When the rod is finally used.

This article is not so much about parenting as it is my opinion on President Obama’s shocking announcement on the half-a-million executive compensation cap yesterday.

In thinking about his decision, I cannot help but make a correlation between that to the way parents discipline their children. Just recently we had to make our son sit down with us for a serious talk because he’s losing focus at school, starting to forget homework and stuff. Not only that he had to explain why he forgot (although we know the answer: he’s distracted by computer games), he had to come up with ways to improve going forward (no games during the week, not even watching YouTube videos) and we also talked about consequences for no improvement (the iPhone that we promise to give him at the end of the quarter will be history if we don’t see improvement).

And this is for a mistake as simply as “forgetting homework” that did not actually hamper his final results. He’s still an A and B student overall. But our goal is not to make him an all-A student … we simply want him to be a responsible, focused kid with sound reasoning capability.

These three basic reasonings: explaining why, ways to improve, and consequences, seem to have been missing in the first bailout decision, a decision that cost American taxpayers $350 billion. I monitor the news constantly and couldn’t come up with a single piece of writing or reporting which outlined what Wells Fargo, Goldman Sachs, Citigroup, Bank of America, Meryll Lynch,  etc. recognized to be the problems, what they will do to improve the situation, and the consequences for not achieving these set goals.

So it’s practically $350 billion down the drain, with no single way for the federal government to take the money back except for the unlikely case of fraud. Great job, Bush & Paulson!

No wonder that despite being given $350 billion, Citigroup still chose to spend $50 million for a private jet. Wall Street companies still disbursed $18.4 billion bonuses despite recording huge losses. The top executives of these companies who begged for money, hat-in-hand as Obama said, made somewhere between $20 to $74 million a year and there’s not a single sign that they’re willing to give up a portion of it to keep the company afloat. I bet these executives would rather cut jobs first before sacrificing even 10% of their salaries … despite the fact that their bailout money partly comes from the taxes that their rank-and-file workers pay.

For all the above reasons, I applauded Obama’s tough decision to cap executives’ compensation and limit their bonuses only to stock scheme that cannot be liquidated until the bailout money is returned to the government. In doing this, Obama is simply exercising what presidents should do as “father” of the nation.

If your child asked to borrow $10,000 supposedly to help him/her get out of consumer debt, but then find out that he/she used the money to gamble in Vegas, buy rounds of drinks for his/her friends, plus use the leftover to buy a pair of Jimmy Choo, wouldn’t you take out your rod and start using it? Wouldn’t you wish you had never given that money out? Wouldn’t you make him/her sit down for some serious talk on how he/she would cut these ridiculous behavior and grow up, or else? Wouldn’t you have him/her write and sign a legally-binding letter stating his/her promise to stay out of gambling, drinking and excessive spending and make him/her specify the debt repayment plan?

If you would do that to your children, if company’s top executives would do exactly that to their employees who misuse the company money, then Obama is doing exactly what any good father and leader would do, given the necessity.

Immediately after this announcement, we’re starting to see results. Wells Fargo canceled its planned all-expenses-paid conference in Las Vegas (in the past, these expenses may include helicopter rides, wine tasting, horseback riding in Puerto Rico and concert tickets – see here for details). Upon probing from Obama’s team last week, Citigroup canceled the private jet purchase and chose to pay $3 million penalty to break away from the purchasing order, rather than having to pay $50 million for the new jet PLUS spend more money maintaining it. Morgan Stanley two days ago announced that it will cancel an appreciation trip to Monte Carlo. Good on you.

Compare this to what happened last time during Bush’ term, where AIG executives spent $440,000 on spa treatments just days after begging (and then receiving) $85 billion bailout, and Citigroup finalized the deal to obtain a new private jet. Unless Obama started giving someone a good whack for this shameful waste of money, the practice will continue.

What about the argument that the private sectors should be allowed to self-regulate? Hmmm…. let’s see … while I believe that private sectors should be self-regulating, the fact is that in any cases in the world, we let adults self-regulate and decide for themselves, not kids. In this case, the companies asking for bailouts are kids – who admit that the problems are too big for them to handle (despite them driving themselves into the mud).

Secondly, private sectors should self-regulate for the sole reason that it doesn’t involve federal money. The moment federal money comes in (at the private sectors’ own request, at that!), then off course they need to comply to the government’s terms and conditions. This is the same throughout the world, including in private companies. If you borrow money from a bank, you have to re-pay this debt in terms and conditions as stated by the bank, or else. Right? Pay or you lose your home. Pay or you get reported to the police. Pay or you have to file for bankruptcy.

If this “or else” principle is applied to everyone, why shouldn’t it be applied to big corporations?

Already because of this announcement, some companies are rethinking the idea to go to the government to ask for bailout. Good! Federal money is not something companies should play around with. It should absolutely be last resort, because it is the country’s reserve to tackle things like mounting unemployment benefits, education subsidy, healthcare benefits, etc. Before they ask for bailout, they should first think of how they can get out of the problem by themselves. After all, these companies are supposedly led by perfectly intelligent bunch of adults, not kids. They should be able to figure it out … after all, again, they got into the mess themselves.

But … but … half a million cap a year? That amount of money won’t attract top talents in the market. Rha rha rha …. whiners, whiners, whiners. There are much more people needing jobs than there are jobs. If these executives are not happy about that amount of pay, then please resign and be unemployed. I don’t think anyone is currently interested in hiring the persons who led Citigroup, AIG or Wells Fargo into this mess. And who knows how long their life saving will be able to fund their lavish lifestyle….  Not to mention that upon resigning, I can see that there can be investigations into their tax records and governance. Not only being unemployed, I could see some of them ending up in jail for misuse of funds and mismanagement during their term as top executives.

So choose … pay cut, or unemployment and possible investigations into your past conducts. I would rather take that half-a-million dollar and work my a%^# off to save the company. This salary may not buy a lavish lifestyle in Malibu, a collection of vintage cars, plus quarterly holiday in the world’s top luxury resorts. But this will give them a hard lesson of humility and responsibility, something that will do them good in the long term.

3 thoughts on “When the rod is finally used.

  1. Please do not applaud Obama – a person whose really taking people’s civil liberties away… That 1000+ paged bailout has many scary things in it… private companies who accept the money are now partly owned by the government… a once most powerful, most inventive country due to capitalism is dying away… and is quickly following down the path of Communism…

    It saddens me when I see somebody talk about how government and a president should be like a “father” or should act in the manner of a parent to its people…

    This is not the purpose of government… by acting like a parent… you are simply crippling your society… teaching them that thinking for yourself is unnecessary…

    The sole purpose of government is to represent the majority (the people)… The purpose of government is to put in checks and balances… To put necessary laws in place to keep a society from straying… but not to inundate with many circular, complicated laws… it is not meant to be there to interfere and control economies… Most importantly, it is surely not meant to tell its people what they want…

    The root cause of America’s problems is that people have lost the meaning of “personal accountability.” Those financial institutions, those CEOs, and EACH AND EVERY individual citizen (who bought houses and sought mortgages that they never could afford) forgot about consequences for their actions… they stopped thinking… because they knew they could get off easy by letting mommy and daddy (the government in this case) bail them out… Announcing a half million dollar cap on bonuses is such a lame thing… Obama has taught nothing! And it shouldn’t be his job. He shouldn’t be even bailing them out!

    Once you turn 18 (which is adult in America) you are an adult. You no longer need a parent to tell you right from wrong… to bail you out… to ask you what you will do to improve. NO. If you do wrong, you receive the consequences.

    I would have applauded Obama if he had not went through the second bailout… if he did not give money to the auto companies… but instead, he shelled out money to these dying companies that needed to DIE (after all, they are adults and should understand the consequences for their actions) and put in MANY hidden things in the documentation allowing the government to take more control… to socialize our country even more… and to make an already big, bloated, inefficient government even more big and bloated…

    Thanks Obama.

    Yes, I am a libertarian and to me, anybody who is not… who thinks a president should be a “father”… is highly uneducated…

  2. Hi there – this article was written before the bailout was given away, and it is simply a personal opinion. I agree with you that the auto companies shouldn’t have been bailed out … If they cannot make cars that are as marketable and cost-efficient as their competitors, they are simply being unproductive and should be allowed to close.

    But I would argue with you that if the government is there to represent the majority …. part of the problem is because the majority had no idea what is right from wrong, with a personal saving rating nearing ZERO and debts beyond what they could pay in their lifetime!

    Corporations don’t know (or decide to ignore) what is right from wrong when it comes to risk-taking, and individuals are not educated enough (or decide to ignore) to read fine prints and exercise good judgments.

    The US government has, for too long, allowed (or even pouring incentives) for the consumptive majority. Should this group be defended, considering that these consumptive bunch is the majority? No. The majority of civilians should be taught to live within their means. And corporations should be spanked for misleading their customers (I thus applauded the fine imposed on Pfizer).

    Being president means that while his/her mandate is to represent their constituency, they also hold the mandate to do what is necessary to make things right. Is Obama doing it right? I hope so… in some things I believe he does, in others I think he’s being too soft🙂 It’s kinda hard to decide when I live on the other side of the world🙂

    I have stayed in countries that exercise pure democracy, controlled democracy, socialism to authoritarianism. If people think that democracy is the answer to society problems, they should travel, talk to people of other cultures, and think again.

    After all, Singapore doesn’t get to its current level of prosperity – where everyone can have a home, education, healthcare, retirement fund, paying low taxes – with pure democracy🙂

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