I have never, ever been real conversant in the ways and means of the world of high finance - was never really that interested - but the sad state we now find ourselves in, financially speaking, has resulted in me paying more attention to such matters. An article in the January 19
th issue of
Time Magazine authored by Justin Fox introduced me to a term and concept that perhaps we all should be more aware of -- the
clawback. The term clawback apparently has some meaning in the world of venture capital firms wherein under such provisions firm partners have to make good on investors losses or unmet earnings targets, or the managers must return an excessive share of the profits that they had taken before the value of the investment fell. I believe that the term also has other, similar, meanings in other investment contexts.
The Time article pointed out that under Superfund law provisions, manufacturers and other businesses are required to pay for remediation of any environmental damage they caused by their business operations. So it seems logical to ask, "Why shouldn't the manufacturers, users, and sellers of those disastrous financial instruments -- the people and firms that got us into this mess -- be on the hook for some of the remediation costs to get our financial house in order? Why should we overlook their excesses and give them billions in bailout funds? Why shouldn't they be subject to a clawback instead?"
The correct answer to these questions is, "Dream on." In the world of investment and finance bonuses are paid out based on last year's -- maybe even last quarter's -- profits, and don't worry about long-term consequences, fella, we are riding high now. There is an entrenched sense of entitlement on Wall Street -- evidenced by the report of a few days ago about how the chief of Merrill Lynch (John Thane, remember that name) paid out billions in bonuses to firm employees 2 days before the firm was taken over by Bank of America, which then went to the government for money to cover Merrill Lynch‘s losses (15.3 B in the 4th quarter alone). The whole matter is outrageous. Wouldn't you agree that a clawback is in order?