from Too Much: A Commentary on Excess and Inequality:
Risk, Disaster, and
Wall Street Windfalls
Excessive rewards for top executives, most analysts seem to agree, help explain why Bear Stearns — and Wall Street — have gone so flamingly wrong. But analysts are still shying from an obvious answer for setting things right. March 24, 2008
By Sam Pizzigati
Nero fiddled while Rome burned. James Cayne, the chairman of investment banking giant Bear Stearns, would have played bridge. In fact, earlier this month, with Bear Stearns about to go up in flames, the 74-year-old Cayne did play bridge — at a national tournament in Detroit.
Cayne could afford to be somewhat nonchalant about his company’s future. His future will forever be secure. As Bear Stearns CEO — he stepped down this past January — Cayne pocketed over $232 million in compensation.
What did Cayne do to earn that excessive sum? He helped create what Nobel Prize-winning economist Joseph Stiglitz last week called “the worst financial problem we've had since the Great Depression.”
America’s top business journalists spent their last week trying to explain just how that problem evolved. By week’s end, a consensus of sorts had emerged. Wall Street investment houses, analysts seemed to agree, had routinely flouted prudent business practices. They had followed, as Fortune magazine charged, “a highly flawed business model.”
“Put simply,” says Fortune, “Wall Street firms used towering leverage to make tons of money in a long-running bull market that blatantly underpriced risk.”
The risk should have been easy to see. Shaky subprimes made up just 17 percent of all new mortgage loans in the year 2000. By 2006, researchers at First American CoreLogic calculate, subprimes constituted almost half, 44 percent. ......(more)
The complete piece is at:
http://www.cipa-apex.org/toomuch/articlenew2008/mar24a.html