Oops, we forgot
As we learn from Fed e-mails that were released and printed by the WSJ, here is one I got via the Big Picture that I find especially interesting:
“I think the threat to use the MAC is a bargaining chip, and we do not see it as a very likely scenario at all. Nevertheless, we need some analyses of that scenario so that we can explain to BAC with some confidence why we think it would be a foolish move and why regulators would not condone it.”
–Dec. 21 email from Chairman Bernanke to some Fed officials
What is an MAC in this context, please? It turns out that it is a legal term often used in contracts, especially those being used M&A (Mergers & Acquistions).
As answer.com explains:
The rationale for such a clause is a means to protect the acquirer from major changes that make the target less attractive as a purchase. Large transactions often require a long period of time between actual agreement and the completion of the transaction (the “closing”). This time is used to obtain governmental or regulatory approvals (e.g., in the United States, Hart-Scott-Rodino Antitrust Improvements Act approval), to obtain shareholder or labor consents, and any other required third-party consents. During this period, the target continues to function pending the completion of the merger, and is subject to the normal risks of its business, the economy or acts beyond its control.
Now, since these lawyers think of everything in those cases, why then are such clauses not in the contracts with executives? If they had been, that would have allowed the companies to refuse to pay any bonus whatsoever.
One one hand those people think of everything, and on the other hand they forget to put the most basic safeguards into their contracts. Tsk, tsk.