Money for (almost) nothing: Fat paychecks for very little work

[Prrkitty]

http://www.cnn.com/2008/LIVING/wayoflife/10/01/mf.easy.money/index.html

Quote:
# Washington Mutual's Alan Fishman got about $20 million for 17 days of work
# Disney dumped Michael Ovitz after only 16 months and paid him $100 million
# Actor Billy Dee Williams' "pay-or-pay" clause paid him money for not acting
# Yankees paid Carl Pavano $39.9 million to start only 26 baseball games in 4 years

------------------------------------

This is a "big" reason why our economy is so out of kilter. All these inflated salaries/bonuses/perks... just screw up everything. And most of those being paid what they're being paid - are NOT worth that kind of money.

[Beldaran]

If they were not worth that much money, they would not be paid that much. No one gives anyone money unless it is worth it to them.

It bears noting that the vast majority of large CEO severance packages were voting into reality by the shareholders.

Are you arguing that Carl Pavanao held a gun to George Steinbrenner's head and demanded he get $39 million? No, only the government does that. The Yankees paid Pavana $39 million because they felt it would be worth it. They willingly signed a contract to receive a service for a price that they considered worth it. It was even worth the risk that he might only start 26 games. If it was not worth it to them, they wouldn't have signed.

People making a lot of money has nothing at all to do with why our economy is struggling.

[Pryme8]

TAX THE SHIT OUT OF THEM!

[AtmaWeapon]

The *big* reason our economy is off-kilter has nothing to do with this.

Did you ever notice all those segments on CNN and various other news channels where they talked about how buying stuff on credit is a bad idea? Big bank managers don't watch the news. They lent out billions of dollars to people who were high risk for defaulting. What I'm talking about here is people with a monthly income of $1,200 being awarded a mortgage with $1,000 payments. Normal people would call this a bad investment; bankers decided this was OK.

So, people started defaulting. No biggie, right? Wrong. Small banks borrow money from big banks and pay it back with interest (just like you have to pay the bank back.) The big banks borrow from bigger banks. Somewhere along the line, you've got a big bank saying something like, "Hmm, WaMu owes me $2.8b on its loan next month. This means I can give Ford this $1.3b loan for a new factory and this smaller business over here $0.5b to start up. I'll be fine."

Next month, WaMu has bad news. 8% of their loans defaulted, and they've only got $2.5b, it's cool right? Now the big bank is $0.3b in the hole. Now imagine it happens again next month. And the next. And the next. What do you do when WaMu asks you for just one more month, and oh by the way we need $800m for loans? You tell them no and you rake them across the coals.

The problem is, the big banks started losing money, which meant they couldn't give loans. This meant the small banks had to stop; these loans are how they make money. Add defaulting creditors and suddenly the small bank is in the red; it has to sell itself or completely fold. Investors get upset when the big guy doesn't have money to lend out, so they liquidate some stock to get their cash. Other investors see the stock moving, notice the big banks aren't giving loans and the small banks are being sold, and they cash out as well. Oh no, stock crisis!

I guarantee you that the Yankees made a profit in the 4 years that player played. I guarantee you Disney will not be $100m in the red this quarter. WaMu... well that's complicated. In all of these cases save one, the salary that was paid is significantly less than the profit the company made. How exactly does spending less than you make cause problems?

[Beldaran]

The *big* reason our economy is off-kilter has nothing to do with this.

Did you ever notice all those segments on CNN and various other news channels where they talked about how buying stuff on credit is a bad idea? Big bank managers don't watch the news. They lent out billions of dollars to people who were high risk for defaulting. What I'm talking about here is people with a monthly income of $1,200 being awarded a mortgage with $1,000 payments. Normal people would call this a bad investment; bankers decided this was OK.

So, people started defaulting. No biggie, right? Wrong. Small banks borrow money from big banks and pay it back with interest (just like you have to pay the bank back.) The big banks borrow from bigger banks. Somewhere along the line, you've got a big bank saying something like, "Hmm, WaMu owes me $2.8b on its loan next month. This means I can give Ford this $1.3b loan for a new factory and this smaller business over here $0.5b to start up. I'll be fine."

Next month, WaMu has bad news. 8% of their loans defaulted, and they've only got $2.5b, it's cool right? Now the big bank is $0.3b in the hole. Now imagine it happens again next month. And the next. And the next. What do you do when WaMu asks you for just one more month, and oh by the way we need $800m for loans? You tell them no and you rake them across the coals.

The problem is, the big banks started losing money, which meant they couldn't give loans. This meant the small banks had to stop; these loans are how they make money. Add defaulting creditors and suddenly the small bank is in the red; it has to sell itself or completely fold. Investors get upset when the big guy doesn't have money to lend out, so they liquidate some stock to get their cash. Other investors see the stock moving, notice the big banks aren't giving loans and the small banks are being sold, and they cash out as well. Oh no, stock crisis!

I guarantee you that the Yankees made a profit in the 4 years that player played. I guarantee you Disney will not be $100m in the red this quarter. WaMu... well that's complicated. In all of these cases save one, the salary that was paid is significantly less than the profit the company made. How exactly does spending less than you make cause problems?

OMG, rational thinking in a time of crisis! Quick! Silence this man before cooler heads prevail!

[rock_nog]

I suppose it never occurred to you that the people in charge of these decisions are daft? I get what you're saying, Bel, but I am also highly inclined to suspect that certain people just weren't thinking. You know, overestimating people's worth and such. Just because someone spends money doesn't mean the money was spent wisely - otherwise we wouldn't have Nigerian e-mail scams and Scientology. Obviously, they're worth it to the people who fork over their life savings, but that doesn't change the fact that those people are idiots for doing so.

[Beldaran]

I suppose it never occurred to you that the people in charge of these decisions are daft? I get what you're saying, Bel, but I am also highly inclined to suspect that certain people just weren't thinking. You know, overestimating people's worth and such. Just because someone spends money doesn't mean the money was spent wisely - otherwise we wouldn't have Nigerian e-mail scams and Scientology. Obviously, they're worth it to the people who fork over their life savings, but that doesn't change the fact that those people are idiots for doing so.

Hey, I'm certainly not going to argue that people are smart. To me, those are retarded wastes of money. But it isn't my money now, is it?

All I'm saying is, no one offers someone $39 million unless they believe they will get something out of the deal. If they create so much wealth that they have $39 mil to blow, then it's their prerogative to blow it. It doesn't actually hurt the economy.

It's an agreed upon exchange of value between two consenting parties. Saying it is bad for the economy because you don't approve of the asset valuation is like saying guys who fuck ugly chicks are wasting their time. Maybe according to you, but who cares what they want to do with their resources?

[AtmaWeapon]

I'm going invest my 401k in tech stock guys I hope this is a good plan.

[aces2022]

I don't even like th number 401 put a K on the end of it and BAM! Your bankrupt!!! Naw I'm just playing...kinda. It all just depends on other people. I don't like relying on other people to use my money and if something goes wrong I get the complete consequence, and if it goes right they still get their cut. I couldn't sleep at night with my money being like that. I like my cash.

[dpx]

If they were not worth that much money, they would not be paid that much. No one gives anyone money unless it is worth it to them.

Wrong.

It's called, "implied value".

And it is just a guess, as you suggested later in your post.

It has nothing to do with their actual worth. It is a bid based on their implied value.

And there's a sucker working in a mutli-billion dollar industry making bad decisions born every minute.

[Pryme8]

back in 1995 i was telling my parents to buy as many blue tooth stocks as possible...

but they didn't listen...

if they had we would a been rich.

[AtmaWeapon]

back in 1995 i was telling my parents to buy as many blue tooth stocks as possible...

but they didn't listen...

if they had we would a been rich.I know! Back then Bluetooth was just the swabbie on one of the most dilapidated sloops out there, but these days The Dread Pirate Bluetooth is feared on all the seven seas and his net worth makes Bill Gates look like Freddie Mac.