We must ratchet back bankers' pay
By Matt Miller
WashPost
Thursday, July 1, 2010;
If Sen. Scott Brown (R-Mass.) can manage to get last-minute tweaks into the financial reform bill, can't we still get something in that fixes banker compensation? Without changing the incentives facing the wizards who rule American finance, three thousand executives on Wall Street will leave the other 300 million of us holding the bag again before long.
The way pay is rigged at publicly owned Wall Street firms creates incentives for casino-style gambling, because bankers reap all the upside and stick shareholders or taxpayers with the losses. When their big bets go bad, in other words, top bankers walk away rich anyway. This is not how capitalism is supposed to work.
The most mind-bending example of this phenomenon was Howie Hubler, a star bond trader at Morgan Stanley whose story was told by Michael Lewis in "The Big Short." As the housing bubble surged between 2004 and 2006, Hubler made roughly $25 million a year on mortgage-related bets that were fated to implode. Then, when it all hit the fan in 2007, Hubler's positions incurred a staggering $9 billion loss -- the biggest trading loss ever on Wall Street. The brass at Morgan Stanley hadn't even understood the firm's exposure.
Yet Howie Hubler retired a very wealthy man.
(More here.)
WashPost
Thursday, July 1, 2010;
If Sen. Scott Brown (R-Mass.) can manage to get last-minute tweaks into the financial reform bill, can't we still get something in that fixes banker compensation? Without changing the incentives facing the wizards who rule American finance, three thousand executives on Wall Street will leave the other 300 million of us holding the bag again before long.
The way pay is rigged at publicly owned Wall Street firms creates incentives for casino-style gambling, because bankers reap all the upside and stick shareholders or taxpayers with the losses. When their big bets go bad, in other words, top bankers walk away rich anyway. This is not how capitalism is supposed to work.
The most mind-bending example of this phenomenon was Howie Hubler, a star bond trader at Morgan Stanley whose story was told by Michael Lewis in "The Big Short." As the housing bubble surged between 2004 and 2006, Hubler made roughly $25 million a year on mortgage-related bets that were fated to implode. Then, when it all hit the fan in 2007, Hubler's positions incurred a staggering $9 billion loss -- the biggest trading loss ever on Wall Street. The brass at Morgan Stanley hadn't even understood the firm's exposure.
Yet Howie Hubler retired a very wealthy man.
(More here.)
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