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ebitdaT


by CARL ICAHN

We as a country have racked up a staggering $53 trillion in government obligations. That’s $455,000 per household and growing at the rate of $2 trillion to $3 trillion a year "on autopilot," .

Just this week, we added another $85 billion to these obligations with the bailout of insurance giant AIG. Add that to the $200 billion in potential obligations to Fannie Mae and Freddie Mac, the $29 billion to back up Bear Stearns toxic credits, and $300 billion for the Federal Housing Authority and a possible $25 billion to $50 billion in low-interest loans for Detroit’s Big-3 automakers and we’re talking nearly $700 billion on top of this. 

The situation has gotten so egregious that we half-jokingly use a measure called EBITDAT when evaluating companies, i.e. earnings before interest, taxation, depreciation, amortization and theft. In my view, this theft is a measure of how much senior executives and boards of directors blithely take out of companies in lavish salaries, perks and benefits, even though they may be running their companies into the ground. 

For instance, when I took over a rail freight car company called ACF during the 1980s, they had 12 floors in a Manhattan office building which was filled with workers. I couldn’t figure out what they did. I really tried to find out what these people did and even went so far as to pay $500,000 to a consultant to study the issue and get back to me. After weeks of research, even the consultant couldn’t figure it out. So I shut down the division and it had no discernable impact on the performance of the company, which I own to this day.

This experience, in my view, is emblematic of the extent of waste in corporate America. There are few companies that you can’t come in and cut 30 percent of operating costs and no one would know the difference.

I don’t fault salaries and perks for executives that perform – they make money for all shareholders. It’s the ones that are paid for failure that really make me mad.

Why, for instance, should Daniel Mudd, the outgoing CEO of Fannie Mae, be eligible for an exit package reportedly worth some $9.2 million after he presided over one of the worst financial debacles in American history, and one that could possibly cost taxpayers hundreds of billions of dollars? 

Last year, when Fannie was jumping heedlessly into risky Alt-A and subprime mortgages that caused its demise, Mudd earned $11.6 million.

This week we find out that Robert Willumstad, the CEO of collapsing insurance giant AIG, is eligible for an exit package worth over $8 million, according to an estimate quoted in New York Times.

Stan O'Neal recently left Merrill Lynch as CEO with a pay package of $160 million, while Charles Prince left Citigroup with a $40 million deal. The boards of these companies should have taken every legal means not to pay these egregious golden parachutes.

What we’ve really seen over the last three or four years is greed gone wild and now we’re paying the price for it in a monster hangover.

Major business downturn will have a huge impact on government tax revenues, so our national debt could balloon even more in the next few years. Over 80 percent of government spending is non-discretionary and tied up for pension obligations, Social Security, Medicare, etc. So there is really very little spending that can be cut from the budget.

And with the "baby boomers" starting to retire, these costs are just going to keep inexorably rising.

By pelcmarek at 2008-09-20 18:08 | Stocks | pelcmarek's blog


I agree

AIG bailout really upsets me the most.  The company of insurance for insurance.  It is sort of like earthquake insurance for your home.   If the whole town is leveled in an earthquake, the insurance company could never pay off the bills.  Thus, the insurance company is defrauding the public in offering insurance they could never pay off.

It would be like you or I offering car insurance for $1 a year that if we were ever involved such and such natural disaster that we would cover them.  However, we accept premiums and when the disaser occurs, we don't have the assets to pay everyone thus we go bankrupt.

AIG has to go bankrupt imho and it is important for the health of the system.

 
By buybackking at Sun, 2008-09-21 15:03 | login or register to post comments

Bailout?

So if I need cash really bad and have plenty of assets that cover the loan and I go to Fat Tony and he gives it to me and charges 12% interest is he bailing me out?  I guess so, but I also think that word is incredibly overused these days by people that don't completely understand what they are talking about (politicians) because it appeals to other people that don't understand the situation (voters).  I wish there were other more descriptive words to use.
By biscosc at Mon, 2008-09-22 09:22 | login or register to post comments