Corrected-Virgins, volcanoes and subprime CEOs

March 7, 2008

(Corrects quote in 8th paragraph to “villians” instead of “victims”.)   

panel1.jpgRepublican lawmakers leapt to defend top current and former executives at Merrill Lynch, Citigroup and Countrywide Financial Corp on Friday, saying it was unfair of Democrats to hold a hearing to spotlight the bankers’ lavish paychecks.

“Punishing individual corporate executives with public floggings like this may be a politically satisfying ritual — like an island tribe sacrificing a virgin to a grumbling volcano,” Rep. Tom Davis of Virginia said.

“But it won’t answer the questions that need to be answered about corporate responsibility and economic stability,” Davis added at a House Oversight and Government Reform Committee hearing.

The five-hour hearing was held by Democrats on the panel to scrutinize the lucrative pay packages that top executives of the three Wall Street firms pocketed as their companies incurred massive losses from the subprime mortgage fallout.

Angelo Mozilo, the current chief of Countrywide, joined former CEOs Stanley O’Neal of Merrill Lynch and Charles Prince of Citigroup to face tough questioning by some lawmakers.

But they found support from some Republican ones.

“We are not going to find a villain today at Merrill Lynch,” said Rep. Darrell Issa, a California Republican.

“I would make you the villians if I could possibly blame the (subprime) meltdown on you,” allowed Issa.

panel2.jpgDavis, the top Republican on the committee, said board directors and shareholders have already begun to hold managers accountable and Congress should keep its nose out of such matters.

“Government involvement in that process generally makes matters worse, not better,” Davis said. He noted that a professional baseball player with a $17 million contract who hits only .200 in a season “still gets paid.”

Some investors have been enraged with the discrepancy between how much executives are being paid and how their companies’ performed.

Merrill’s O’Neal was awarded a $161 million retirement package, even though he left his job days after the world’s biggest brokerage reported the largest quarterly loss in its history.

Citigroup’s Prince resigned as the largest U.S. bank warned it may write off billions of dollars in subprime mortgage-related losses. Prince was awarded with roughly a $40 million package, which included perquisites such as an office, an administrative assistant and a car and driver for five years.

Countrywide announced significant losses and weathered an 80 percent drop in its stock price in 2007. Mozilo was paid $1.9 million in salary, received $20 million in stock awards based upon performance and sold millions of dollars worth of stock.

An investor advocate who also testified, Nell Minow of Corporate Library, appeared amused by Davis’ comparison of the hearing to a tribal sacrifice.

“These are not scapegoats and they are certainly not virgins,” she said.

– By Rachelle Younglai in Washington, DC

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