Phoenix housing affordability near pre-boom levels

We are finally making progress on the banking and executive compensation reform. For everyone wanting bank executives throttled and roasted, tomorrow (Wednesday) is the beginning of a new era. Bank execs who have accepted our money (TARP) will have their compensation limited. Remember, we own their banks and they work for us now.

Here is the press release:

“Senior executives for companies receiving TARP money will be limited to annual salaries of $500,000 under executive compensation caps to be announced Wednesday by President Obama.

Sources say there will also be language in the new rules about bonuses being paid in stock rather than in cash in order to prompt executives to think longer-term about their decisions.

Executive compensation has been a flash point issue in the debate about federal bailout of banks.”

http://www.cnbc.com/id/29003965

“Under the president’s plan, companies that want to pay their executives more than $500,000 will have to do so through stocks that cannot be sold until the companies pay back the money they borrow from the government, according to administration officials.”

cnn.com/2009/POLITICS/02/04/obama.executive.pay/index.html

Finally someone is putting a little thought into things!

Shift…it is nationalization. What else do you call taxpayer ownership of the banks and Presidential dictation of compensation levels.

In America, we just don’t like to call it that. But a rose by any other name…..

At least somebody in the government is finally suggesting what people are thinking in terms of CEO salaries and bail-out funds.

Miami Real Estate Attorney,

It does not matter what these people are being paid, as long as the compensation is coming from private parties. If a company wanted to pay a million dollars for an employee to mow grass, that is perfectly acceptable if the situation is properly reported to the stockholders. I do, however, care if tax payer money is picking up the tab.

As mentioned earlier, Sen. Dodd’s website is an excellent source for late breaking info on banking reform, since he runs the committee that will make the national laws. His “amendments” to the proposal that Obama put forth (President’s don’t write the laws, Congress does) are much tougher and more specific. They also contain the “claw-back” provisions that I have promised MPS were coming.

Here is what he just posted on his website (should make Shift, MPS and CBass, all of us very happy):

“There is absolutely no reason why hard-working American taxpayers should be financing, directly or indirectly, excessive compensation for corporate executives whose decisions, in many cases, have crippled their firms and weakened the broader economy. To that end, I intend to put forward an amendment to broaden the application of compensation restrictions to all TARP recipients, and to ensure that the government gets its money back if it is determined that taxpayer dollars were used improperly to pay big bonuses at these financial institutions. I look forward to continuing to work with the Administration to ensure that taxpayer dollars are used only for taxpayers’ benefit.”

A summary of the amendment is below:

The Dodd Amendment would apply strong executive compensation requirements consistently to ALL recipients of TARP funds, regardless of whether they receive a capital injection, sell troubled assets at auction or have other types of transactions. The amendment:

- Bans bonuses for most highly paid executives of TARP-recipient firms: Prohibits TARP recipients from paying a bonus, retention award, or other similar incentive compensation to the 25 most highly-paid employees “or such higher number as the Secretary of the Treasury may determine is in the public interest with respect to any TARP recipient.”

- Requires a Retroactive Review: The Secretary of the Treasury must review bonus awards paid to executives of TARP recipients to determine whether any payments were excessive, inconsistent with the purposes of the Act or the TARP or otherwise contrary to public interest and, if so, seek to negotiate with the recipient and the subject employee for appropriate reimbursement to the Government.

- Requires each TARP recipient to include on annual proxy statement a “say on pay” proposal - or advisory shareholder vote on the company’s executive cash compensation program.

- Allows for the government to claw back any bonus or incentive compensation paid to an executive based on reported earnings or other criteria later found to be materially inaccurate.

- Prohibits compensation plans that would encourage manipulation of reported earnings.

- Requires the Board Compensation Committee of each TARP recipient to be composed entirely of independent directors; requires the Committee to evaluate compensation plans and their potential risk to the financial health of the company.

- Requires the Board of Directors to adopt company-wide policy on luxury expenditures.

- Prohibits golden parachutes to senior executives (this is a long time coming and should apply to all public companies!! I am tired of CEOs getting fired for poor performance and getting $300M payouts, ala Michael Eisner at Disney, Bob Nardelli at Home Depot and many others to numerous to name. No shareholder finds any value in that. Only crony board members would vote for such an insane form of compensation)

- Prohibits a compensation plan that has incentives for employees to take unnecessary and excessive risks that threaten the value of the company.

MPS….let’s take CBass’s suggestion and move this debate forward to a newer post. I will copy on the same one where he references the Yahoo Fianance listings for each bank (a good resource that I also use). I will copy this response there.

First, thanks for taking up some of the work on this dialogue. I am getting tired of doing all the research and I encourage everyone to dig into this subject as deep as they can. It will affect the rest of all our lives, so we should all know what we are getting into. Unfortunately, banking and credit are essential to our economic system (and has been for hundreds if not thousands of years). So, what happens to the banks affects us all.

I read your story reference. It sounds like an intelligent piece. But the numbers don’t work out. So the author of that piece needs to go back and do some more homework. He says, “The second lifeline brings the government’s total stake in Bank of America to $45 billion and makes it the bank’s largest shareholder, with a stake of about 6 percent.”

The $45B in capital is about what I expect from all the news reports I see about this capital infusion or that, though there is no official tally (a major criticism of the handling of the TARP program to date). This is one reporter’s analysis. Right or wrong it is in the ballpark.

But for the reporter to conclude that this equals a 6% stake in the bank is obviously wrong. As of today at this moment (10am CST), the stock price of Bank of America is $5.72. There are 5.02B shares outstanding (not counting the warrants owned by the government that have not been exercised). So, the true “Market Cap” of BAC is 5.72 x 5.02B = $28.70B. Somebodies math is off, and it is not mine.

http://finance.yahoo.com/q/ks?s=BAC (look under “Key Statistics” in the left hand column to get the relevant data to do the calculations. I find most reporters are careless and unknowledgable about finance. If you want to even get deeper, you can find all the SEC filings and analyze quarterly and annual filings like I do at http://www.sec.gov/edgar.shtml).

Clearly, if the government controls $45B in unexercised warrants (convertible to common whenever the government wants), then the taxpayer owns almost all of BAC at the time of conversion. Even if the stock price doubles to $12 making the market cap of BAC $60B, the conversion of the warrants will leave the taxpayer owning a large majority of shares.

What we really need to make this analysis complete, is an accounting of every warrant received by the Treasury in exchange for TARP money. This is something I have never seen, though if I had the time I could get it under the “Freedom of Information Act”. Instead, each infusion of capital from TARP gets reported as: “government provided BAC with $20B in capital in exchange for warrants and preferred stock with a dividend yielding 6%”. I guess they figure we can’t handle the truth. Or more likely, Treasury is afraid if we know the truth, there won’t be anyone willing to hold BAC common stock which would make matters worse (you can see that stock price times shares outstanding equals market cap, or capital used in the reserve requirement).

You are probably learning more than you ever wanted to know about banks and the stock market, but here it is.

The cat is out of the bag that they drastically overpaid for what ever they got in the first half of the TARP distribution. Brian, I wish what you were saying is true but it’s not. The government doesn’t own a controlling share of BofA or WF. They might eventually if they use the remaining TARP money more wisely but thus far it has been pissed away. ************************************************ And now you see that Obama’s plan is to give a 15K tax credit to only those who want to buy a home this year….as if getting property at fire sale auction prices isn’t incentive enough for people who are qualified and want to own a home. We need to stop the bleeding, not give more to the lucky vultures sittng on the fence waiting to take adantage of this carnage! John is right, there are plenty of over corrected priced homes out there already. That is enough new home buyer’s incentive! STUPID STUPID STUPID STUPID STUPID STUPID STUPID STUPID and of course not very fair. They need to start LOAN MODIFICATION for everyone underwater. That is the single most important thing that they can do right now to stimulate the economy and stop the foreclosure tidal wave. Or I can tell you this, B of A (aka countrywide) will own one or two more of my homes. And trust me, there won’t be a thing of value left in them after a week and they won’t even get 50 cents on the dollar of what they are owed for them. (John knows where I’m at.)

The economy has lost 3.6 million jobs in the last 12 months alone. Real unemployment rate is over 15% (see link below). In 2003 people had jobs. Now they don’t. I expect that graph to continue much lower. When bubbles deflate they overshoot to the downside. There is much more pain ahead I’m afraid.

http://www.prisonplanet.com/real-unemployment-figures-double-those-reported-by-labor-department.html