Financial Services' Helmet-to-Helmet Debate
October 25, 2010
Last week, at ACG New York's "State of the Capital Markets" seminar, William Cohan argued that the market today is just as susceptible to the possibility of a collapse as it was two years ago. He quoted one Wall Street CEO in describing that despite the lessons learned from the credit crisis and the ensuing legislation, we're still living in an era in which too many people in financial services have access to the proverbial nuclear bomb and can "push the button anytime."
Cohan, the former banker who wrote about the Bear Stearns implosion in the book House of Cards, says that efforts such as the Volcker Rule do not go far enough in fixing the structure of Wall Street. Cohan highlighted the significance of KKR taking over Goldman's prop trading desk, but he kept returning to the question of: "What other public companies [besides the investment banks] pay their employees 50% to 60% of revenues."
The discussion largely mirrored an argument Cohan made in an earlier New York Times editorial, in which he called for Wall Street's top 100 executives be "personally liable" for the risks taken by their firms.
It's a compelling argument. It's hard not to see parallels to the ongoing debate in the NFL over helmet-to-helmet hits. Basically, the defenders are too protected, which emboldens them to take risks they otherwise wouldn't consider. Eliminate the facemask or even the whole helmet, and you better believe that Brandon Meriweather practices up on how to form tackle.
Now swap in Dick Fuld or Stan O'Neal for Meriweather or James Harrison, and you have to wonder whether or not they would have taken the same gambles if they weren't so sure their personal fortunes weren't protected. O'Neal even got a $161.5 million severance package.
5 Comments
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Posted by: CHEN M | January 14, 2012 2:06 AM
I wonder if we shouldn't also impose liability or criminal sactions on regulators who look the other way, either as graft, or simply taking the money and not doing the job. We have a lot of that contributing to the build up and the crash. A crisis is when bankers don't trust each other's balance sheets and income statements. They know too well what lie's beneath the robes. The problem with liability, bonus clawbacks, and the like is, there may not be anything to recover once the crash occurs. So, let's up the personal risk, but lets impose capital requirements, and eliminate or limit proprietary trading from commercial banks.android tablet
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Posted by: wz w | November 1, 2011 9:51 PM
I'm sure William Cohan knows the industry, but if he didn't also recommend requiring solid capital formation and retained earings ratios, let me add that. The top execs are likely to risk all, and they di, so personal liability does not stop the financial adrenalin junkies and the path tp finacial criminal is usually made of small steps. It's crucial to enlist Cohan's knowledge in forming regulations that curb abuses before they get out of hand, highlight them for action before they reach their "too big to fail" stage, while fostering healthy commerce.
I wonder if we shouldn't also impose liability or criminal sactions on regulators who look the other way, either as graft, or simply taking the money and not doing the job. We have a lot of that contributing to the build up and the crash. A crisis is when bankers don't trust each other's balance sheets and income statements. They know too well what lie's beneath the robes. The problem with liability, bonus clawbacks, and the like is, there may not be anything to recover once the crash occurs. So, let's up the personal risk, but lets impose capital requirements, and eliminate or limit proprietary trading from commercial banks.
Posted by: Wayne I | October 25, 2010 4:20 PM
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