Congress Holds Hearings into Lavish Pay and Perks at Bailed-Out Firms

Oct 14th, 2008 • Posted in: News

One flashpoint for public outrage is AIG’s meeting at lavish resort mere days after federal bailout

WASHINGTON
The ethics of lopsided compensation packages for leaders of failed institutions took center stage last week as Congress grilled the chiefs of Lehman Bros. and AIG — executives the San Francisco Chronicle dubs the “poster children for greed and mismanagement on Wall Street.”

According to the Chronicle, the appearances were part of a full slate of hearings expected to last though October.

“There is no more reliable indicator of litigation, liability, and investment risk” than an obvious disconnect between lavish bonuses and company performance, Nell Minow, co-founder of corporate governance research firm Corporate Library, told lawmakers, reports Bloomberg.

Public outrage has been further revved up by the revelation that just days after the federal bailout of AIG, which collapsed because it had guaranteed securities with money it could not muster, executives of the firm met at a posh resort, spending $440,000 for a getaway that included spa treatments, banquets, and golf outings, reports the Associated Press.

White House press secretary Dana Perino called the event ” pretty despicable,” according to the Hill, a publication covering Congress.

In an analysis, USA Today’s David J. Lynch examines how the ethical upheaval has caused the gears of the global economy to grind because it drains the essential lubricant: trust.

“Except for cash-and-carry deals,” Lynch writes, “every capitalist transaction requires a certain amount of faith: faith that an asset to be purchased has some genuine value, faith that a party borrowing money will survive to repay it. Right now, that basic element of trust is gone, and until it comes back, financial markets will remain skittish and economies around the world will suffer.”

Sources: AP, Oct. 10 — USA Today, Oct. 10 — Bloomberg, Oct. 10 — San Francisco Chronicle, Oct. 8 — Hill, Oct. 8.

For more information, see: Related Newsline Commentary, Oct. 6 — Related Newsline story, Oct. 6 — Related Newsline Commentary, Sep. 29 — Related Newsline story, Sep. 29 — Related Newsline story, Sep. 8.

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One Response »

1. Ethics Newsline® » News » Lehman Brothers Subject of Federal Criminal Investigation: Reports on October 20th, 2008 at 6:46 pm:

   [...] more information, see: Related Newsline story, Oct. 14 — Related Newsline Commentary, Oct. 6 — Related Newsline story, Oct. 6 [...]

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