Bear Blowup Renews Pay Debate

Fallout from the fire sale continues.

Bear Stearns' precipitous collapse and rock-bottom sale to J.P. Morgan Chase has provided new ammunition to executive-pay critics.

One leading critic, Representative Barney Frank, the Massachusetts Democrat who runs the House Financial Services Committee, has promised to put the entire matter back under the microscope in the wake of the Bear blowup.

In an interview in today's Boston Globe, Frank said that some financial institutions reward executives lavishly for taking exceptional -- perhaps reckless -- risks. Those types of wagers-gone-wild now threaten to cripple U.S. and global financial markets.

Frank called for more federal scrutiny.

"It's time to revisit the issue of top executive compensation," Frank told the Globe. "We're not just talking about the large amounts of money, but the perverse incentives they have" to take risks.

The bargain basement sale of Bear Stearns, Frank notes, while costing shareholders billions, left former chief executive James Cayne a very wealthy man. Much of that, he says, was compensation for making what turned out to be dangerously risky investments in subprime mortgages.

While he failed to provide specific policy changes, Frank suggested that executives ought to pay back money they've earned when their gambles go wrong.

The chairman also called for increased federal intervention to address the subprime crisis. And pronto.

Frank added that he wants quick action on a measure aimed at stabilizing financial markets by providing up to $300 billion in federal loan guarantees to help delinquent homeowners avoid foreclosure.

by Alfonso Serrano F.