Paulson on Lehman, TARP : The CNBC Interview

For those that missed yesterday's CNBC interview with Treasury Secretary Mr.Paulson, here it is ....

http://www.msnbc.msn.com/id/22541546/

During the CNBC Paulson interview, there were some very pointed and specific questions put to Mr Paulson. He was asked if in hindsight, leaving Lehman to fend for itself turned out to be a wrong decision given the strong negative market reaction thereafter. Mr. Paulson's answer was pretty long winded (you have to see the video to believe me ) but basically he did not agree with this. He was also very candid about his decision to inject Government capital directly into American banks which was a complete 'Volte Face' from his earlier stance when he had declared that injecting capital into banks would be considered a sign of failure.

British Prime Minister takes the lead on world credit crisis.

The unanimous verdict is that beleagured British Prime Minister Mr. Gordon Brown has taken the lead in solving the world credit crisis.

By deciding to be the first to directly inject capital into banks and provide unlimited guarantees to British Banks, he forced the hand of Mr. Paulson to do the same in the U.S. Not following in Mr. Gordon Brown's footsteps would surely have made American Banks uncompetitive on a global basis.

http://www.ft.com/cms/s/0/a95f17b6-9988-11dd-9d48-000077b07658.html

North Korean Mata Hari!

47 year old Ms Linda Kim of Los Angeles and Seoul is at the center of an investigation for her role four years ago in securing a multi-million dollar contract from the Korean defence ministry for a Texas-based company, E-Systems.

The scandal first surfaced when one South Korean newspaper - JoongAng Ilbo - published love letters that former defence minister, Lee Yang-Ho, had sent to her.

http://news.bbc.co.uk/2/hi/asia-pacific/755752.stm

Financial Companies missing Board Level Asset Oversight?

So, more on the Congressional hearings of last week....especially Willumstad and company from AIG, Dick Fuld and company from Lehman.

A common thread that came out at each of these hearings was a lot of "I don't knows" and "I am not aware of that" and not to mention,"I don't remember that".

But each of the people interviewed were or used to be members of their company's Board of Directors and its committees. So how do these things work? Do directors get paid good money to conveniently 'forget' when asked for justifications of their decisions? As per consultancy Steven Hall & Partners,(as quoted on CFO.com ) median total pay for independent directors at the 500 largest U.S. companies increased 14 percent compared with last year, rising from $162,363 to $185,000.How's that for inflation?

There are different committees of a Board of a publicly listed company that directors can serve on. There are generally 'required by law' committees like Audit Committees (we will discuss them in later posts) plus Compensation Committees, Nomination and Governance Committee and a few others. Sometimes, the type of industry also determines specific types of committee for high level oversight. One might naturally think, in the light of the current happenings ('Financial Tsunami' as Mr.Sullivan liked to keep referring to it during the hearing), in case of the financial industry this would include having an 'Asset Management' (read Asset = mortgage backed assets) or 'Asset Valuation' type committee. Envision a responsible, attentive, Board reviewing the financial arrangements that gave rise to those poisonous (and risky) mortgage based securities. And steadily warning senior company managment about the impending doom...

Now, lets review how many large companies from the financial industry have such 'Asset Management'or 'Asset Valuation' type committees:

1. Citi- None
2. Goldman- None
3. JPM- None
4. Bank of America- Yes. (Asset Quality Committee with 4 members.) More on the committee members for later...
5. AIG- Sort of (a Finance Committee which is supposed to review asset management policies and quarterly asset reports and nothing else.)

So, is it any surprise that most senior Board members either pleaded ignorance or lapses of memory when questioned? It appears that there was never any Board level oversight over Assets.

Keep checking back for more financial industry companies being added that are missing Board level 'Asset oversight'.

Mr.Willumstad and the Art of Ignorance.

Top AIG officials were questioned early this week by the House Oversight Committee members (read Congressional members) for their role in the financial crisis. What was striking in this hearing was the fact that Mr.Willumstad (ex chairman and ex CEO of AIG) must have answered 10% of all the questions posed to him on top of the fact that less than 10% of the questions were even addressed to him.
At the hearing he pleaded ignorance on most of the questions put to him. According to him, he was the CEO of the company for a brief period of 2 months or so and was therefore unable to anwser any questions accurately. How preposterous is that!! As per public reports filed by the company, he has been an 'ex-officio' member of ALL the board committees at AIG.(audit committee, finance committee, regulatory and legal compliance committee, public policy committee, nominating and governance, compensation committee etc.).On top of that he had been chairman of the AIG board since November 2006.
Oh and by the way, he made an extra $200,000 each year that he was the chairman of the Board of AIG. This is of course on top of the $75,000 per anum that he made just for being on the Board. His total compensation for 2007 was $434,443.For that amount, he should have at least made an effort to know what was going on at AIG. It was a little strange to see one Congresswoman praise Mr. Willumstad for giving up his severance package while completely ignoring all his prior years' earnings or the role that he might have or should have played in this financial crisis.

The severance package that he voluntarily decided to forego was valued at $22 million. What kind of compensation metrics do these public companies use to compensate somebody who has been a CEO for a couple of months and that too an ignorant one at that (by his own admission).
As chairman of the Board at AIG he had a fiduciary responsibility which it seems he completely managed to wash his hands off of. Will somebody let the general public know what is the official responsibility for members of the Board for public companies? Are they allowed to plead ignorance or does their membership to the Board mean something?

Here's a recorded video of the hearing...4 hours long if you have not seen it before.
AIG Congressional Hearings



More to follow....