I never said the game was easy and yes I saw several economic cycles, at several different institutions, on both the credit side (when Glass-Steagal actually meant something) and the investment banking side. I was well rewarded for the efforts I put in becoming a junior partner/MD and receiving adequate bonuses a year before the first collapse. Not everyone was consciously gaming the system, but you started to realize it when on successful deals like Global Crossing, which went from (a market cap of US$ 5 bn to chapter 10 bankruptcy the following year), senior exec were taking 20 million+ bonuses, and then being fired a year later. A clear indicator that there was something significantly wrong with the corporate governance bonus systems then.
Now 10+ years later when you see things like the 2008 recession, the current bankruptcy of MF Global and some of the Internet IPOs that are being pitched and sold to smaller institutions and retail investors, and the fees that are being taken, you have to wonder whether anything has really changed and really see how such compensation systems are not in the interests of a healthy financial system. Especially when taxpayers and shareholders have to bailout or bear the economic costs of the distortions created by these bonus systems.
Don't get me wrong there is nothing wrong with people being paid good bonuses and good compensation but as Nassim indicates the amounts being paid are excessive and don't truly reflect the risks being taken.
I don't know how relevant any compensation number would be to the point I am making. But if you did your research amongst the sec filings I am sure you will raise your eyebrows about how much money has been gamed and how disproportionate this is compared to the costs borne by taxpayers and others.
I would tend to disagree that this article is not relevant, startup finance and access to funding for startups is highly dependent on the health of the financial system, and this article deals with the economics and the gaming of that system.
As a former banker with 18 years experience, this article is 100% on the ball. Having worked as a senior executive during the times of Global Crossing and Enron I saw how the system was gamed!.
Working at this large institution I saw how the bonus system, made the supposedly senior bankers act like a group of Mary Kay cosmetic sales girls, seeing how they could optimize their bonuses by playing the game, and how they got the lower levels of the pyramid to play along because of the partial subjectivity and discretionary aspect of the bonus system. Because of this discretionary aspect, lower levels of the pyramid, we're unlikely to question the creation of complex and funky new products specifically designed to overcome impediments to maximize that short term bonus.
When this giant "ponzi" scheme began to collapse, I saw how those same greedy senior executives proceeded to panic and destroy significant strategic parts of the business solely to stop the leakage of their bonus pool and try and cosmetically dress up the banks short term results to justify and maintain those 6-8 figure bonuses they had thought they were going to receive.
Many of these executives later "resigned" or were "retired" by their boards who should have been accountable for the damage reaped by these masters of gaming. Most of them(I think all of them!) retained huge bonuses all at the expense of the shareholders and employees. Writing off 100's of millions of $ of shareholder and depositor value. With middle class retail shareholders, depositors, and employees paying the price of this borderline criminal behavior.
Most galling to me is that one of these executive used some of his "hard owned bonus" to have a faculty/ building at my alma mater named after him. I believe this was probably more driven by ego than guilt!
Nassim is 100% on the ball. Nothing has really changed and history repeats itself, and unless government starts to listen then I fear the outcome will either be financial collapse or revolution (#occupywallstreet?).
Now 10+ years later when you see things like the 2008 recession, the current bankruptcy of MF Global and some of the Internet IPOs that are being pitched and sold to smaller institutions and retail investors, and the fees that are being taken, you have to wonder whether anything has really changed and really see how such compensation systems are not in the interests of a healthy financial system. Especially when taxpayers and shareholders have to bailout or bear the economic costs of the distortions created by these bonus systems.
Don't get me wrong there is nothing wrong with people being paid good bonuses and good compensation but as Nassim indicates the amounts being paid are excessive and don't truly reflect the risks being taken.
I don't know how relevant any compensation number would be to the point I am making. But if you did your research amongst the sec filings I am sure you will raise your eyebrows about how much money has been gamed and how disproportionate this is compared to the costs borne by taxpayers and others.