What is this “MAC clause” business everyone is blogging about? Does it have to do with Apple computers? Macaroni and cheese? A department store cosmetics line?

Unfortunately, a MAC clause isn’t as much fun as any of those things. Unless, of course, your large financial institution stands to gain or lose from the acquisition of another large financial institution. In other words, if you are Bank of America or Merrill Lynch. Particularly if you are Bank of America, you might find a MAC clause a lot of “fun.”

MAC clause defined

The MAC in MAC clause stands for Material Adverse Change. According to a financial expert who made a very studious-looking PDF that I found online:

MAC clauses are a common means of allocating the risks presented by adverse business or economic developments occurring between the signing and the closing of an acquisition agreement.

So basically, Large Financial Institution No. 1 agrees to purchase Large Financial Institution No. 2, and they sign the papers. And we’re not talking about a quick, online cash advance here. We’re talking about a very lengthy process that involves lots of paperwork. So, after they sign paperwork and sometime before the parties declare, “OK, this deal is final,” something happens that changes the value of FI2 or the financial position of either company.

Bank of America and Merrill Lynch

So, of course, in the real, non-hypothetical world, Large Financial Institution No. 1 is Bank of America, Large Financial Institution No. 2 is Merrill Lynch, and adverse business developments are adverse business developments, and the economy is the economy.

Bank of America is saying that it was pressured into agreeing to buy Merrill Lynch, and financial analyst Mark Fightmaster reports:

CEO Ken Lewis threatened to use a MAC clause to kill the agreement to buy Merrill Lynch because he wanted to get a lower price, according to the Financial Times. New e-mails reveal how he was then pressured to proceed with the deal.

So, we have e-mails showing B of A was pressured to buy Merrill Lynch. However, do we have proof of a material adverse change?

One man’s opinion

Well, Federal Reserve Chairman Ben Bernanke, for one, apparently doesn’t believe that a material adverse change has occurred. Either that or he believes that even if it did occur, it has nothing to do with Lewis’ threat to use a MAC clause. The Financial times reports:

Bernanke called Lewis’s MAC-clause threat a “bargaining chip” and a “foolish move,” before he stated that “the regulators will not condone it.” An e-mail from top executives at B of A said they “want the transaction to go through but have to protect their shareholders.”

The end

Until then,  you can go back to Googling “Tiger Woods Hawaii House,” “Chad Johnson face tattoo” and “prickly shark.” Oh yeah, I know what you’re up to.

Ken Lewis

Not often does an annual bank shareholder meeting attract protests — or attention of any kind — but these are different times. Protesters gathered outside the Bank of America shareholder meeting today in North Carolina.

They were advocating firing Ken Lewis, Bank of America CEO.

Why fire Lewis?

Shareholders turned against Lewis late last year after Bank of America acquired shaky company Merrill Lynch. Shares have fallen 42 percent since the beginning of 2009. Looks like the people who own stock in Bank of America are out for blood.

People who have personal loans, bank accounts or credit cards through Bank of America don’t need to worry about whether the company’s CEO hangs onto his job or not. But shareholders have certainly taken an interest.

A word from our sponsors

Rick Rothacker on Twitter reported that a truck with a “Fire Ken Lewis” sign drove around outside the shareholder meeting this morning as reporters gathered to cover it. Shareholder Fred J. Martin Jr, who said he was from San Francisco and owned 25,000 shares, had a few words for Lewis:

I question whether the board has effectively represented the stock holders who elected them. Whether you go or stay depends on whether you can turn around this large aircraft carrier and get it out of the puddle of systemic loss.

Lewis defends himself

Despite shareholders’ outrage, Lewis defended the company’s acquisition of Merrill Lynch and insurance company Countrywide. He said:

Countrywide and Merrill Lynch are two of the most important reasons Bank of America is the most profitable financial services company in the United States so far this year. Today, I can state without reservation that these acquisitions are not mistakes to be regretted. Both are looking more and more like successes to be celebrated.

Weighing in

Some large groups, including The California Public Employees’ Retirement System, or CalPERS, have publicly stated they’ll vote against re-electing Lewis. CalPERS, furthermore, has said it will vote against re-electing all 18 Bank of America board members.

Besides failing to disclose information about Merrill Lynch, CalPERS says it opposes $3.6 billion in bonuses that were awarded to Merrill Lynch employees ahead of schedule.

While CalPERS is considered an “influential fund,” the group only owns about one-third of 1 percent of the bank’s shares.

Requests for transparency

Shareholders’ main contention lies with the fact that when Bank of America acquired Merrill Lynch, it did not inform stakeholders about the dangers of the transaction. Lewis testified to the New York attorney general that this was because the Bush administration forced him to.

Richard W. Clayton, spokesman for the Change to Win Investment Group, which holds 33 million Bank of America shares, doesn’t think this is an adequate excuse

“There is absolutely no question [Lewis] had an obligation to be honest to the shareholders,” Clayton said.

Why do people look for a payday loan now and then? It’s not just because it’s a fast, convenient and discreet way to obtain emergency cash. The simple fact is that the cost of living has made it difficult for many American families to stretch their budgets to cover surprise situations. And according to a recent Belleville News-Democrat editorial by Holly Sklar, it’s only gotten worse since 1973.

Yes, the rich get richer…

A glaring example of the workplace divide is what Merrill Lynch did while scores of workers were losing their jobs. Amidst the wreckage and broken dreams, Merrill Lynch paid a small group of employees (around 700) more than $1 million apiece in 2008 bonuses. This added up to $3.6 billion – all of it handed out while the company lost $27 billion.

Since 1973, workers have lost ground in the salary department. Adjusting for inflation, the average full-time workers made $41,198 in 1973 and $37,606 in 2008. CEOs, in the meantime, made 45 times more than workers in 1973. Today, that gap has widened to 300 times more. The tax rate for the top income groups has gone down from 70 to 35 percent, and capital gains tax has gone down from 36.5 percent to 15. This has played a large part in the current disproportionate distribution of wealth. So much so that people in the top income bracket may not even have to think about the aid a payday loan provides.

Brother, can you spare a few hundred thousand dimes?

Sklar bottom-lines it for us. She shares the latest IRS info regarding annual income for the top 400 taxpayers. The average adjusted gross income was $263 million each in 2006 (that’s more than $5 million per week), which was up from $221 million in 2005 and $67 million in 1992, all figures adjusted for inflation.

A lot of people are happy about President Obama’s plan to cap CEO pay at $500,000 for senior executives, but this will only apply to bailed out companies. Furthermore, various loopholes in the plan limit its effectiveness, according to Sklar. Cash Advance Mojo likes the idea Netflix CEO Reed Hastings had about a 50 percent income tax for CEOs who earn above $1 million.

Say you want a revolution

Here’s Sklars conclusion regarding this inequity. See what you think:

If we don’t start taxing the wealthy more now, then you can be sure that the mountain of debt created by tax cuts and the bailout will be used to drive “entitlement reform.” Workers’ last forms of security – Social Security and Medicare – will be on the chopping block to pay for the wreck the truly entitled made of our economy.

A payday loan can help a consumer absorb the shocks between their ever-shrinking paychecks. But a long-term solution to America’s disappearing middle class is needed. If the rich are not willing to submit to greater taxation and try to hide behind loopholes and shelters, they should be tracked down and forced to submit. For their own good and the good of all.

Related articles

• How Will Obama’s Tax Plan Affect Self Employed Americans? (internetbiztaxtips.com)
• Obama’s Old Solutions for a New Economy (spot-on.com)

Accountability is a burden that has to be shouldered by every responsible adult, whether it is handling your finances well through payday loans or keeping up with your budget.  You also have to be accountable in the workplace.  If you don’t discharge your duties correctly and in the manner prescribed by policy, then you will be held accountable for your actions, just like in any other area of your life, like getting a ticket for speeding.

However much that your average person may be an upright individual that will do the right thing as often as not, there are some that seem to think that the rules just don’t apply to them, and a lot of them are the heads of the companies that so many Americans work for.

Bank of America holding up the standard

The banking and finance industries were hit hard in the past few months, with some of the largest banks and finance and investment firms collapsing.  One of the biggest shockers was the closing of Washington Mutual, later picked up by JP Morgan Chase, and then the collapse of Lehman Brothers, the investment and finance powerhouse.  One of Lehman’s competitors narrowly avoided the same fate by quickly arranging a buyout by Bank of America, Merrill Lynch.

Merrill Lynch’s takeover was put together by the CEO, John Thain, in a quick effort to keep the company going in one way or another and keep it out of bankruptcy.  He asked for a bonus of $10 million right after the buyout, claiming that it was his efforts that kept the company from closing, which he withdrew when it was made known that selling the company is not the same as actually running it well enough to make a profit, and the company could have used some payday loans to keep it from being sold.

After the takeover, Bank of America announced that Merrill Lynch had not disclosed just how heavy their losses had been.  Despite the $20 billion in bailout funds that Bank of America received, it was discovered that Merrill Lynch, which had been a finance and investment powerhouse, had lost over $15 billion in the last quarter alone, and was over $100 billion in debt.  After the takeover was completed, there was a mutual agreement between Thain and Bank of America CEO Ken Lewis that he should resign, which he did.

Accountability is Key for anyone

Look at it this way – if you have a $100,000 mortgage on your home, and you stop paying on it but take out payday loans to cover your credit cards instead, you are going to get hit with a foreclosure or seizure.  Not taking care of your finances leads to disaster, which having to sell an enormous firm such as Merrill Lynch is, and the fact that the books were somewhat fudged so he could pull a fast one is some highly dishonest stuff.

However, resignation is still preferable to what happens in other places – two people in China who were convicted of adding a dangerous chemical to watered down milk to make it seem quality were sentenced to death for the offense.  Just remember, if you come up a bit short due to a sudden turn of events, you don’t have to sell your home off – you can get payday loans to cover a temporary gap.

Merrill Lynch executive seeks bonus for failing his company

Merrill Lynch CEO John Thain is currently seeking a bonus for 2008 in the amount of around $10 million.  This is after Merrill Lynch and Co. barely avoided bankruptcy and company failure by selling their company to Bank of America to avoid slipping away.  Merrill Lynch took a nosedive over the fiscal year in the wake of the collapse of the mortgage market, losing billions in the process.  The Merrill Lynch executive staff determined that the best course of action was to sell the company’s shares to Bank of America to avoid closing their doors.  According to a recent article in the Wall Street Journal¸ Thain’s reasoning and justification for the bonus is that his actions, or selling the company, was the best option that they had on the table to avoid even more unpleasant alternatives since they weren’t getting government payday loans, and therefore because the company did not go bankrupt, he therefore deserves a healthy bonus to his already ample income as CEO for his prevention of the company going into insolvency, even though it is doubtful that at this point he needs extra money.
New York Attorney General Andrew Cuomo has termed his request as “nothing less than shocking.”  The board of directors appears to be in agreement with him, and is resisting the request for the bonus.  A bonus for an executive should be when the company turns a large profit, creates more jobs and revenue, instead of just merely not going bankrupt.  It seems that his pay should be docked, and not augmented.  Perhaps the employees of Merrill Lynch should get a bonus for putting up with such arrogant behavior from their management team.  The amount of executive compensation in Wall Street and other large companies has become an item of much media scrutiny of late, as many executives continue to receive large bonuses every year in addition to ample salaries regardless of how well their companies do or not.  It seems odd that people be rewarded for failure rather than for success, since the rest of us, including lower level Merrill Lynch employees, would be punished or stripped of our employment for failing to produce

The only way a person can be rewarded for failure

It seems as though the executive class of Wall Street are the only people who can get rewarded for not doing their jobs.  If we, us normal folks, were to miss a mortgage payment, we would get hit with penalties, interest, and fees.  If we don’t do what we are supposed to do for our employers, we would get disciplined, and if it happened enough times, terminated for noncompliance.  If we fall short in our financial obligations, we take extra measures to make up for a temporary shortage, like getting payday loans to cover if we have a sudden expense.  These Wall Street wizards look for extra cash for shorting their shareholders and employees.

Some state regulators, recognizing early signs of trouble in housing markets, sought help from Congress when the Bush administration adopted rules barring states from enforcing tough laws targeting predatory lending – the practices that were enabling unqualified applicants to obtain subprime mortgages. With Wall Street serving a key role in buying, bundling and reselling subprime mortgages, …

Quoted With Edits From: Wall Street firms at center of bailout are big political donors (Lexington Herald-Leader)

Did You Know?

Did you know? Many of the top Wall Street financiers and firms who are largely responsible for prompting the $700 billion dollar federal bailout just happen to be the elections biggest contributors.

$64 million dollars have been donated by eight of the most troubled firms. Does this sound oddly suspicious?

I am not very politically savvy however, many of the problems with the mortgage crisis and other economical factors that we are facing today were foretold from as far back as 2001. This was when many of these sub prime mortgage loans and false securities that have brought the current economy to its knees and in need of payday loans, were sold.

Political Football Anyone?

Political Football Anyone?I would rather have payday loans.

Now, whether you believe in political conspiracies or not, it’s not a secret that they happen. We see this all the time with big powerful corporations who bribe candidates with campaign gifts for a return of favor when in power. The tobacco and oil industries are just a couple of these power swaying giants.

I find it remarkable that out of the eight following donors six have failed to succeed. Read the names:

The donors include investment bankers Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, insurer American International Group and mortgage giants Fannie Mae and Freddie Mac. Since March, with the exception of Goldman Sachs and Morgan Stanley, all of these companies have been bailed out by the government, have been sold at deeply discounted prices or have simply failed.

The trouble that these donors were facing were likely evident for some time before they made the donations that they did. If times were so tough and or troubled why would the funds have been given. Maybe, some political favors were purchased. Is this how the federal bailout came to fruition?

Regardless of what has happened already, and the shady circumstances which have left the American taxpayer holding a $700 billion dollar bill, we still have far yet to go. Perhaps the new president of the United States will be busy for the first part of his presidency fulfilling the favors purchased by the contributions of these large enterprises.

Time will tell the tale as they say. Maybe not today, maybe not tomorrow, and someday perhaps the books will be opened and the America people will get an explanation or at the very least a receipt. Until then we will just have to wait it out.

If you are in need of your own personal bailout, you can apply for payday loans.