Wojtek
On Fri, Oct 8, 2010 at 7:37 AM, Michael Pollak <mpollak at panix.com> wrote:
>
> http://opinionator.blogs.nytimes.com/2010/10/07/make-wall-street-risk-it-all
>
> October 8, 2010
> New York Times
>
> Make Wall Street Risk It All
> By WILLIAM D. COHAN
>
> <snip>
>
> SINCE neither Goldman's example nor Dodd-Frank and Basel III will
> change Wall Street's behavior, we have to find a new mechanism. To my
> mind, its central feature should be that each of the top 100 executives
> at Wall Street's remaining "systemically important" firms be personally
> liable for the risks they take. Not just their unexercised stock
> options or restricted stock, but every asset they have in their
> possession: from their cars to their fancy homes to their bulging bank
> accounts.
>
> The days of privatizing the profits for Wall Street and socializing the
> risks must end. As radical as this sounds, in truth it would be no
> different from when -- before 1970 -- Wall Street was a series of
> private partnerships.
>
> We can't turn back the clock: Wall Street's big firms will never again
> be private partnerships. Instead, I propose that each large Wall Street
> firm create a new security that represents -- and is secured by -- the
> entire net worth of its 100 top executives. This security would be
> subordinated to all other creditors as well as to all preferred and
> common shareholders; in other words, if a firm goes bankrupt, this
> security is the first to be wiped out.
>
> Had such a security existed at the time of the collapse of Lehman
> Brothers, the net worth of the top 100 Lehman executives -- no doubt
> totaling several billion dollars -- would have been collected after
> liquidating everything they owned and paid to Lehman creditors, who
> under the current system will be lucky if they get back 10 cents on the
> dollar.
>
> Wall Street's first reaction to this idea -- aside from profanities --
> will be that it cannot possibly be done. Or that it would somehow
> threaten the sanctity of our capital markets.
>
> But, in fact, it can and should be done. Indeed, Wall Street has all
> the intellectual capital it needs in its own archives to construct such
> a security: in the old partnership days every partner signed an
> agreement requiring him (and rarely her) to put his net worth on the
> line every day. Surely, clever Wall Street lawyers can draft a
> 21st-century version of the old partnership agreement.
>
> What's more, Wall Street should take the initiative to do this
> unprompted. As John Whitehead warned, the banks' failure to show
> responsibility will only invite more government intervention.
>
> If, however, the firms balk, the S.E.C. should require this sort of
> accountability from the senior managements as part of its new
> regulations governing Wall Street compensation. Or Congress should take
> advantage of the still-brewing outrage against Wall Street to force the
> creation of such a security.
>
> Pretty harsh, right? Maybe, but Wall Street deserves no sympathy. Had
> this security, or something like it, been in place at every Wall Street
> firm five years ago, there would have been no mortgage bubble, no
> financial crisis, no deep and unsettling economic recession with nearly
> 10 percent unemployment, no need for the Troubled Asset Relief Program,
> and no need for Dodd-Frank or Basel III.
>
> Why? Because human beings do what they are rewarded to do -- especially
> on Wall Street -- and if they are rewarded for taking prudent and
> sensible risks, that's exactly what they will do.
>
> <end column>
>
> Michael
>
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