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We Are All Socialists Now Or is That Fascist?

February 9, 2009

Fascism: Private ownership, government controlled.

In the new pork bill that is coming out of Congress there has been a cap put on Executive compensation for companies that accept federal aid. It looks like this is only the beginning. Barney “Frannie and Freddie are in great shape” Frank and Timothy “I didn’t know I had to pay taxes” Geithner recently said that this restrictions may be extended to all U.S. companies.

Now there are a couple of unintended consequences that I can see.  There are many losers that received bonuses last year that should have been dropped without their golden parachutes.  But what about the people coming in to replace them, to fix the mistakes. Will a competent CEO or CFO work for $500,000 operating a multibillion dollar company when he could go somewhere else and pull down three times the salary? An executive living in NYC would take home about $268,000 after taxes. Doesn’t seem so great does it, at least not for someone who is expected to take a multibillion dollar company and turn it around, someone who has been working in the finance industry and has a stellar track record. Then again they could always hire some loser from one of the companies that went bankrupt, he would probably work for that salary after all it beats unemployment. Another flaw in the scheme is that this compensation cap is only limited to top executives, the people who make the really big bucks traders and hedge-fund managers are not affected. Leaving their salaries intact while restraining the income of their bosses doesn’t make much sense.

Lets do a little scenario here.  Mr. Smith a top financial expert known for his ability to turn companies around has been offered a job by Bank of Barack  an extremely large bank that lost 3 billion dollars last year and is projected to lose 5 billion dollars in the coming year.  Mr. Smith tells the board of directors that with his expertise he will be able to limit the banks loses to only 1 billion dollars and by the second year bring them into the black. After the first year Mr. Smith achieves his first objective saving the bank 4 billion dollars in loses, shouldn’t he be compensated more then a take home pay of $268,000? Not according to our government.  But wait because of the salary cap Mr. Smith accepts another job and the Bank of Barack hires an out of work executive who use to work for Lehman Brothers and has to declare bankruptcy within nine months.

That is what happens when fascism takes over.

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