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article imageOp-Ed: It pays to go broke if you're rich Special

By KJ Mullins     Nov 24, 2009 in Business
Last year Wall Street had a melt down. Shareholders in some of the nation's biggest banks lost their entire investments. Bears Stearns and Lehman Brothers died. Don't feel sorry for their CEOs. They walked away smelling like roses.
As the banks started to make bad investment hand over fist the CEOs from Bear Stearns and Lehman Brothers padded their wallets with bonuses and equity sales during the first eight years of the 2000's. Those moves put at least a billion for the two sets of top five executives at the two doomed banks.
Raw Story reports:
"The people who invested in these companies should feel betrayed," Nell Minow, a compensation expert at the Corporate Library, told NBC's Lisa Myers. "The whole idea of capitalism is that the people provide the capital and the executives take care of it for us. In this case, the people provided the capital, and the executives took it."
James Cayne, CEO of Bear Stearns made $388 million during those eight years alone. Lehman Brothers CEO Richard Fuld pocketed $541 million during that time.
When their banks failed the top executives didn't have to worry. They had excessive next eggs to lay in while those under them, their investors, found themselves struggling to survive.
Jeff Watkins, a former stockbroker, told Digital Journal that many in the business saw the future in the 1990's. Watkins also worked within the debt research realm for a brief period during the late 1990s.
"I would expect that those in power knew what was about to happen. They were over-optimistic maybe, or self-deluding. It's a very addictive environment. Still there were warnings that went unheeded by the analysts."
Watkins told me about one hedge fund manager that had been warning others about the coming bank failures in the 1990s. No one listened to him but because of his predictions the manager bought enough insurance and made millions when the banks failed. Those at the top of the banks said during those meetings with the manager that they prayed to God that he was wrong.
"They didn't want the party to end," Watkins said, "It didn't matter though to them, the truth is they (the CEOs) were set up to make millions either way the market went."
David Lister, Vice President and Chief Compliance Officer at Octagon Capital Corp in Toronto told Digital Journal that the big payouts are part of the game.
"They got paid to do their job. They did what where were hired to do by the Board of Directors. Everyone thought what they were doing at the time was okay to do. The guys honestly didn't think they were setting their banks up for failure."
Lister has been in the banking business for over twenty years. He pointed out that those at the top were hired by a board of directors who approved every bonuses and every raise. The banking business' top brass lives their job, there is very little down time in a high stakes, high stress world. Without the investment banker the entire economy can not go forward. Those risky moves that toppled the American economy also were in part behind the years of excess. There were no secrets, everything in the big firms were spelled out and documented. It's true in the end a huge gamble failed when blind optimism won out.
Those in the banking industry knew the incredible risks that were in play. It's not wise to lend to those who can not afford to make payments but the lower branches of the banking tree are responsible on those loans.
Lister pointed out that when times are bad employees aren't told to pay back their bonuses to the company. The same should be true for the higher ranks then who work 16 to 20 hours a day, years on end.
"It was the time. Everyone was making the most that they could while they could. If there is any real shame to be laid it should go to the board of directors that hired these guys."
Greed is the name of the game in the banking business.
"It's capitalism. No one says it is fair."
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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