As even President Obama raps the former Merrill CEO for his $1.22 million office renovation, many of his peers are defending what he spent as acceptable. Why Wall Street still doesn’t get it.
Related: John Thain's $87,000 Rug
"Never before has the gulf between Wall Street and Main Street been wider." That was the comment of my friend and colleague, CNBC anchor Larry Kudlow upon learning the news, first reported by The Daily Beast and CNBC that Merrill CEO (now former CEO) John Thain lavished his office with $1.22 million worth of area rugs, wall sconces, chandeliers, and a $35,000 "commode" after inheriting a struggling investment bank that would have been liquidated had it not been for its shot-gun marriage with Bank of America.
Thain, according to documents reviewed by The Daily Beast, spent another $233,000 on a driver for the past year—more than twice as much as most CEOs. He personally signed off on the expenses, which were paid with company money. He did not reimburse the company for the expense, according to a person close to the firm. Through a spokeswoman, he had no comment.
Some say the money was a drop in the bucket compared to the amount of money Merrill makes each quarter.
Larry's point, of course, was that Thain's spending reflects a certain type of tone-deafness about the times that we now live. Conspicuous consumption may have been appropriate during the dotcom bubble, or when the stock market was reaching new heights in 2004 and 2006, but not when you as a CEO are writing down massive losses, slashing jobs, your stock is tanking and amid all this you are imploring, as Thain did, that employees cut back on expenses.
But there was something else I discovered yesterday as the story made its way around Wall Street: the "gulf" that Kudlow was talking about is even wider than he thinks. I speak to people on Wall Street all the time, and many excused Thain's behavior. Some say the money—$1.22 million—was a drop in the bucket compared to the amount of money Merrill makes each quarter. (What they should have said is "lost," because I can’t remember the last time Merrill posted a profit.)
Others said Thain should be commended, not criticized, because he sold Merrill to BofA before market forces would have sent the firm the way of Lehman Brothers and into bankruptcy liquidation. The initial price tag of Merrill was $29 a share—not bad considering where financial stocks are. What they're missing, of course, is that Merrill shareholders won’t be getting anywhere near $29; its closer to $5 and less given where the shares are trading today, and the conversion ratio that both parties agreed on.
One of the most bizarre arguments is such outrageous acts of splurging on rugs and toilets are widely accepted among the titans of finance, and thus OK. As such, Thain is actually a hero, flaunting his conspicuous consumption rather than hiding from it. (I'm not going to lower myself to rebut this one.)
I can add a few more winners coming from the pro Thain lobby on Wall Street, but I won’t because there's a bigger point here that needs to be made. The new president, someone I rarely agree with on economic matters, put it pretty well when he spoke about the impropriety of CEOs, at a time of government bailouts, spending shareholder money on rugs and paying designers $800,000 to redo their office; the designer, Michael Smith was actually hired by Michelle Obama to redecorate the White House at 1/8th the price spent by Thain.
More than that, consider the following: Any CEO who buys an $85,000 throw rug amid the biggest financial meltdown since the Great Depression will probably do other dumb things. If you don't believe me, walk by a construction site in Manhattan and ask the guy in the hard hat.
Charles Gasparino appears as a daily member of CNBC's ensemble. Gasparino, in his role as on-air Editor, provides reports based on his reporting throughout the day and has broken some of the biggest stories affecting the financial markets in recent months. He is also a columnist for Trader Monthly Magazine, and a freelance writer for the New York Post, Forbes and other publications.