Mailbag: California CPA writes: On Why the House Reps were right in rejecting the recent bailout bill----

(Ed.note: This was also submitted to the OC Register as well as The Evansville Observer. Thanks, Rich. )


O.C. Register

Congratulations to all OC congressman/congressman who voted “no” on the bailout (Rohrabacher, Royce, Sanchez (both), and shame on those who voted “yes” (Campbell and Miller).
Regardless if you think a bailout is warranted or necessary this was a horriblely written bill, and that conclusion is from reading only one section of the bill (3 pages ), Sect. 111 Executive Compensation and Corporate Governance. This was the section (appropriately insisted on by many in Congress) to ensure that the execs of the bailed out firms share the pain. It did no such thing and I would suggest was written purposely not to do so.
The Facts
First, Sect. 111(b)(1) says that upon investment (i.e. Bailout) of a firm where “the Secretary receives a meaningful equity or debt position in the financial institution as a result of the transaction, the Secretary shall require that the financial institution meet appropriate standards for executive compensation and corporate governance”. No definition is given to “meaningful” or more importantly, no definition is given to “appropriate standards.” If I were advising the execs, I would say that “appropriate standards” means that their compensation cannot exceed the average compensation of their peers in companies of equal size. This is NOT PUNITIVE, and if fact MAY ACTUALL SUGGEST AN INCREASE for those execs who are making less than the industry average. The writers of this paragraph are either village idiots or knew exactly what they were doing…which was creating loopholes as big as a truck.
Second, Sect. 111(b) (2) (A) says that the bill includes “limits on compensation that EXCLUDE ( emphasis added) incentives for executive officers of a financial institution to take unnecessary and excessive risks that threaten the value of the financial institution…” The word should have been “INCLUDE, NOT “EXCLUDE”. As written these limits (really nonexistent as explained earlier anyway) would only apply to the good actors (i.e. those firms that did not incentivize their execs to enter into risky ventures), instead of the intended targets, those firms who did incentivize their execs to enter into risky ventures, the bad actors. This paragraph is EXACTLY WRONG AS WRITTEN.
Third, Sect. 111(c) under Auction Purchase,s where the purchases by the government exceed $300,000,000 the “Secretary shall prohibit, for such financial institutions, any NEW (emphasis added) employment contract with senior executive officer that provides a golden parachute in the event of an involuntary termination,….” What about the “OLD” employment contracts. As written, they would stand as is. That means no modification to existing sweetheart termination clauses. NO PAIN, ALL GAIN as they say. By the way, advisors to these execs could suggest they put in the golden parachute clause the day before seeking a bailout because under the bill they would be considered “OLD” and “NOT NEW”.
Summary
All of these points were from reading one section of this bill (3 pages). Can you imagine what the rest of the 120 pages contain? If I were a representative, I would be asking myself if the writers of these clauses were specifically instructed to make them worthless, hoping to ram the bill though without proper oversight. I would be livid that a supposedly agreed upon compromise would be gutted in the writing of the bill. Thank God, that at least four of our reps read the bill. What about the other two? What’s there excuse?
Richard C. Ginnaty
8732 Knights Circle
Huntington Beach, Ca. 92646
714-771-1720