On one side, there are the quiet heroes who perform deeds of courage and generosity every day, often saving their fellow citizens from disaster. On the other, there are the overpaid CEOs at Citigroup and Bank of America who cannot even save their own companies from their misguided schemes and have made them financial wards of the state.
It was one of those weeks where one’s neck got quite a workout from all the surprises happening around it. On a cold afternoon in New York, an Airbus A320 was forced to make an emergency landing on the Hudson River, gliding like a gigantic bird onto the frigid water with 155 passengers and crew on board. Earlier that day, investors woke up to learn that giant Bank of America would, like its ailing competitor Citigroup, need billions more in government handouts to keep it afloat. By the end of the week, both institutions would post billions more in losses and write-downs.
Thanks to the skills of pilot Capt. Chesley B. Sullenberger, and one of the most remarkable feats of airmanship of its kind ever, the engineless US Airways Flight 1549 made an emergency landing in the busy lower Manhattan harbor and awaited the rescue that came fast. The stock of Citigroup and Bank of America was not so lucky. Both crashed to near record lows, leaving shocked shareholders wondering where their help will come from. They are still wondering.
Captain Sullenberger and all of the first responders to the mishap, along with dozens of workers on boats and ferry operators, all did their jobs magnificently. Most are modestly compensated. They do not grace the covers of magazines in the normal course of their careers. They have no public relations machines to pump them up. They know what their responsibilities are. They perform them well, and they do not extend their hands at the end of the day demanding ever more.
Vikram S. Pandit and Ken Lewis, the CEOs of Citigroup and Bank of America, on the other hand, have been paid hundreds of millions for what is widely seen to be mounting blunders of non-leadership. To lure him to take over the helm at Citigroup, the board bought Mr. Pandit’s ailing hedge fund for more than $800 million in 2007. It was closed down just months later because of huge losses. Mr. Lewis has received more than $165 million in compensation over the past five years, and last year spearheaded the purchases of troubled mortgage giant Countrywide Financial and investment bank Merrill Lynch.
But whatever their actions, the fact is that both CEOs have made their companies totally dependent upon the United States taxpayer for their continued operation. On their watch, losses have swelled. Stock prices have plunged. Jobs losses have mounted. Institutional reputations have tanked. And hundreds of billions in public funds have been required to prop up capital and guarantee potential losses. Both have claimed that they were surprised by the extent of the problems and losses facing them, even though both were in the best position of anyone in the world to know what was happening around them and to take the action necessary to ensure that they knew. It is what they have been paid for so handsomely. It is not just a matter of a lack of success at this point or even financial reversals. It is about the fact that America’s two largest banks have become financial wards of the state.
Canada had its own corporate shocker this week, too. Nortel Networks, once fabled as a world-class provider of telecommunications technology that boasted some of the most prominent executives and directors anywhere, including a former vice chairman of the U.S. Joint Chiefs of Staff and a former secretary of defense, filed for bankruptcy protection. Its success, too, was based on a good deal of hot air and a lot of accounting chicanery from which the company never recovered. Its stock, which commanded $124 a share in the early 21st century, now trades in pennies.
There are two Americas. On one side, there are the quiet heroes who perform deeds of courage and generosity every day. They do it without seeking praise or demanding giant bonuses. They keep the planes moving, the ships sailing, the hospitals functioning, the fire engines speeding to the job, and the little league cheering. They are the inheritors of the Greatest Generation, which saved civilization from tyranny and rebuilt an economy reeling from another time of excess and abuse on Wall Street. They move modestly and seamlessly in crisis and disaster, possessing what appears to be an innate sense of what needs to be done without being prodded or scolded. They are the real leaders and the true heroes.
On the other side, there are the imposters. They are given, or adopt, all the affectations of what they think are leaders: the large offices, the bloated entourages, the sprawling mansions, the beach front homes and the private jets. They are accorded access to power at the highest levels and dine with presidents and prime ministers. They have the press hanging on their every word. And a chorus of cheerleaders, always ready to remind of their genius and their heroic abilities to create wealth and produce jobs and how lucky we are to have them work for the mere tens or hundreds of millions they are paid, is never far behind.
But in the end, so much of this is exaggeration and hot air. Frequently, their compensation is based on schemes which, like themselves, enjoy the outward appearance of success but in reality cannot long be sustained. Subprime mortgage-related structured investment vehicles and the untenable obliviousness to the accumulation of risk and leverage leap to mind in that category. Other times it has been technology. Remember how Internet-based companies could have their stocks soar without profit or sales? Then there are the likes of Bernard Madoff and Conrad Black, two fraudsters who possessed great wealth and assets of every conceivable nature, except the most basic moral compass to guide them.
During the Great Depression of the 1930s, the world saw the extent to which Wall Street titans were the creations of imagination and financial gimmickry. They were betrayed by actors like Richard Whitney, then the all-powerful chairman of the New York Stock Exchange but who ultimately was revealed to be little more than an embezzler from the charities to which he had been entrusted. Bernard Madoff, one-time chairman of the NASDAQ stock exchange who is reported to have the defrauded the charities which had invested with his fund, appears to have based his career on the Whitney model. Conrad Black, now serving a 78-month sentence in Florida’s Coleman Correctional Facility, had titles and honors of every kind, was raised in a mansion and had every door of opportunity opened to him. But as we have noted on these pages previously, he seemed to take his inspiration from another wealthy British baron who, in the 1930s, was convicted of defrauding investors.
In the greatest economic crisis since that era, the world is being reminded of the consequences when it relies blindly upon financial leaders whose occupational inclination is to put themselves first, who are driven by opaque schemes where their own self-aggrandizement and wealth accumulation are the overriding factors in the decisions that are made, and where directors treat the trust they are given by shareholders and society as if it were a trifle from a box of Cracker Jack.
We see from the other America -the real America that jumped into public view along the Hudson River this week- that otherwise ordinary people have the capacity to lead, to leap to heroic acts that save others and then to go back to their daily lives. For them, it is not just part of their job description. It is a defining part of who they are as human beings.
It is a reality that compels us to look dimly on the many leaders who comprise business today, and, this week in particular, at those of Citigroup and Bank of America. Their manifest failures and exaggerated sense of their abilities, their lack of vision in anticipating the obvious and in constantly proclaiming the worst is over when it is far from it, their reliance upon bailouts and lifelines from a government which they once urged in the mantra of their industry to stay out of business, make a mockery of the idea of responsible capitalism. The heads of these banks are not the only culprits who have underperformed in their roles or have developed an unhealthy reliance upon the generosity of the American taxpayer. A whole rogues gallery of Wall Street players, not to mention the top Detroit automakers, fills this hall of shame. But the actions of these top bankers has become symbolic of much that has brought American capitalism to its sorry state today. From managers of other people’s money we expect better in the management of banking, especially from some of the world’s largest banks.
In that regard, the failures and actions of Mr. Pandit and Mr. Lewis not only do an injustice to investors and taxpayers, but they also bring discredit to a business system whose innovation society desperately needs. They have set back the course of public confidence in Wall Street and in the idea of a market economy for years. They are our choice for the Outrage of the Week.