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> Posted by Elisabeth Rhyne, Managing Director, CFI
Major traumas in history are relived in song and story, with each different point of view adding layers of complexity and understanding, until you can’t absorb any more. My friend Anne said she’s full up and never wants to read another book about the Civil War or World War II, but perhaps she’s just not that interested in military history.
As historical traumas go, the 2008-2009 global financial crisis is still fresh, and, especially for those of us interested in financial sectors, it is well worth examining from many different vantage points. No viewpoint could be more central than Tim Geithner’s. Geithner was the head of the New York Federal Reserve Bank when the crisis began and Secretary of the Treasury as the Obama Administration inherited the disaster. The span of his involvement allows his book, Stress Test, to cover the whole sequence from the initial red flags when Countrywide Financial and other actors in the subprime mortgage market went down in the summer of 2007 to the wrap-up with the passage of the Dodd-Frank Act in 2010. Simply as storytelling, Stress Test is a well-written, gripping narrative – a ringside seat at the crisis.
But because Geithner, perhaps more than any other single person, was the point man on the crisis, Stress Test is also about explaining how and why the Fed and later the Administration acted as it did. While Geithner clearly justifies the majority of the decisions taken, unlike many post-service memoirs, self-justification does not get in the way of the book’s ultimate purpose: to explore Geithner’s philosophy of financial crisis management, as advice to future generations.
> Posted by Sonja E. Kelly, Fellow, CFI
We live in an age of cash flow unpredictability. Here at CFI we’ve championed work like Portfolios of the Poor, which focuses on those at the base of the pyramid. But what about those who aren’t poor? Who is paying attention to the wealthy? Are they fully included?
A new product is now addressing an oft-neglected gap in the market. The product is a microfinance loan for those at the top of the pyramid who need credit while they wait for their yearly bonus to be approved by their company’s board or while they wait for a deal to go through in order to receive their golden parachute.
“I’m waiting for my $80 million golden parachute,” says CEO Robert McMillion, CEO of Lime Werner Cable since January 1 of this year. “In the meantime, I find that I don’t have the $700 for the weekly allowance that I give my daughter and son.” McMillion stands to receive $80 million if the company’s purchase by Cobcast Cable goes through and he steps down as CEO.
“I really am in a pinch,” says McMillion. “My daughter’s prom is coming up, and without money in her checking account, how can she go shopping? Similarly, my son was hoping to buy a new sports car, and without the cash, he will have to finance it at high interest rates. If I can avoid him having to do that, I will.”
McMillion does have a great deal of stock and has saved for retirement—one might say that he doesn’t have a problem on his hands. But his stock isn’t liquid, and if he were to take out the retirement money before he actually retires, he would have to pay high taxes on it.
McMillion is not alone. U.S.-based CEOs used to be able to count on their golden parachutes and high year-end bonuses. Now, under the Dodd-Frank Act, CEOs have to wait for full board approval in order to receive the money, and even then the amounts are slightly lower than in the past. Golden parachutes have gone from $30.2 million in 2011 to $29.9 million today (we are not making this up), and executives are under increasing PR pressure to reject or only take a portion of their bonuses when companies don’t do well.
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