The Waxman Inquisition

Congressman Henry Waxman displays a profound ignorance of economics. He finds that ignorance useful, and it seems to further his political career. Waxman’s favorite stage is the House Oversight Committee hearing room. It is here that his inner blowhard finds the ultimate soapbox from which he can deliver nonsensical faux-populist orations. He was preaching from the pulpit of populism as he unleashed yet another of his passion plays of demagoguery.

Waxman’s laboratory rat on 6 October was the Lehman Brothers Chief Executive Richard Fuld. It seems Lehman Brothers went to the bad, evil place where wicked, greedy corporations go after death while Fuld was CEO. It also seems Fuld received handsome remunerations as he presided over the demise of the firm. Waxman rosined up his bow, tuned his fiddle and gleefully danced a jig on the grave of Richard Fuld’s professional career.

The chairman of the committee held up a chart suggesting that Fuld's personal remuneration totalled $480m (£276m) over eight years, including payouts of $91m in 2001 and $89m in 2005.

"Your company is now bankrupt and our country is in a state of crisis," said Waxman, a liberal from California. "You get to keep $480m. I have a very basic question: Is that fair?"

It was at this point that Fuld should have stopped caring about being found in contempt of Congress. At times the stature of a good and noble man, even a good and noble man who royally messed something up, can be measured in full against that of his slimy, disingenuous enemies who swoop down upon him like vultures orbiting above road kill.

It was here where Fuld should have asked Congressman Waxman if it was at all fair to the American people that he continued to get reelected to Congress while his home state was bankrupt, and the city where his district resided barely rated better than being a high-crime suck-hole of urban decay and post-modern debauchery. Unfortunately Fuld fell into Waxman’s rhetorical trap. Regrettably, Fuld could only meekly dissemble.

After a long pause, Fuld said the figure was exaggerated: "The majority of my compensation, sir, came in stock. The vast majority of the stock I got I still owned at the point of our [bankruptcy] filing."

Waxman cut him off, saying that even if the figure was slightly lower, it was "unimaginable" to much of the public. "Is that fair, for a CEO of a company that's now bankrupt, to make that kind of money? It's just unimaginable to so many people."

It was at this point where Fuld could have done our Congress a service and delivered a lesson to Congressman Waxman on economics. He could point out that he, like the typical member of congress, got where he got by winning a tournament. CEO’s get paid ridiculous salaries for the same reason Tiger Woods does and at one time, Michael Jordan did.

At some point in Richard Fuld’s life, ostensibly before he ever met his first MBS, he was considered among the top 1% at what he did. The market believed that someone among the top 1% at what Richard Fuld did deserved $480M in cold, hard cash. Cold, hard cash that people turn down as infrequently as Congressman Waxman votes against Congressional pay hikes and speaks out against the gaudy abuses of the Washington, DC earmark culture.

These factors drive up the salary of the man who won the tournament. Believe it or not, before things went the way of the Atlanta Braves bullpen for Richard Fuld at Lehman Brothers, he absolutely killed as a CEO at some mid-sized firm. This is how he qualified for a shot at being a CEO on Wall Street.

He beat all the other eager-beaver financial geniuses at the CEO game for years, as he toiled away in the minor leagues of smaller corporations. His compensation was set based on a present value estimate of what a continuation of his past performance would have meant for Lehman Brothers’ bottom line.

Furthermore, Fuld had other people who wanted him to take charge of their firms. This made Lehman have to invest in his future well-being up front; before he was willing to sign on the dotted line. This backfires badly when the recruited superstar doesn’t perform the anticipated miracles. Somewhere an NFL General Manager gave away the moon and starts to suit up Ryan Leaf, based on Ryan Leaf’s exemplary career as a collegiate QB.

Given only the data available to The San Diego Chargers, I may also have wanted to draft Ryan Leaf. Given only the data available to Lehman Brothers, I may even have hired Richard Fuld. Unlike the Congressman, or the journalist, who can layer on the scorn and derision after the fact; people who hire in Tournament Markets rarely have more data to go on than past individual performance.

So unlike the aforementioned Ryan Leaf, Henry Waxman completes the passes and moves the chains towards the demagogue’s end zone of character assassination. The pass rush isn’t as scary when you suit up to play on Monday Morning. Waxman blasts away at Richard Fuld for ostensibly acting in ignorance of things that Waxman’s colleague Barney Frank has spent the last seven or so years deliberately lying about in public.

And of course, Waxman looks like the man of the hour. Of course, Waxman looks like he’s sticking up for the people while he sticks it to the man. For our illustrious leaders in Congress, this fiasco is just a game, not a national economic emergency. This is a political fire sale; not a credit market bankruptcy.

Never mind the total lack of any viable data coming out of that hearing room. Please ignore the fact that Congressman Waxman just missed an opportunity to upload some valuable data that was apparently lacking when Lehman Brothers drafted failed CEO Richard Fuld in the 1st Round. We wouldn’t want to interrupt The Waxman Inquisition. Telling Congressman Waxman that he was quite possibly shooting the messenger rather than shooting fish in a barrel just wouldn’t be considered fair by the average American.