The Golden Parachute Takes Flak

Fat cats, you've been warned, today's business press proclaims. From here on in, pay packages for the executives of those stricken firms on taxpayer support must show "common sense," President Barack Obama chided yesterday from the White House. As was leaked earlier in the week, the Obama administration is calling for a $500,000 cap on executive pay and for restrictions on "golden parachute" payouts and when stock incentives can be cashed in (now, who would be foolish enough to do such a thing these days?) until the government assistance is repaid. The limits run deep. As the New York Times reports, even "luxury perquisites like private jets and country club memberships" are to be scrutinized. The Wall Street Journal calls it "the most aggressive assault on executive pay by federal officials," one that shows Washington is determined to take greater control of the companies it bails out.

The moves are not retroactive, the WSJ points out, sparing, for now, the John Thains of the world. But the effects could have deep implications, even for healthy companies. Boards realize they can't "reward behavior that doesn't also reward shareholders," Arthur C. Martinez, who is the former CEO of Sears Roebuck & Co. and is on the compensation boards of other blue-chip firms, tells the WSJ. "That's on everybody's lips right now." The NYT is not so sure, noting that the rules do afford clever compensation pros some leeway. For example, the newspaper writes, "the rules do not place limits on the size of [certain bonuses], which have become the biggest part of many compensation packages."

Bank of America CEO Kenneth Lewis is perhaps the best suited to tell you about Washington's new tough-love stance. According to the WSJ, Lewis flew to Washington in mid-December to inform Fed chief Ben Bernanke and then-Treasury Secretary Henry Paulson that he was throwing in the towel on Merrill Lynch. Its books were that scary, sources told the newspaper. Lewis was talked out of the move by Paulson and Bernanke, but not before he left thinking he had won his bank some concessions for swallowing the toxic firm. Not so. In a follow-up call with Bernanke and Co., Lewis was told the bank not only had no justification for walking away from the Merrill deal, but that if it made a stink, it might find it hard to ever receive federal bailout funds in the future. And, he was told, the government might play hard ball: forcing out Bank of America execs. "The threats left no doubt: The federal government saw itself as firmly in charge of U.S. financial institutions propped up since October by infusions of taxpayer-funded capital," the WSJ writes.

The list of duped Bernie Madoff clients was revealed yesterday, the WSJ reports, and one thing is becoming clearer: Even his biggest supporters have fallen victim to the scheme. On top of the list is Ira Sorkin, Madoff's own lawyer, "the man defending him on charges that he ran a $50 billion Ponzi scheme." His sons, brother, employees, and business partners show up on the list, too. There are plenty of big names and financial institutions as well. Among them are: Hall of Fame pitcher Sandy Koufax; real estate developer Larry Silverstein; and banks HSBC, UBS, JPMorganChase Bank, Bank of America, BNP Paribas, and Citigroup. In Washington, meanwhile, Harry Markopolos, a private fraud investigator from Boston who tried to blow the whistle on Madoff 10 years ago, had his day on Capitol Hill. House financial services subcommittee officials and Markopolos piled on Securities and Exchange Commission officials for failing to identify the Madoff fraud years earlier. They made little progress, the NYT reports. "In the torrent of criticism that Mr. Markopolos and lawmakers heaped on the S.E.C. and its senior staff members, some complaints were serious—that the agency lacked the expertise to tackle major frauds by big players and had no systematic way of dealing with whistle-blowers," the NYT writes. "Others were sarcastic, with Mr. Markopolos saying regulators seated in Fenway Park in Boston would have trouble finding first base." The competency of the SEC may be firmly in doubt, but some good news emerged from the hearing. According to the Financial Times, Markopolos testified that "the losses linked to Bernard Madoff may be closer to $15bn-$25bn rather than the $50bn the New York broker allegedly told US investigators."

Visa shocked investors on Wednesday, posting a 35 percent quarterly profit surge on the strength of surprisingly solid card usage outside the United States. Shares in San Francisco-based Visa soared in after-hours trading, TheStreet.com reports. But Visa may just be a blip in an endless flow of corporate bad news. Time Warner reported a $16 billion fourth-quarter net loss after writing down, as expected, the value of its AOL and Time Inc. units, Dow Jones reports. The lack of confidence in AOL was once again the theme of the day after it was revealed that Google presented Time Warner brass with an ultimatum: either they buy back Google's 5 percent stake in AOL or spin it off into a separate public company, paidContent.org writes in the Washington Post. 

There is a fair bit of uncharacteristic gloom coming from the usually buoyant tech sector these days. First, tech bellwether Cisco Systems said on Wednesday it expects a revenue decrease of 15 percent to 20 percent this quarter, a sign that vital network infrastructure build-out is being put on hold around the world, CNNMoney.com reports. If there is no quick recovery, Cisco CEO John Chambers warns, the company will be forced to consider significant layoffs, but he hastened to add that the company is considering no such cuts at the moment. Meanwhile, Microsoft founder Bill Gates is bracing everyone for a possible recession that goes far beyond what the leading economists are saying. "I think we have three, four, five years here that will be very tough," Gates said at the annual TED Conference, the San Francisco Chronicle reports.

Finally, even vanity is taking a hit these days. The NYT writes that there are signs the world's most pampered are cutting back on anti-wrinkle shots like Botox. "Wrinkled faces may be the latest example of recession chic," the newspaper reports, noting that Botox-maker Allergan reported a 3 percent sales decline last quarter.