March 25, 2008
Why Bear’s bankers should do penance this Easter
I am afraid that I forgot to post a link to my column on Saturday in which I tried to explain to Weekend FT readers that Bear Stearns employees really were suffering from the collapse of their institution. The email responses I received were equally split between those who thought I was too kind, and those who thought I was too harsh, to Bear. You can post comments below.
Bear Stearns’ management would have us believe that it was market sentiment and forces beyond their control that caused them to collapse. This is disingenuous, at best. They failed because of blind greed. Bear Stearns felt that they “owned” the mortgage securitization business and had the chutzpah to set up two highly-leveraged “high grade” mortgage-backed funds at the peak of the housing bubble in 2006. Having previously worked at Bear Stearns in the 90’s, it seems to me that the hitherto risk-averse culture under Ace Greenberg was replaced by an over-reliance on risky mortgage-backed and derivative business under Jimmy Cayne’s stewardship. While the Fed had no choice but to rescue Bear Stearns to avoid a possible global financial meltdown, I strongly disapprove of the bailout extended to it’s shareholders. So long as greed exists on Wall Street, it is counter-intuitive to believe that investment banks can regulate themselves. Clearly, the too big to fail reality now applies to investment banks, and it is high time that they be subject to regulatory oversight.
Posted by: feroz | March 25th, 2008 at 3:11 pm | Report this commentSo a lot of the annual $1m bonus was paid in shares? I’m a critical care physician 10 years out of med school and I get paid a fraction of that as my total compensation. Now I wouldn’t normally be complaining about that (and it usually irritates me when people brag about how important but underpaid their job is). But now we see two examples (Northern Rock and BS) of risky private ventures being bailed out by people like me. I work on salary in a public hospital precisely because I don’t want to risk my equity and security! How on earth can anyone justify these appalling deals where the bank retains the upside and the taxpayer is slapped with the downside?
Posted by: mark | March 27th, 2008 at 11:50 am | Report this comment