others' stock prospects. 

Over at the multi-trillion dollar companies Fannie Mae and Freddie
Mac, the shareholders have lost about 75 percent of their stock value
in one year. Farcically regulated by the Department of Housing and
Urban Affairs, Fannie and Freddie were run into the ground by taking
on very shaky mortgages under the command of CEOs and their top
executives who paid themselves enormous sums. 

These two institutions were set up many years ago to provide
liquidity in the housing and loan markets and thereby expand home
ownership especially among lower income families. Instead, they
turned themselves into casinos, taking advantage of an implied US
government guarantee. 

The Fannie and Freddie bosses created another guarantee. They hired
top appointees from both Republican and Democratic Administrations
(such as Deputy Attorney General Jamie Gorelick) and lathered them
with tens of millions of dollars in executive compensation. In this
way, they kept federal supervision at a minimum and held off efforts
in Congress to toughen regulation. These executives are all gone now,
enjoying their maharajan riches with impunity while pensions and
mutual funds lose and lose and lose with no end in sight, short of a
government-taxpayer bailout. 

Over a year ago, leading financial analyst Henry Kaufman and very few
others warned about "undisciplined" (read unregulated) and "mis-
pricing" of lower quality assets. Mr Kaufman wrote in the Wall Street
Journal of August 15 2007 that "If some institutions are really 'too
big to fail', then other means of discipline will have to be found". 

There are ways to prevent such crashes. In the nineteen thirties,
President Franklin Delano Roosevelt chose stronger regulation,
creating the Securities and Exchange Commission (SEC) and several
bank regulatory agencies. He saved the badly listing capitalist ship.
 
Today, there is no real momentum in a frozen Washington, DC to bring
regulation up to date. To the contrary, in 1999, Congress led by
Senator McCain's Advisor, former Senator Phil Gramm and the Clinton
Administration led by Robert Rubin, Secretary of the Treasury, and
soon to join Citibank, de-regulated and ended the wall between
investment banks and commercial banking known as the Glass-Steagall
Act. 

Clinton and Congress opened the floodgates to rampant speculation
without even requiring necessary and timely disclosures for the
benefit of institutional and individual investors. 

Now the entire US economy is at risk. The domino theory is getting
less theoretical daily. Without investors obtaining more legal
authority as owners over their out of control company officers and
Boards of Directors, and without strong regulation, corporate
capitalism cannot be saved from its toxic combination of endless
greed and maximum power - without responsibility. 

Uncle Sam, the deeply deficit ridden bailout man, may have another
taxpayers-to-the-rescue operation for Wall Street. But don't count on
stretching the American dollar much more without devastating
consequences to and from global financial markets in full panic. 

Consider the US dollar like an elastic band. You can keep stretching
this rubber band but suddenly it BREAKS. Our country needs action NOW
from Washington, DC. 

_____ 

Ralph Nader is running for president as an independent.