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Wonder why Treasury Secretary Hank Paulson is resisting pay controls on financial companies that turn over their toxic mortgage paper to the government? Well, Paulson gobbled up $27 million a year in 7.5 years as head of Wall Street's Goldman Sachs, according to former San Diegan Graef Crystal, one of the ranking experts in executive compensation. In those years, Paulson's base salary was low, but his $67 million in cash bonuses and $95 million of free shares in his company were quite high, calculates Crystal. However, the company's stock did very well during Paulson's tenure, averaging 12.3 percent a year better than the Standard & Poor's 500. Crystal believes chief executive pay is excessive, but government attempts to rein it in worsen the problem. He cites President Nixon's pay controls of the mid-1970s. "All they did was constipate the system, and when they ended, pay exploded," says Crystal. There are better ways to bring compensation back to sanity. The Internal Revenue Service code says that compensation that is deductible must be reasonable. The IRS should jump in with lawsuits. Also, courts cite the business judgment rule in deferring to the wisdom of boards of directors. But boards never do a self-critical job in evaluating their companies' activities. The rule should be softened, says Crystal.

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Comments

Don Bauder Sept. 25, 2008 @ 7:02 a.m.

Response to post #3: I had not heard that story. Nor did I know about the ability to sell stock tax-free upon getting a government appointment. If true, utterly disgusting. Best, Don Bauder

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Don Bauder Sept. 25, 2008 @ 7:04 a.m.

Response to post #4: Very possibly. I think it's possible that the real reason is that foreigners holding derivatives and other U.S. paper are threatening to dump dollars -- and our politicians aren't telling us that. Best, Don Bauder

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Don Bauder Sept. 25, 2008 @ 7:05 a.m.

Responsed to post #5: Good analogy. Best, Don Bauder

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Burwell Sept. 24, 2008 @ 11:34 p.m.

Shortly after Paulson was appointed Treasury Secretary, he sold $500 million worth of Goldman Sachs stock tax-free. A special provision in the tax code permits political appointees like Paulson to sell stock tax-free in order to avoid potential conflicts of interest. I assume he received most of the shares through options, so the stock probably didn't cost him much. He may have realized as much as $75 million in tax savings through this tax scam. Paulson still owns $50 million in Goldman Sachs stock through a blind trust. Blind trust or not, he clearly has a personal financial stake in the bail out.

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realnews Sept. 24, 2008 @ 4 p.m.

While watching the hearings on CSPAN - one question came to mind. While it was very clear to me Paulson is not credible...I haven't yet gotten the impression our Senate is as quick to discern the obvious.

Voters are well aware our country has flipped from government supporting its people to people supporting what only poses as their government. And they're very, very angry.

More so that people keep referring to Bush's parade of "experts" crying for yet another bailout. Lets think about that.

Using 9/11 as an example; after local police, the FBI, the CIA and the NSA all had information detailing we would be attacked, or at the very least; suspected we would be attacked; these government workers all failed to act appropriately and share this information to prevent the attack.

Ultimately, it was government workers who failed to protect innocent Americans and other taxpayers, who relied on them to do their job.

So while thousands of taxpayers, paying for government officials to do their job lost their lives; no one in government lost their job.

In fact its worse than that.

Government officials who didn't perform in the first place, decided what the country needed, was not to Fire anyone who failed to perform; but to Create; more government. Enter, Homeland Security.

Government's solution never varies. It's always more government.

We are now at the brink of a déjà vu situation, this time in the financial markets.

President Bush is now quoting financial "experts" when asking the same Congress who failed to address Bush's deliberate misinformation on Iraq, is again being asked to trust the "Experts" and create more government.

Just say, "No."

Members of Congress who only seem to find time for lobbyists, rather than constituents, (somehow voters seldom become "special interest groups") a Congress which recently put children at further risk in passing HR 6048, is again being asked to create another agency.

Just say, "No."

Our country has flipped from government supporting its people to people supporting what only poses as their government.

This is not only major league, nuts. It's also unconscionable.

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Burwell Sept. 24, 2008 @ 11:40 p.m.

The bankers apparently terminated GM's credit line in order to make the public believe the economy will collapse if the bail out is not approved. I expect to see more targeted credit line terminations of high visibility corporations as part of a ploy to convince the public to support the bail out.

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Don Bauder Sept. 24, 2008 @ 5:28 p.m.

Response to post #1: All those people who preached free market, free enterprise, laissez faire, bemoaning any government involvement in business, are now rooting for the government to take over financial services. Wall Street socialism. The reason is obvious: those people say they care about economic principles. Nope. All they care about is raking in more money. Several people have predicted through the years that bankers would sell out to the government if it helped the bankers personally. Best, Don Bauder

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Anon92107 Sept. 25, 2008 @ 1:55 a.m.

Response to post #2:

RE: "All they care about is raking in more money" --- The Washington Ethic.

The consequences of the Washington leadership vacuum have become meltdown and chaos, which the McBush campaign proved again yesterday.

The news last night proved most clearly that the people who enabled the problems to happen (Bush, McPain) are still focused on rewarding the people who caused the problems (Paulson) using taxpayer money until they BK all of us.

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oakgirl Sept. 25, 2008 @ 9:07 a.m.

Good article and comments. If this is the "global economy" then give me a good old pyramid scheme any day; at least the politics are simpler to understand, and there aren't those pesky lobbying groups. Paulson has proposed letting the foxes guard the henhouse. In his perfect world, they'd be overpaid too.

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JohnnyVegas Sept. 26, 2008 @ 11:51 a.m.

Response to post $16: A $200 million dodge is disgusting, legal or not. Best, Don Bauder

I don't think it is a dodge though Don (and I make no claim to know anything about Goldman Sachs stock tanking/about to tank and that being a reason to get out of the holding).

If Paulson had to divest in order to take the job with the Feds, and he would not have wanted to or needed to divest "but for" the Feds job- then he was simply transferring his ownership stake in Goldman Sachs for other stocks.

NOW, Speaking of offshore tax scams, David Cay Johnston was on Lou Dobbs a few days ago and he said AIG has opver $20 BILLION offshore for the sole purpose of evading US taxes.

I will tell you right now this is the kind of nonsense that will wipe this country out. Letting AIG get a HUGE billion dollar bailout while they cheat America of their fair share of taxes.

Prssure is mounting to stop the $700 Billion bailout-I still think it has a good chance of failing-50/50. And the odds of failing go up each day there is no agreement on the bailout.

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Don Bauder Sept. 25, 2008 @ 11:02 a.m.

Response to post #9: Paulson's foxes may be foxes from his old firm, Goldman Sachs. First, Wall Street gambles with excessive borrowed money, and loses trillions. Second, the taxpayers bail out the gamblers. Third, the gamblers administer the bailout package. If anybody thinks this is utter insanity, please let your Washington representatives know. Best, don Bauder

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Anon92107 Sept. 25, 2008 @ 11:34 a.m.

ponsed to post #8:

The McBush campaign deranged rhetoric yesterday got so bizarre that McCain is sounding and looking like various characters in the Dr. Strangelove movie.

I wonder if U-T Editors are writing some of McPain’s garbage.

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patflannery Sept. 25, 2008 @ 12:44 p.m.

Burwell: Could you please post the actual tax code? "A special provision in the tax code permits political appointees like Paulson to sell stock tax-free in order to avoid potential conflicts of interest." Like Don I too was unaware of such a code. I suspect most people are. If true I think we should publicize this fact e.g. we should get it on CNN right away. If Paulson is conflicted to this extent, everybody in the country should know - NOW! We don't want it to be like the weapons of mass destruction lie, discovered afterwards.

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Don Bauder Sept. 25, 2008 @ 2:10 p.m.

Response to post #11: My guess is that U-T editorial writers think McCain and Palin are both geniuses. Best, Don Bauder

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Don Bauder Sept. 25, 2008 @ 2:11 p.m.

Response to post #12: Good idea, Pat. Burwell, can you accommodate? Best, Don Bauder

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paul Sept. 25, 2008 @ 2:18 p.m.

Pat,

Paulson didn't exactly sell the stock tax free. Because he was forced to sell the stock, he is allowed to defer the gain. Whatever he buys with the proceeds from the sale assumes the original cost basis, and he will (supposedly) pay tax on any gain at some point in the future.

I am sure he has a myriad of wonderful ways to avoid paying his share of taxes on his gains, at least we aren't letting him sell his stock completely tax free.

Here is a long and somewhat contentious discussion of the issue, which also includes references to the applicable tax code.

http://boards.historychannel.com/topic/Current-Events/Paulson-Sold-His/520013003&start=15

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JohnnyVegas Sept. 25, 2008 @ 5:37 p.m.

It is a deferred tax exchange, similar to a 1031 exchange in Real Estate.

Paulson will eventuially pay his taxes-at what rate I have no idea.

http://boards.historychannel.com/topic/C...

====================================== Interestingly, under U.S. government ethics rules, while Paulson is required to sell the shares, he is also exempt from paying taxes on any capital gains on the sale if he obtains a certificate of divestiture. The rule granting the exemption is designed to make sure prospective government employees who own a lot of stock are not dissuaded from joining the government. Earlier this week, the Economist magazine estimated the rule eliminate a tax liability of up to about $200 million for Paulson.

As a result, Paulson, and others in the same position, are able to sell shares have the funds reinvested in more diverse holding, and will only be subject to taxes on the capital gain when and if they are later realized.

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Burwell Sept. 25, 2008 @ 8:30 p.m.

I think Paulson sought the Secretary of the Treasury position in 2006 because he needed to diversify and sell his $500 million stake before Goldman cratered. If he tried to sell his stock while he was CEO, he would have faced investor lawsuits when the stock price eventually cratered. The lawyers would claim he acted on insider information and defrauded investors. So he sought a government position so he could claim the sale was triggered by conflict of interest laws, not insider knowlege of Goldman's poor financial prospects. Paulson received a license to steal.

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Don Bauder Sept. 25, 2008 @ 9:03 p.m.

Response to post #15: And then there are offshore tax haven, secrecy-shrouded banks.... Best, Don Bauder

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Don Bauder Sept. 25, 2008 @ 9:05 p.m.

Response to post $16: A $200 million dodge is disgusting, legal or not. Best, Don Bauder

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Don Bauder Sept. 25, 2008 @ 9:06 p.m.

Response to post #17: You may have something there. It's a plausible scenario. Best, Don Bauder

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Don Bauder Sept. 26, 2008 @ 2:46 p.m.

Response to post #21: The insurance industry is basically domiciled in the secrecy-shrouded tax haven of Bermuda. So are a lot of financial firms -- money managers, and the like. More than half the hedge funds are based offshore. Why? Silly boy. You know why. So does the IRS, but it does little. Best, Don Bauder

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valueinvestingisdead Sept. 26, 2008 @ 8:29 p.m.

Well, Brandes blew it again...they own 60 million shares of WaMu. What will holding long-term net me here? I am closing my mom's account. This sucks.

COLT

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Don Bauder Sept. 26, 2008 @ 9:15 p.m.

Response to post #23; Yes, Brandes has been a major investor in WaMu. Best, Don Bauder

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JohnnyVegas Sept. 29, 2008 @ 11:28 a.m.

Prssure is mounting to stop the $700 Billion bailout-I still think it has a good chance of failing-50/50. And the odds of failing go up each day there is no agreement on the bailout.

By JohnnyVegas 11:51 a.m., Sep 26, 2008 > Report it

The bailout failed-DOA-at least the version voted on just a few minutes ago.

A big victory for the poor and middle class America.

The LA Times reported today that calls to one So Cal Congressman ran 300 to 2 AGAINST the bailout.

Those numbers jive with the other numbers I have heard, which stated that the opposition was 95-99+% against a bailout.

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Don Bauder Sept. 29, 2008 @ 3:49 p.m.

Response to post #25: The people had the right instincts on this one. This was a truly bad bill. I just posted my thoughts on it. Best, Don Bauder

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