Business puzzles (me)

I agree with the French Economy Minister Christine Lagarde who said the country would bailout its banks provided they cut directors’ bonuses. The US, UK should have asked the same, and each government should do it if they plan to give money private companies – or to public companies. Those who run the banks, in this case, or the companies, if we look at a broader picture, and who have come to the situation where they need recapitalization or some other type of financing from their government, they should not be awarded bonuses. Firstly, because since they are in this situation, they show they don’t deserve a bonus. One would argue that the crisis was so deep that even well managed companies were affected and managers might not have such a big fault. But I would say that since one fills the manager seat, the person should take responsibility for anything that happens with the company while they’re at the helm, be it their fault or not.  Secondly, when in such bad times, everybody should lower the financial expectations, from top positions to lower ones, in order to cut costs and keep the company running. Otherwise, if the company falls, there will be no salary at all. That’s common sense. But it seems it is not for everybody. I remember having read about the high bonuses the executives of the US investment banks or about their expensive holidays when their companies where on the brink of disaster. 
Using state money to boost shareholders’ revenues – in case of private companies – is another example of what companies shouldn’t do, according to French president Nicholas Sarkozy. And I agree with him too – although I don’t agree with everything he said about how state should step into the economy when in crisis. Sarkozy said bailed out banks (it was the case of banks there)  shouldn’t pay dividends this year, and it seems fair. The profit (if  the case) was [partially made because the state stepped in. An argument against this view would be that the company uses the money as if it were any other loan, and then does what it wants with the profits, as long as it pays back the loan. If the state takes a stake in the company, then the state has a say in this. If it doesn’t, it’s again about common sense and about how the company understands to do business. So far, there’s no example of state aid in Romania for a company to survive the tough times ahead, but when it will be, I will look at manager bonuses and shareholder returns.
There’s a nice story on CEO bonuses in recession here, in Forbes.

I started the day with two things on my mind. One is some bankers’ idea – foreign bankers, that is, that the Romanian state should help them out survive during the tough times ahead. So on one hand the state is now expected to help out all the foreign investors which have made lots of money (sometimes after buying state assets at discount prices). The idea itself is ludacris. On the other, these bankers – I say “these” expecting others to follow suit in asking for help- have already received help from their home country states. Should they go on asking for help from any country they have branches in. What’s funny is that the banking system has screwed it all up to begin with. True, it happened in the US, but had it been peaceful and calm, I am sure European banks would have done quite the same, bending so much the lending rules, accumulating toxic assets, creating crazy banking products, and so on. So they’ve made the mess and now they’re asking the states to help them out. Well this puzzles me. 

The second thing today was the US Senate’s NO to the $14 billion bailout for the three US carmakers. I am sure this decision would trigger a wave of effects which maybe we’ll feel even here, in Romania, but I thinks it was a wise decision. I mean, how long can the US treasury or whatever other funding sources they have, keep supporting all these companies. I would assume the three carmakers had a backup plan, or have thought of options to restructure when they saw the country nearing recession. The beginning of this was more than one year ago. So when you see and understand people will have less money to spend on cars, on those huge American cars and on fuel, you realize you need to come with different products to cater for the new needs and more importantly possibilities.  I am very curious to see what happens next. It’s like an economy lesson tought live, with victims.