Tuesday, October 30, 2007

The 161 million punishment

so the major news to hit the financial market today is that merrill lynch's ceo stan o'neal "stepped" down admist the $8.40 billion write down, most coming from CDO investments. So as investors lose money, pple lose their jobs, the ceo will pocket 161 million as he "resigns", an office and an assistant all courtesy the Bank, (read shareholders) . this just proves not everything in life is fair. in the coming months, merrill lynch and other banks too will probably announce that they are cutting employees.

i dont get it, what kind of message is this giving. Thats its ok to take higher risks and aim for high profitability, just so you look good, but when things go rough, you can easily bail out whereas the taxpayers (yep thats rite, tax payers ) and investors face the brunt of your bad decisions. Logically speaking when a company does well, the guy who "owns" the company or rathe rthe head of the company gets the most profit, so shouldnt the same logic apply when the company does bad! The govt too seems to be joining onto the bandwagon and is supposedly doing the "right thing" by supporting those companies like countrywide finance who are making bad decisions and giving out bad loans. and when the company goes bust despite the brotherly gesture of the govt, who, other than tax payer, is going to bear the brunt?

I dont really know the politics invovled in merrill lynch, nor do I know who is right or wrong. But i dont think changing the CEO is going to fix things, if it were that simple, this action would have been done long ago. maybe its a classic case of having a sacrificial lamb. or maybe not. one can never know. but i do think the problem is deeper than having a captain that was steering the ship too fast that it hit an iceberg, the problem is much deeper than that. to continue the analogy it lies in the make of the ship, the risk management team should have been able to see it, should have hedged the risks it were taking, the pricing of these products should have been more transparent and more accurate. its not just a single thing. and something tells me, this isnt the end of it.

2 comments:

Inam 10:45 PM  

I fail to understand the logic behind paying people like Charles Prince an yearly compensation of $25 million. Even before his resignation he has netted enough to start off his own business. It's the lower rung of the corporate ladder that, almost always, has to bear the brunt of any financial crunch.

pi,  4:36 PM  

oh wow! i never knew hes being paid 25 million a year. Its being paid from the taxes incurred? Thats ridiculous. Personally, I dont think this "monarchy" in UK will last, they dont really have any constitutional power so to say anymore and I think gradually even this pseudo monarchy will disappear.

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