Lehman’s Demise, Dissected - Opinionator Blog - NYTimes.com
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MARCH 18, 2010, 9:30 PM
Lehman’s Demise, Dissected
By WILLIAM D. COHAN
William D. Cohan on Wall Street and Main Street.
‘repo 105’, banks, incentives, lehman brothers, richard fuld, Wall Street
What if the biggest rewards on Wall Street went to those who thwarted dangerous and excessive risk-taking instead of to those who enabled, approved or simply ignored it?
What if every senior Wall Street executive had to worry that he could lose his entire net worth at any moment — including his mansions in Greenwich, Conn., and Palm Beach to say nothing of his job — if the revenue he was generating turned out to be unprofitable or excessively risky? Wouldn’t that combination of potential rewards and fear of calamitous personal loss instill in every Wall Streeter a zealous desire to insist that the products his firm was peddling were safe for others to buy? If such simple incentives had been in place on Wall Street, wouldn’t the latest crisis — as well as the multitude of others that have been perpetrated on us in the past 25 years — been largely avoided? The obvious answer to these questions is that human beings An autopsy on the failed firm always do what they are rewarded to do and always have, revealed not only false especially on Wall Street. Rewarding prudent risk-taking on accounting but also the rot at the heart of Wall Street’s Wall Street while punishing recklessness would result in a culture. new ethic on Wall Street, one not solely driven by generating as much revenue as possible in a given fiscal year with no regard to the long term. To that end, shareholders must demand that corporate boards of directors revamp the entire compensation structure on Wall Street away from one based on revenue generation to one that rewards long-term profits. For goodness sake, what other business on the face of the earth, aside from Wall Street, pays out between 50 percent and 60...