Floyd Norris:"Bonuses didn't cause the melt down". Huh?
In today's Times Norris ,incredibly, claims that Wall Street bonuses didn't cause this crisis because they were largely in the form of stock options that would become worthless if the bank failed.
Let's assume a CEO is asked to authorize a CDS with a potential profi whicht would ensure he'd qualify for a bonus but a non- trivial probablity of a future loss which could break the bank.How is he apt to rule if his potential bonus is
A. $10,000 in cash?
B $100,000 in stock options?
C. $5,000,000 in stock options?
D. $50,000,000 in stock options?
Answers
A. Turn it down.
B. Ditto.
C. Maybe
D. Go for it.
The essence of a Wall Street job is not avoiding risks. It's taking them.When the potential personal pay off exceeds the potential personal risk.Big bonuses justify taking bigger risks than smaller bonuses.
Agree, Floyd saying Richard Fuld of Lehman lost a billion when his company went bankrupt was BS, Fuld just thought he could never lose the next spin of the mortgage roulette wheel.
By Norris logic, big lottery payoffs are not the reason why people buy tickets. The difference is most on Wall Street used other peoples money in their gambling.
July 31, 2009 1:28 PM | Reply | Permalink
Yup.
July 31, 2009 9:59 PM | Reply | Permalink