A VC - Latest Comments in Rules For The Splurge

Re: Rules For The Splurge

fredwilson — Wed, 24 Sep 2008 20:43:17 -0000

Fortunately, your point of view is now the accepted point of view

Re: Rules For The Splurge

bmclarty — Wed, 24 Sep 2008 16:42:47 -0000

I would like you to recommend this type of plan for the needed government mortgage bailout the SPLURGE to you and your colleagues.

The government would pay $25,000 to each mortgage holder (1 per househole only on the 1st mortgage) in the U.S. This money would be directly deposited to the mortgage company.

1) Does not reward investors/speculators with multiple mortgages.
2) Does not reward the investment firms who created the problem.
3) It directly and significantly benefits upper working class to upper middle class to people, who are the most affected and being whipsawed by this crisis?
4) The payments would pump equity into almost all homes. Giving the owners the option to stay or sell without massive losses now for more affordable accommodations.
5) Suspend the aggressive foreclosure practices and roll back the late fees and penalties.
6) The new equity would be used by the responsible home owners to stimulate the economy via home equity loans.
7) Clean up lending practices in general.

Obviously, you, your staff and colleagues would make this type of proposal much more eloquent. I just want to make sure a taxpayer favored option is considered and not just the escape hole for Wall Street option.

Re: Rules For The Splurge

William Woody — Wed, 24 Sep 2008 00:52:40 -0000

The problem that I see is this: if there is a bug in one bank or two banks, it could be a failure of the regulatory systems (and upper management, including CEOs and the Board of Directors as proxies for the shareholders, are part of that regulatory system) to do their job. But when its a systemic failure across all banks involved in a sector, as a software developer my hunch is to look for a common bug.

And the populist nonsense of "those damned fat cats" strikes me as a convenient scapegoat.

My point here is if you allow this convenient scapegoat to run loose and start calling for restrictions on compensation that is normally settled by the market, you open the door to other people who look at you as a convenient scapegoat as well, for whatever social ills they're interested in "fixing."

This crisis was created by a regulatory atmosphere which encouraged making bad loans, wrapping them in CBOs by investment banks hurting for new revenue after being creamed by Internet savvy investment banks like E*Trade and selling them to Fannie Mae and Freddie Mac who signaled that they could absorb any degree of risk, all driven by a congress more interested in "social justice" than in investigating frauds at the twin GSEs about half a dozen years ago. The present failures have to do with downgrading to junk status what was previously evaluated as AAA or AA CBOs, which suddenly created capitalization requirements on firms like AIG (who was insuring these CBOs) beyond levels previously imagined.

To then claim that this is a failure of the oversight of CEOs and the Board of Directors who, according to the best information they had, had charted a profitable and legal course through the regulatory thicket and mandates established by Congress strikes me as disingenuous. To figuratively call for their heads because of some perception they took unreasonable advantage or even broke the law (as called for in some quarters) strikes me as especially silly: if you assume they broke the law, then what new laws are going to fix it?

I would think that this would be a call to make transparent social engineering requirements which are now being imposed on industry as unfunded mandates--for example, I would think that if we want to make loans to high risk, low income families, we'd separately call that out and fund it through a separate and regulated organization--that way we know how much its costing us and if we want to continue paying for it.

But instead, the lesson here seems to be to blame "fat cats" and perhaps find a sacrificial CEO or two to toss in a jail somewhere in order to please the populist Gods.

Re: Rules For The Splurge

William Woody — Wed, 24 Sep 2008 00:34:18 -0000

So... Are you going to give your bonus back?

Re: Rules For The Splurge

Gary Mckenzie — Tue, 23 Sep 2008 18:29:36 -0000

William no disrespect, but you totally miss the point. Did you know that 38.9 billion, yes, that is right was spent on bogus bonues last year. Granted I recieved a part of that but more or less, people should be held accountable.

Just like there are terms when you go to a bank or VC firm for money, the same should apply to "Wall Street". I know personally because i worked as a trader for 4 years. There is more incentive to be dishonest, very little "control struture in place" and zero accountablity.

To put it in "web 2.0" terms when your company pitches to Fred's firm, looking for funding there is a "term sheet" plus he would recieve a couple of seat on the board. He will also help guide and dictate what people within your company (if he decides to fund you) will be paid. This "bailout" should not be any different.

I am not too keen on this "blank check" idea, there needs to be some control, accountabilty. Just remember there can be no responsibility without accountablity.

Re: Rules For The Splurge

kip — Tue, 23 Sep 2008 11:03:50 -0000

I'll say it again: LTCM 2.0 . The S&L bail out was public and LTCM was done on the QT by a bunch of banks. While public is the way the people want it , privately is the only way it will get done .
Why?
We need to pay the people that did this so that they can unwind the deals.
It stinks but because of the consequences of time involved it needs to be done.
Then what?
These instruments need to exist and tempering the rules to how they can be leveraged would seem like a wise idea.

Re: Rules For The Splurge

themaria — Tue, 23 Sep 2008 10:12:03 -0000

Here is another set of rules that I like a lot, blogged by Robert Reich:

http://robertreich.blogspot...

Re: Rules For The Splurge

Michael — Tue, 23 Sep 2008 10:06:07 -0000

$30 Trillion would scare the bejeezus out of anyone, for sure, but I am not sure if this is a completely honest argument given so many assumptions inside it:
http://www.usnews.com/blogs...

The alternative viewpoint? Sen Norm Coleman said it best: "The government could make 10 or 20 times what it pays on this, possibly.” That's right, kids! This ain't a bailout, it's a golden opportunity!

Re: Rules For The Splurge

Tony Alva — Mon, 22 Sep 2008 20:00:50 -0000

Abso-fucking-lutely!!! These rules are a good start. I cut the max annual salary to $500k.

Re: Rules For The Splurge

stone — Mon, 22 Sep 2008 15:31:59 -0000

Agreed that we need real debate. Wall Street has is the most fined and most prone to fail industry in the United States. Only the auto industry is a close second. The major difference? They don't steal from the accounts of widows and teachers.

Wall Street is incapable of functioning for more than a decade without a massive bailout. They never seem to learn so I believe drastic action is required. Let's have the debate!

Re: Rules For The Splurge

charlie crystle — Mon, 22 Sep 2008 14:59:23 -0000

Capping executives is different from capping salespeople. And where would the execs go if this is a national law? China? The point is to make the incentive based on positive outcomes, instead of random bonuses for just being a good ol boy.

If you made compensation a factor of performance, cash isn't a terrible option but it should be in the form of dividends or options. The company does well, you do well. Company doesn't do well, well, you can cry into your million-dollar-a-year beer.

And Uncle Sam should definitely have a piece of the upside, given the outlay of at this point trillions.

Re: Rules For The Splurge

patmoore — Mon, 22 Sep 2008 14:27:23 -0000

Your "delicious" analog is completely irrelevant. We are talking about people who took huge bonuses for doing exactly the things that are now blowing up in their faces.

When they were taking those bonuses they were whining about "unnecessary" government involvement. Now that things are going south, those same "captains" of Wall Street have suddenly turned socialist and are whining that the government isn't doing enough.

I would limit any bail to exactly the amount of money that each firm paid in taxes, minus any campaign contributions to Phil Gramm and Charles Schumer, and any money to any lobbying firm.

Re: Rules For The Splurge

Michael — Mon, 22 Sep 2008 14:25:08 -0000

These rules are a great first attempt at sanity, for sure.

But what terrifies me is that a week has gone by and there is an astonishing lack of debate -- nearly zero -- about how and why the bailouts are necessary. It's as if Paulson spoke, and everyone instantly, unthinkingly acquiesced. I should note that Rasmussen just published poll results in which only 28% of the US agrees with what has been proposed so far.

Am I suggesting a bailout is not necessary? No. I am suggesting that it's a bad idea to make a decision this profoundly large without the merest hint of thorough inquiry.

Re: Rules For The Splurge

riozen — Mon, 22 Sep 2008 12:36:55 -0000

I would add to these laudable objectives:

To make this thing more relevant to working Americans we can begin an action to do these following three items:

1 - Cap the interest rates that can be charged on all credit cards to say prime ( Fed. Funds Rate) plus 10%. Prime is currently 2%. This will undo the outrageous 30 plus % rates that too many working, working poor and poor Americans are forced into - usury.

2 - End the credit card company practice of hiking their own rate if you are even an hour late on another card.

3 - Scrap the personal bankruptcy law, that this Congress wrote, that makes citizens pay back 'credit cards" even if they declare bankruptcy.

Banks are over the top on credit card practices. These are commercial banks but they are all complicit in passing the junk up the line and this would impact consumers directly.

Re: Rules For The Splurge

fredwilson — Mon, 22 Sep 2008 11:50:11 -0000

I love the acronym KITN, I sure hope I am not headed for one anytime soon!

Re: Rules For The Splurge

fredwilson — Mon, 22 Sep 2008 11:08:18 -0000

The fox is guarding the henhouse tom

Re: Rules For The Splurge

Tom Evslin — Mon, 22 Sep 2008 11:02:30 -0000

Thanks for the support on this.

Treasury Secretary Paulson has just made clear that, given the broad discretion in the bailout bill he would NOT cap executive salaries. Says too many institutions wouldn't participate. Tells you something about his opinion of his excolleagues but, more important, makes clear that he shouldn't have these broad powers.

more here http://blog.tomevslin.com/2...

Re: Rules For The Splurge

Andy Freeman — Mon, 22 Sep 2008 10:34:26 -0000

ML sold its mortgage portfolio for $0.22 on the dollar.

How many of you would have been thrilled to get in on that for $0.25-30?

We're not going to see 50% forclosure rates. Even if we do, we're not going to see housing prices drop by 70%.

The problem was that the "market" for these securities was too restrictive. If I'm not "qualified" to buy something for my own benefit, I shouldn't be required to pay for it for someone else's.

Re: Rules For The Splurge

Banet — Mon, 22 Sep 2008 09:23:15 -0000

God, I hate Hate HATE that all of this happened and that it was all soooo preventable. What did people think was going to happen when mortgages were clearly being given to people who ultimately wouldn't be able to afford them?

Ok, enough whining. I like the idea of certain rules for companies that take the buyout, unfortunately we're gonna need smarter people than me to determine those rules. With what you proposed, I see many problems. To name a few that haven't been mentioned:

1. If there are too many restrictions on taking part on the Splurge then some companies will not take part. If not enough take part the market won't get the stability it needs.

2. How can you cancel golden parachutes that were already given to people who have left? That's a contract. It's one thing to renegotiate a contract with a current employee but to change the terms with a past employee?

How would you feel if, after you sold Delicious to Yahoo, they called you up and said, sorry, we paid too much. We can't afford it now that our stock is plummeting. We're taking half the money back. And yeah, we're keeping the company, too. Tough."

...Man, I'm usually an optimistic person but this mess is going to weigh us down for decades.

Peter
http://www.FlashlightWorthy...
Recommending books so good, they'll keep you up past your bedtime. ;)

Re: Rules For The Splurge

Steve Kane — Mon, 22 Sep 2008 09:03:51 -0000

agree, as long as the equity is "at risk" equity, e.g., not outright grants of shares with vesting but de-minimus strike prices.

public companies have become extremely sophisticated in methods for delivering "equity" compensation that really has zero risk to the recipient

Re: Rules For The Splurge

stone — Mon, 22 Sep 2008 08:11:17 -0000

Populist warfare garbage? I think the trash that keeps asking for a government bailout while lining their pockets needs to find a way to share their profits on the upside if we're going to bail them out "each and every time" on the downside. Wall Street has ceased to be a respectable occupation. No longer should american's admire people that work on Wall Street. Where is the next scandal? How many teacher unions will be bilked out of their money this time? It's a disgrace.

Re: Rules For The Splurge

togilvie — Mon, 22 Sep 2008 07:42:53 -0000

This is in the right direction, but I think the extreme compensation is actually necessary and healthy. The problem is the timing of payments, since it can take some time before the flaws in some of these strategies will come due. I think there needs to be more responsibility for taking a series of actions that generate returns by simply piling on risk.

Specifically, I'd like to see a bankruptcy rules change allowing us to "pierce the corporate veil" for any highly compensated employee over the 5-year period prior to a meltdown/bankruptcy/etc. This would allow us to disgorge the hundreds of millions in past-bonuses paid for taking highly risky strategies that performed well out of the gate.

It would also have a risk-dampening effect, creating an incentive for those who were comped well to examine their current portfolio for meltdown potential. As bubbles grew, you'd have an increasing group of influential people with an incentive to ensure a smooth landing, rather than an incentive to get through January, bank the bonus and see what next year brings.

Re: Rules For The Splurge

patmoore — Mon, 22 Sep 2008 04:57:54 -0000

$1million is too high it should be $200K at most.

To the people who complain about why would anyone stay at the company making "only" $1million... remember these are the same bozos that screwed up big time already... so who cares?

Re: Rules For The Splurge

erin — Mon, 22 Sep 2008 00:09:35 -0000

did you hear tom interview bloomberg. it was very good. bloomberg was impressive.

Re: Rules For The Splurge

andyswan — Sun, 21 Sep 2008 20:37:02 -0000

I rarely link to my blog in comments...but here goes:

My thoughts on how to prevent this in the future....make sure the freakin government is never forced to be involved again!

http://andyswan.com/blog/?p=46

Also....if the government wants to restrict compensation of management, then government should do so through the same mechanisms as the rest of us...by speaking up as shareholders.

Congress regulating compensation is insane. Are we REALLY trying to make sure no one worth over $1m/year gets involved with this industry? Populist class warfare garbage..