It's a Mad, Mad, Mad, Mad World
Mar 17 2008 See Archive
Clawback Calculator
The Consequences of No Consequences
Recent Columns
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Toxic Pay
Apr 22 20098:00 am EDT -
The Private Equity Meltdown Myth
Feb 11 20098:00 am EDT -
First, Fire the Regulators
Jan 07 20098:00 am EDT -
The Hedge Fund Collapse
Nov 11 200812:00 am EDT -
Deny Another Day
Oct 15 20088:00 am EDT -
The $58 Trillion Elephant in the Room
Oct 15 20088:00 am EDT -
Reining in the Speculators
Sep 18 20088:00 am EDT -
London Banks, Falling Down
Aug 13 20086:00 am EDT -
Bank Job
Jun 16 20086:00 am EDT -
Diary of a Short-Seller
May 12 20086:00 am EDT
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This wouldn't have been possible without John Meriwether, perhaps the founding father of the No-Consequences movement. Meriwether presided over Long-Term Capital Management's demise, the most spectacular hedge fund blowup ever. It put the global financial system into such peril that the Federal Reserve had to intervene. For his recklessness, Meriwether was sentenced to Greenwich, Connecticut, where he manages billions at his new hedge fund.
Once, it was considered polite to at least shake your head (with envy if you were a hedge fund manager, with disgust if you were just about anyone else) when referring to Meriwether's comeback. Now? Dow Kim and Tom Maheras held top positions at Merrill Lynch and Citigroup, respectively, overseeing those firms' disastrous moves in the credit markets. But by January, the two were bouncing back. Kim was raising money for a new hedge fund. Maheras was choosing between taking a top job in finance and getting $1 billion to start his own fund. (That seems to be the preferred escape hatch: Even Brian Hunter, of the failed hedge fund Amaranth, has been able to raise money to hang out his shingle.) Instead of golden parachutes, they get golden trampolines.
Heads I Win; Tails I Win
What does it tell us when Angelo Mozilo, the head of mortgage lender Countrywide, spent months selling his stock while proclaiming that the company would weather the housing slump, and then, when the market failed, sold it to Bank of America and kept his monster compensation? It tells us that the pattern of being rewarded for failure has been laid into the foundation of the speculation society.
There was the junk-bond crisis and the savings-and-loan disaster. There was the regulator-coordinated bailout of L.T.C.M. There were the Fed's shock interest-rate cuts after the Nasdaq bubble popped. Over and over again, there were blunders with no corresponding negative response.
The science of securitization led to a severing of the relationship between lender and borrower. Bankers used to know whom they lent money to, and vice versa. In the past few years, however, borrowers have called a 1-800 number for loans. The ultimate lender didn't know much about the borrowers and didn't really care.
Now plenty of homeowners are walking away from their houses and sending "jingle mail"—putting the keys in an envelope and giving the house to the bank. Effectively, lenders have no recourse. But who can blame the little speculators when the big speculators were running amok?
