Who Are the Welfare Kings?

Alan Schwartz

Former CEO of Bear Stearns Cos., Alan Schwartz (August 2007-March 2008) earned cash compensation of $35,734,422, which included a $16,237,150 bonus in 2007. At the time of bankruptcy, Schwartz owned less than 1 percent of the company. On March 14, 2008, the Federal Reserve Bank of New York provided a 28-day emergency loan to Bear Stearns in order to prevent the potential market crash that would result from Bear Stearns becoming insolvent. The firm was then sold to JP Morgan Chase for as low as $10 per share, a price far below the 52-week high of $133.20. Bear Stern employees lost more than $5.2 billion after the sale to JP Morgan Chase.

James Cayne

Former CEO of Bear Stearns Cos. (1993 - August 2007) until he was succeeded by Alan Schwartz, James Cayne sold his stake in the company for $61 million after its crash, although at one point his holdings were worth as much as $1 billion. According to the BBC, news of Cayne's move (revealed after trading on Thursday, March 28, 2008) pushed Bear's share price down by about 5 percent. As many as 15,000 employees lost their jobs.

Richard Syron

Former CEO of Freddie Mac, Richard Syron led the mortgage giant as it acquired about $740 billion in total debt that ended in over $100 billion to Fanny Mae and Freddie Mac. He has also taken home $17.1 million in pay and stock option gains since becoming the chief executive of Fannie Mae in 2003. Syron was due to receive as much as $14 million in severance pay. However, on September 15, 2008 the Federal Housing Finance Agency (FHFA) voted to cut off his bailout. He will keep his pension and 401(k) plan worth $4 million. Fannie Mae’s and Freddie Mac’s share prices have plunged about 90 percent this year, wiping out close to $70 billion of shareholder value.

Daniel H. Mudd

Former CEO of Fannie Mae, Daniel Mudd led the mortgage company as it amassed about $800 billion dollars of bad debt that ended in an over $100 billion bailout to Fannie Mae and Freddie Mac. As Eric Dash of The New York Times reported, few gained but many lost from Fannie Mae’s fiscal irresponsibility. Mudd was one of the few who gained. Even before receiving his severance package, Mudd had already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004.  Fannie Mae’s and Freddie Mac’s share prices have plunged about 90 percent this year, wiping out about $70 billion of shareholder value. The federal government did limit the "golden parachute," but he will still receive a pension and 401(k) plan together worth $5.64 million.

CEO of Lehman Brothers Holdings Inc., Richard Fuld has earned nearly half a billion dollars from the company since 1993. This included a reward of about $45 million last year for bad bets on real estate that led to a $4.6 billion short-term profit in 2007 and a crash leading to bankruptcy in 2008. According to Bloomberg.com, "As the housing market fell, Lehman kept making loans. Last year, it underwrote more mortgage-backed securities than any other firm, accumulating an $85 billion portfolio." The result? "A 158 year old company turned to dust." On Monday September 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy citing bank debt of $613 billion—$155 billion in bond debt, and assets worth $639 billion. Lehman shares tumbled over 90 percent on September 15. Even before official bankruptcy was announced on Friday September 12, Lehman Brothers employees had taken $10 billion in losses. It is true that Lehman Brothers employees and Fuld were heavily invested in the future of the company. Fuld has seen his personal wealth decline from around $1 billion to $100 million with the company’s collapse. However, $100 million is still an incredible amount of money to walk away from a bankruptcy with. A stock holder in the company for the last 52 weeks, who was not able to sell before Lehman Brother’s bankruptcy, would have seen the value of their shares go from $67.73 per share to its current price of $.11 per share.

Stanley O'Neal

Former CEO of Merrill Lynch, Stanley O'Neal announced his retirement in October 2007 and walked away with a compensation package valued at $161.5 million just as the company announced losses of $8 billion due to the subprime lending crisis. On September 14, 2008, Merrill Lynch succumbed to losses resulting from the housing crisis and the accumulation of bad debt. Merrill Lynch was sold to Bank of America for $29 per share, down 61 percent from September 2007, just before O'Neal retired.

John Thain

When John Thain was hired as Chairman and CEO of Merrill Lynch & Co., the company announced that he would receive at least $50 million per year in compensation and could achieve as much as $120 million per year, depending on the company's stock price. Based on a formula by the Associated Press, in 2007 Thain was the best-paid CEO among the Standard & Poor 500 companies, receiving $83.1 million. On September 14, 2008, Merrill Lynch succumbed to losses resulting from the housing crisis and the accumulation of bad debt. Merrill Lynch was sold to Bank of America for $29 per share, down 61 percent from September 2007. And of course, Thain was not left out after brokering the deal.  Thain will become president of Global Banking, Securities and Wealth Management in the combined company once the merger is completed.

Alan H. Fishman

For three weeks, Alan Fishman was the last CEO of Washington Mutual. Fishman joined Washington Mutual on September 8, 2008, replacing outgoing CEO Kerry Killinger as the bank was attempting to restructure in the face of the subprime mortgage crisis. On September 25, Washington Mutual was seized by federal regulators and most of the company, including its banking operations, was sold to JP Morgan Chase & Co. for $1.836 billion. Originally it was reported that Fishman could potentially walk away with close to $18 million dollars for his short tenure as Washington Mutual’s final CEO. However, a representative of Fishman’s said he will not keep the $6 million severance payment that he is entitled to in his contract, though this representative “declined to comment” about whether he would keep the $7.5 million signing bonus he received when he joined Washington Mutual in early September. Fishman will receive at least $7.5 million for just three weeks of work as CEO of Washington Mutual. Meanwhile, the company's stock price has dwindled to pennies. The previous CEO was paid $14 million for one year on the job. See the profile Robert Willumstad for a very different example of how a  temporary CEO can react to a  situation like this.

G. Kennedy "Ken" Thompson

On June 2, 2008, Wachovia Corp. chief executive Ken Thompson was pushed out as head of the nation's fourth-largest bank, becoming the latest financial services executive to be ousted amid turmoil in the U.S. housing market. Thompson will not receive any incentive pay for the 2008 fiscal year, but according to a filing with the Securities and Exchange Commission, he will get a severance of $1.45 million and accelerated vesting of $7.25 million in restricted stock. At the time of Thompson’s exit, Wachovia shares had fallen more than 56 percent over the previous year. On September 29, 2008, in a deal orchestrated by the government, Wachovia was reportedly sold to Citigroup, in order to stave off collapse. Citigroup would have assumed the first $42 billion of losses from Wachovia's riskiest mortgages and transfer $12 billion in preferred stock and warrants to the Federal Insurance Deposit Corp. However, on October 3, Wells Fargo announced that it would purchase Wachovia for $15.2 billion. Citigroup Inc. has filed a law suit against Wachovia Corp. and Wells Fargo & Co., seeking more than $60 billion in compensatory and punitive damages from Wells Fargo for interfering with its $2.16 billion agreement. The details of the dispute are still developing.

Lloyd Blankfein

Lloyd Blankfein took over as CEO at Goldman Sachs Group Inc. in May 2006 after Henry Paulson left to become U.S. Treasury Secretary, and he continued issuing large numbers of mortgage bonds. Both Blankfein and Goldman Sachs profited greatly from this risky investment strategy. In 2007, Blankfein earned a total of $67.9 million in 2007. Now, “Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries” of Paulson’s bailout plan. On September 21, facing a falling stock price and increased losses from bad debt, Goldman Sachs (along with Morgan Stanley) turned to the government. The Federal Reserve granted Goldman Sachs’ request to change its status from investment bank to a bank holding company. The move will allow them to have greater access to the discounted Federal Reserve loans and cash infusions in exchange for the greater level of federal regulation mandated for commercial banks.

John Mack

John Mack returned to Morgan Stanley after a five-year hiatus to become CEO in June 2005. In 2006, Mack was awarded $40.2 million in stock and options grants for his performance. In 2007, Morgan Stanley posted its first losses in history and took a $9.4 billion write-down from its exposure to subprime and other mortgage-related investments. Admirably, Mack did take the ultimate responsibility for the losses and agreed not to take a bonus for the year because of the investment bank's poor fourth-quarter results. He did still take home a $1.5 million salary. Throughout 2008, Morgan Stanley has continued to battle with their subprime mortgage investments and on September 21, facing a plummeting stock price and increased losses from bad debt, Morgan Stanley (along with Goldman Sachs) turned to the government. The Federal Reserve granted Morgan Stanley’s request to change its status from investment bank to a bank holding company. The move will allow them to have greater access to the discounted Federal Reserve loans and cash infusions in exchange for the greater level of federal regulation mandated for commercial banks.

A shinning example: Robert Willumstad’s powerful statement for accountability

Not everyone on Wall Street felt they deserved to profit from their dying company. Robert Willumstad, the last CEO of AIG, refused his severance package despite the fact that Willumstad can hardly be blamed for the company’s downfall. When Willumstad took over for previous CEO Martin Sullivan, the company was already experiencing the huge losses that would eventually bring it down. Willumstad was the chief executive of AIG for only three months before AIG succumbed to the housing crisis and accepted an $85 billion emergency bailout from the government on September 16, 2008. 

For putting his company on the course to bankruptcy, Martin Sullivan walked away with a huge $35 million severance package. However, in sharp contrast to Sullivan and the rest of the Welfare Kings of Wall Street, when Willumstad stepped down he refused a golden parachute. He emailed his successor that he would forgo his $22 million severance package because he had not been able to execute the restructuring plan he had developed.

How can we trust our business leaders with our retirement security when this kind of accountability is the exception and not the rule?

Henry Paulson, Patron Saint of the Welfare Kings

Henry Paulson reportedly made $38 million in 2005 and $16.4 million in 2006 before he left Goldman Sachs Group Inc. to become Treasury Secretary. His net worth has been estimated at over $700 million. While at Goldman Sachs, Paulson was a "significant player" in issuing mortgage bonds. Now he is asking Congress to give him the authority to buy up bad investments he and others made while heading up the big Wall Street investment firms. Despite the conceivable conflict of interests of the former CEO serving as Secretary of the U.S. Treasury (along with other former Goldman Sachs employees who Paulson tapped for staff), Bloomberg reports that “Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries” of Paulson’s bailout plan.