Catch-22: Bank CEOs Cannot Serve Two Masters
By Peter Atwater Apr 23, 2009 10:30 am
Freddie Mac tragedy serves as a cautionary tale for our post-bailout world
In the spirit of that show, I offer the following:
Host: The word is “Voluntold”
Speller: May I have the definition?
Host: “Voluntold” is “When someone -- for example, your boss -- "volunteers" you for something, then tells you that you have to do it.”
Speller: Can you use it in a sentence?
Host: Bank of America (BAC) CEO Ken Lewis was “voluntold” to keep quiet and close the acquisition of Merrill Lynch.
Speller: V-O-L-U-N-T-O-L-D. Voluntold.
Host: That would be correct.
And so too would be that David Kellermann, the acting CFO of Freddie Mac (FRE), was “voluntold” to change the language in SEC filings at the request of his regulator.
And, I would offer, that John Mack, CEO of Morgan Stanley (MS) was “voluntold” to “de-risk” his firm (reducing leverage and cutting the dividend to a nickel) in exchange for the opportunity to purchase a regional bank with deposits.
And these examples are just taken from today’s headlines. Over the past 18 months, there have been more than I can count.
But why?
Ask any executive of a regulated company who's been through a crisis, and all will tell you the same thing: “Once you realize that they (the regulators) hold all the cards, you realize that it's just easier to do what they tell you and put the best face on it that you can.” In short, to accept being voluntold.
And that's what's happening within our banking system, particularly among the “systemically important” banks. Executives are following Washington’s orders and putting the best face on it that they can.
While I will let others debate whether this is right or wrong, I will just offer its importance to common shareholders. Put simply, common shareholders have no cards; increasingly, neither do preferred shareholders, nor subordinated creditors. If someone must be sacrificed in the interest of national security-- – and financial system strength clearly qualifies -- then shareholders will be the ones to take the fall.Voluntold executives cannot serve 2 masters.
And here I would like to stop for a moment to offer my condolences to the family, friends and colleagues of Mr. Kellermann. For people of integrity, which I understand by all accounts Mr. Kellermann was, the stress of trying to do the right thing in a “voluntold” world is enormous.
And in that regard, for every CEO we see on the front pages of the Wall Street Journal, there are thousands of individuals inside these firms struggling-- – trying to make a difference for their clients and their families -- in environments filled with irreconcilable priorities.
As a community, we must not lose sight of this - particularly since most are trying to be part of the solution.
No positions in stocks mentioned.
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Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
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2009-04-23 10:53:38
Voluntold not an excuse
Being Voluntold, particularly if what you are told to do is the wrong thing from a legal or fiduciary point of view, is not an excuse.
For god's sake, how hard is it to say no that's not right and then do the right thing and/or rat the powers that be out in the press. A lot of soldiers were executed in the world wars for doing the wrong thing, even though their excuse was that they were just following orders.
A lot of innocent investors are being severely harmed by this type of behaviour and all involved should be sacked,jailed and sued.
Mike
For god's sake, how hard is it to say no that's not right and then do the right thing and/or rat the powers that be out in the press. A lot of soldiers were executed in the world wars for doing the wrong thing, even though their excuse was that they were just following orders.
A lot of innocent investors are being severely harmed by this type of behaviour and all involved should be sacked,jailed and sued.
Mike
2009-04-23 11:14:44
Not in the USSA
You gotta serve someone.
There is no going back. Simplicity is energy. The boy who cried wolf is all that is needed to understand where this is headed. Seeing an end of an empire isn't all that bad. Just maybe, we aren't all that special.
There is no going back. Simplicity is energy. The boy who cried wolf is all that is needed to understand where this is headed. Seeing an end of an empire isn't all that bad. Just maybe, we aren't all that special.
2009-04-23 13:48:53
Let's determine the crimes first
"For every CEO on the cover of Newsweek"- there were dozens of highly paid underlings knowingly doing the dirty work. See the "Risk Analyitics" article on how Insurance "side letter"
crimes were shifted over into the CDO market. Hundreds of Billions were skimmed by the connected and fraudulent bets were reimbursed at 100 cents on the dollar to Goldman, JPM, Citi and the rest of the Criminal gangs through the AIG conduit.. While I greatly respect Minyanvilles emphasis on the positive, I believe it is a mistake to think that the massive frauds were managed by a handful of people- it took an organization wide effort to accomplish the Treasonous deeds. Before we forgive, we must know what we are forgiving. While his suicide is tragic, it may be more than job stress which compelled the CFO at the center of another multi-trillion dollar fraud (FRE) to take his own life. Billions vanished from that entity.
The records of the crimes are being shredded/deleted as you read this, because, so far, no one seems interested in prosecuting these crimes.
Perhaps after the guilty are flushed out we can determine who deserves more and less mercy.
crimes were shifted over into the CDO market. Hundreds of Billions were skimmed by the connected and fraudulent bets were reimbursed at 100 cents on the dollar to Goldman, JPM, Citi and the rest of the Criminal gangs through the AIG conduit.. While I greatly respect Minyanvilles emphasis on the positive, I believe it is a mistake to think that the massive frauds were managed by a handful of people- it took an organization wide effort to accomplish the Treasonous deeds. Before we forgive, we must know what we are forgiving. While his suicide is tragic, it may be more than job stress which compelled the CFO at the center of another multi-trillion dollar fraud (FRE) to take his own life. Billions vanished from that entity.
The records of the crimes are being shredded/deleted as you read this, because, so far, no one seems interested in prosecuting these crimes.
Perhaps after the guilty are flushed out we can determine who deserves more and less mercy.
2009-04-23 18:12:37
Let's determine the crimes first
"Perhaps after the guilty are flushed out we can determine who deserves more and less mercy."
Absolutely.
Miynanville Peter also correctly points out that when the government takes over, the shareholders are left in the cold, with no leverage over the company. I would only submit that shareholders have been left in the cold *very* long time. This crisis is several decades worth of build up.
How long since has it been since the entire executive suite actually cared about the company entrusted in their care? Shareholders were the dupes to run up the stock price until they could move onto to some other, more important company.
If I get completely cynical about the whole thing, it would appear as of late that as shareholders might actually have *more* leverage as taxpayers than "owners" of the companies.
Absolutely.
Miynanville Peter also correctly points out that when the government takes over, the shareholders are left in the cold, with no leverage over the company. I would only submit that shareholders have been left in the cold *very* long time. This crisis is several decades worth of build up.
How long since has it been since the entire executive suite actually cared about the company entrusted in their care? Shareholders were the dupes to run up the stock price until they could move onto to some other, more important company.
If I get completely cynical about the whole thing, it would appear as of late that as shareholders might actually have *more* leverage as taxpayers than "owners" of the companies.
2009-04-23 22:51:38
Fraud is fraud by any other name
With all the voluntelling that happened this year and last, I count possible charges against Paulson, Geithner, Bernanke and a countless number of their minions to, so far, include extortion, racketeering, securities fraud and conspiracy.
When do the prosecutions begin?
Maybe we can get some securitencing, in the end. You know, committing securities regulators to a stay in a pentientiary for defined period of time.
When do the prosecutions begin?
Maybe we can get some securitencing, in the end. You know, committing securities regulators to a stay in a pentientiary for defined period of time.
2009-04-24 12:43:16
Fraud is fraud by any other name, just like bank's losses are losses.......
It looks like a may be deciding if Bernanke and Hank Paulson will be cellmates, depending on how credible they find Ken Lewis' testimony. Mr. Lewis may have a tape recording to bolster his side of the story- he is savvy enough to know he was being set up as the fall guy in the Merrill scam. Bill Gross may also be on the right side of a plea deal to help convict henry Paulson of conspiracy/insider trading involving Pimco's massive Fannie bond purchases days before the Govt. made that more of a can't lose proposition.
The prosecutions will snowball when the S&P drops below 450, the masses anger assures that. Madoff alone will not satiate what will be a fury fueled hunger.
But will Paulson and Geithner serve even half the time of that mere amateur, Martha Stewart?
The prosecutions will snowball when the S&P drops below 450, the masses anger assures that. Madoff alone will not satiate what will be a fury fueled hunger.
But will Paulson and Geithner serve even half the time of that mere amateur, Martha Stewart?
2009-04-24 12:45:18
missing is word "Jury" deciding ben and Hank's fate
"jury" missing from above
2009-04-24 13:26:26
A rope?
Why would he have chosen a rope? I know why a murderer might (no fingerprints). Hanging oneself when you have all options?
2009-04-24 17:06:04
Fraud is fraud by any other name, just like bank's losses are losses.......
Notice also that Paulson basically gave himself blanket immunity in the TARP bailout bill. BUT the BAC/Merrill deal went down BEFORE TARP, so he can be put on the hook for that. Just trying to figure out why Cuomo is running this out at this point (and not he is not doing it for the good of the people), as he is as tied into Democrat politics as anybody.
2009-04-26 14:43:40
Fraud is fraud by any other name, just like bank's losses are losses.......
I hope that timing trips up Paulson. I don't follow the politics, but Coumo may be getting advice from those who understand the depths to which the economy will sink, and that being on the correct side of the coming populist rage might provide an entry point into the Oval office. While I believe Obama is well meaning, he may not realize until it is too late that those advising him- Geithner, Summers, Rubin- are corrupt and incompetent. By the time he does, and he will because he is smart, the Trillions which could have done some good will have been funneled to the criminal bankers and vanished into thin air. That Gives Coumo his opening.
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