Fascinating discussion by SImon Johnson at Economix:

The key finding is that chief executives were “30 times more likely to be involved in a sell trade compared with an open-market buy trade” of their own bank’s stock and “the dollar value of sales of stock by bank C.E.O.’s of their own bank’s stock is about 100 times the dollar value of open market buys.” (See page 4 of the report.)

If the chief executives had really believed in what their banks were doing, they would have wanted to hold this stock — or even buy more. Disproportionately, more sales than purchases strongly suggests that the chief executives felt their stock was more likely overvalued than undervalued.

In the past, I have called for a new Quantitative division of the SEC to identify and investigate these sorts of issues. Unfortunately, the new House leadership prefers to cut the budget for the cop on the Wall Street beat (as their Lords & Masters have ordered) . . .

>

Source:
Ship of Knaves
SIMON JOHNSON
Economix, February 10, 2011 
http://economix.blogs.nytimes.com/2011/02/10/ship-of-knaves/

Category: Bailouts, Corporate Management, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Did Bank Execs Know Their Firms Were in Trouble When They Sold Their Personal Bank Stock Holdings?”

  1. Petey Wheatstraw says:

    Of course Bank Execs Knew Their Firms Were in Trouble When They Sold Their Personal Bank Stock Holdings.

  2. call me ahab says:

    c’mon BR-

    get with the program . . .the GOP’s running the show now and they say the markets are self regulating (so what if we just witnessed rampant fraud and theft upon the world stage- doesn’t mean people can’t be trusted, right?)

  3. Petey Wheatstraw says:

    ahab:

    it was an act of god that ruined us, not criminal, greedy insiders.

  4. Petey,

    @ your 08:06 Comment

    the Sun rose in the East, here; How ’bout in your neck o’ the Woods?

  5. JimRino says:

    No, It’s always [ somehow ] the Federal Government’s fault.
    Those officials elected with massive Corporate, Wall Street and Foreign Money( US Chamber of Commerce ), make laws for the people [ who count ].

  6. Petey Wheatstraw says:

    MEH:

    Just checked. It’s light outside, but only if my eyes are open. ; )

  7. call me ahab says:

    Petey-

    no doubt God had a lot do with it (it appears you can’t trust anyone nowadays)

    speaking of which- if there was a God (and I’m skeptical) wouldn’t he strike these fools down for being the sinners they are?

    oh that’s right- judgment day and all that nonsense and they will get what they deserve . . .

    guess I won’t hold my breath . . .

  8. Petey Wheatstraw says:

    ahab:

    I’m way beyond skeptical. Theology has a way of rewarding evil in the here and now (same as banking), balanced with false promises of future profits in the afterlife (same as bankers).

  9. Stillaway says:

    Senator Durbin said it best:
    “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

  10. b_thunder says:

    It’s not just insider sales – between Hank Paulson-engineered rally that began in the summer of 2006 and before the sh*t finally hit the fan in late 2007, those “big banks” bought back tens of billions of dollars of their own stock, including from their own execs and insiders. These buybacks depleted banks’ cash and drove stock prices artificially higher. If Lehman, Bear and Merrill didn’t spend that money on buybacks, they may have had enough reserves to survive!

    So, the banks spend their capital artificially driving up share price, the execs sold shares at inflated prices, taxpayers paid for the bailout. And now the remaining banks want to restart paying dividends, i.e. drive share prices higher. The process of looting the “mom & pop” investor and “joe the taxpayer” has been started and is about to shift to a higher gear.

  11. Transor Z says:

    The SEC should absolutely be using algos to flag statistical outliers for further investigation. Don’t they do that already?

    The problem here is that the sample size of ceo trading is almost certainly too small to prove anything by itself. You’re going to run into the correlation-is-not-causation error. You still need emails and witness testimony.

  12. not-affiliated-with-Wall Street says:

    I wonder if they will trot out “oh, we were just ‘diversifying’ our portfolios” like the dot.com pump-and-dumpers used to say.

  13. boogabooga1114 says:

    Do I have to rise in partial defense of bankers? Oy, I might.

    On the executive level, a lot of compensation comes in the form of stock. Since you can’t buy a house in the Hamptons or pay the kids’ $30,000 preschool tuition with shares of stock, at some point they’re sold for this medium of exchange called cash.

    Given that anyone paid in stock is already going to be very long that one particular company, no good financial adviser would ever suggest they go out and buy more on the open market. Quite the contrary, even when a company is sound, it makes sense to sell and diversify.

    I’d be stunned if there were ever a time when any industry’s executives bought much company stock on the open market.

  14. KidDynamite says:

    come on Barry – even Simon Johnson’s own comment base noted how absurd his piece was: insiders in all industries are always selling more stock than they are buying – it would be insane for them not to. Since you get more stock every year, there’s no reason not to sell it – you already have concentrated career risk and financial risk in your company’s stock – compounding that is silly and imprudent.

    This isn’t like a startup company where you might hold vested stock because you have the potential for massive price appreciation in early stage businesses!

  15. louis says:

    And the Steelers left a time out on the board during the final drive. What does that tell us?

    The smartest guy’s in the room suddenly became stupid or they knew something about the final outcome?

  16. obsvr-1 says:

    if one wants to claim that this is a diversification strategy then it would not be too hard for the SEC/DOJ to analyze the pattern of trade and require a registered diversification plan from the execs.

    1) If there are departures form the mean during the times of significant business events; or 2) if the execs engage in stock buybacks that send signals that the company is bullish in using corp treasury then there is cause to trade the golden handcuffs for the steel cuffs.

    Lets not forget the accounting and control fraud that is taking place to keep or drive the stock price high during the analysis.

  17. DeDude says:

    Obviously the idea that the SEC needs funding so they can keep an eye on these banksters is wrong. Lets leave the oversight responsibility on the book but remove the agencies funding to actually do that job. I mean that worked out SO great last time we just have to have a dacapo.

  18. homogenik1 says:

    I am sure that executives that were in place for a long time and were making huge stock sales did so because they knew the bubble was about to burst and they did not want to be left holding the bags. What is amazing is that there have been no arrests but then again is hubris or incompetence a crime

  19. Jack says:

    Steelers had the time. It was the other ‘T’ they didn’t have: Talent

  20. Lyle says:

    Mozzillo clearly did, but one has to wonder about Fuld, and the Bear Sterns folks, who had large holdings and got wiped or nearly wiped out. Now in the cases of Lehman and Bear, I suspect there was a lot of self delusion going on they thought their companies were better than the were. It would be interesting to see what happend to Price and ONeil how much stock they were holding when the bottom dropped out. I do think that its easy to surround yourself with yes men and live in a nice bubble of delusion when a CEO.

  21. obsvr-1 says:

    Another report from the COP on Executive Pay

    Congressional Oversight Panel Examines Executive Compensation Restrictions in the Troubled Asset Relief Program

    http://cop.senate.gov/reports/library/report-021011-cop.cfm

    —- Message I sent to COP

    First, I congratulate and thank the COP for the work you have done in your oversight responsibilities of the TARP program.

    However, it is appalling to me to see the amount of work, research and investigation that has been documented ultimately ends in “the crooks got away with the loot”.

    The review of executive pay and bonuses should not have been narrowly coupled to TARP, it should have been more broadly applied to encompass the entirety of gov’t (taxpayer) assistance. The current administration and Sec. Geithner continues to trumpet the success of TARP as “saving the economy from the abyss” and congratulating the recipients in paying back their funds (yeah with backdoor bailout funds) and even have the gall to say that the program may even end up profitable. The greatest success of TARP has been in its literal definition of a blanket or cover, used to cover up the full extent and cost of the wall street bailout.

    Even today, the TBTF are receiving gov’t assistance through the myriad programs of UST, FED, FDIC, GSE and the tremendous overspend of the gov’t (deficits) which continues to enrich Wall Street TBTF through the US Bond market and FED QE.

    The Exec Comp should have remained under restraint as long as these programs and taxpayer funded ‘crutches’ continue to exist.

    Thank you for trying, but it seems that the power of entrenched corpratocracy, incestuous relationships of banks/FED/regulators/congress, the “bribes” from lobbyists and political campaign funding simply overpowers any attempt to prosecute fraud, abuse and ill gotten gains. We the People get the shaft either directly through outright thievery or indirectly through inflation (devalued dollars). The only hope is in the elimination of the TBTF doctrine, End the FED and return to a competitive free market system — then the invisible hand of the market would have a chance take care of the problem.

  22. farmera1 says:

    All of these comments caused me to dig out one of my favorite books by John Bogle of Vanguard fame;

    BATTLE FOR THE SOUL OF CAPITALISM

    As Bogle says we have indeed moved from ownership capitalism to managerial capitalism (and its’ evil twin corporatocracy).

    We live in a virtual world where corporations have the rights (but none of the responsibilities) of people. The take over by corporations as led by TBTF banks is complete. Just try to throw a corporation in jail. As the upper one percent get richer, and the other 99% suffer, it is difficult to see how this ends well.

  23. clipb says:

    i would guess that 90% of the stock sold by fuld et al was obtained via option issuance and exercise and that the relatively new (can’t remember when it was instituted) preplanned stock sale plan allowed everyone to sell more or less constantly and avoid any (or most) legal insider trading type issues. to ignore these 2 aspects of financial sector stock sales is a little absurd