Monday, October 6, 2008

Up, Up and Away!

Lehman's Golden Parachutes Were Being Secured While Execs Were Pleading For Federal Rescue

WASHINGTON — Days from becoming the largest bankruptcy in U.S. history, Lehman Brothers steered millions to departing executives even while pleading for a federal rescue, Congress was told Monday.

As well, executives who feared for their bonuses in the company's last months were told not to worry, according to documents cited at a congressional hearing.


Waxman questioned Fuld on whether it was true he took home some $480 million in compensation since 2000, and asked: "Is that fair?"

Fuld took off his glasses, held them, and looked uncomfortable. He said his compensation was not quite that much.

"We had a compensation committee that spent a tremendous amount of time making sure that the interests of the executives and the employees were aligned with shareholders," he said. Fuld said he took home over $300 million in those years _ some $60 million in cash compensation.

Waxman read excerpts from Lehman documents in which a recommendation that top management should forgo bonuses was apparently brushed aside. He also cited a Sept. 11 request to Lehman's compensation board that three executives leaving the company be given $20 million in "special payments."

"In other words, even as Mr. Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said before Fuld appeared as a witness.

The government let Lehman go under Sept. 15, only to bail out insurance giant American International Group the next day, in a cascading series of financial shocks and failures that put Washington on track for the multibillion-dollar rescue starting the end of that week.

Waxman described that plan as a life-support measure. "It may keep our economy from collapsing but it won't make it healthy again," he said.

That sentiment echoed on Wall Street, where the Dow Jones industrials sank below 10,000 on Monday for the first time in four years. Investors fear the crisis will weigh down the global economy and the bailout won't work quickly to loosen credit markets.


World Markets Plunge On Crisis Fears

Britain's benchmark stock index, the FTSE 100, lost 220.11 to 4,760.14 _ a 4.42 percent fall. The declines were led by the banking industry, with the mining and oil industries also suffering drops. HBOS PLC's share price dropped 15.7 percent, while the Royal Bank of Scotland Group PLC fell 13.6 percent.

Germany's DAX index fell 4.22 percent to 5,552.27. France's CAC-40 index dropped 4.85 percent to 3,882.81. In Russia, the RTS stock index tumbled more than 7 percent in first 20 minutes of trading.

Over the weekend, many European governments moved to save troubled banks, and made more promises to protect depositors from the credit crisis.

Germany on Sunday agreed a 50 billion euros (US$68 billion) package to bail out Hypo Real Estate, the country's second-biggest commercial property lender, after a rescue plan by private lenders fell apart.

France's BNP Paribas SA committed to taking a 75-percent stake in troubled European bank Fortis N, and Sweden and Denmark followed Ireland and Britain in raising the amount of savers' deposits guaranteed by the government.

Britain's treasury chief Alistair Darling said he was "ready to do whatever it takes" to get the country through the credit crunch, and was looking at a "range of proposals."

But analysts said that, like the U.S. plan, the lack of detail in many of Europe's moves failed to restore investors' confidence, resulting in the stock market tumbles. "What the markets need are some more details about exactly when and how these plans are going to come in," said Richard Hunter, head of British equities at Hargreaves Lansdown Stockbrokers, "And they need some proof that some of these measures are taking hold."

Across Asia, all markets were also in the red. Tokyo's Nikkei 225 index fell to its lowest level in 4 1/2 years, sinking 4.25 percent to 10,473.09.

Hong Kong's Hang Seng index slid 5 percent to 16,803.76. Markets in mainland China, Australia, South Korea, India, Singapore and Thailand also fell sharply. Indonesia's key index plummeted 10 percent, it's biggest one-day drop ever.

In Russia, the RTS stock index tumbled more than 7 percent in first 20 minutes of trading.


U.S. Stocks Sink as Financial Fear Spreads

The Dow Jones industrial average lost more than 695 points at one point today and fell below 10,000 for the first time since October 2004. It was trading off 6.5 percent, about 672 points, shortly before 2:30 p.m. The technology-heavy Nasdaq fell about 7.7 percent, or 151 points, and the broader Standard & Poor's 500 stock index fell 7.2 percent, or 79 points.

Investors are being led by fear, analysts said. The $700 billion financial bailout plan enacted by the federal government last week has yet to loosen the credit markets and banks remain reluctant to lend to each other. The price of gold has skyrocketed as investors seek a safe haven. Oil fell below $90 a barrel today for the first time in months. Overseas, banks are increasingly facing problems of their own.



One: Foreign nations and markets were pretty smug just a few days ago - now everyone's in crisis mode. What gives?

Two: I repeat, ad nauseum no doubt, this bailout is simply a handout so far. The existing bailout does NOTHING to fix the underlying problems that will continue to hamper the smooth running of the economy. The "trickle down" economic theory simply doesn't work. When rich folks panic they hoard because they can - they don't have to spend hardly any money. When poor folks go into panic mode - not so surprisingly - they actually spend because there is nothing to hoard. But they know they are going to need that bacon, that milk, those eggs, a loaf of bread and some Huggies. In other words, the economy flows perforce.

But let's sing out the Lehman wizards of Wall Street on a pleasant tune by The Fifth Dimension. What goes up, must come down, however soft the landing.

We should be waiting with torches and pitchforks.