Wall Street Firms Considers Competence Irrelevant
The latter case sounds absurd, and it is, but unfortunately that does not mean it isn't true. One example of this was one which I already told you about, former Merrill Lynch CEO Stan O'Neal who got tens of millions of dollars in bonuses for profits that have now turned out to be fraudulent. And then after it was revealed that he had caused the company billions of dollars in losses, not only did he not have to pay back the bonuses he received for non-existing profits, but he was revarded by an additional $161.5 million in a severence package. There are many other similar examples of this on Wall Street.
And not only do Wall Street firms pay failed managers and analysts huge sums of money even after it is revealed that they are incompetent, they are still considered attractive on the Wall Street job market. The New York Times reveal in this article that two of the people most responsible for the so far at least $34 billion of losses (a sum that will likely rise a lot before this is over) suffered by Merril Lynch and Citigroup, Dow Kim and Thomas Maheras, are being swamped with job offers despite their proven incompetence. As the article puts it:
"Under the stewardship of Dow Kim and Thomas G. Maheras, Merrill Lynch and Citigroup built positions in subprime-related securities that led to $34 billion in write-downs last year. The debacle cost chief executives their jobs and brought two of the world’s premier financial institutions to their knees.
In any other industry, Mr. Kim and Mr. Maheras would be pariahs. But in the looking-glass world of Wall Street, they — and others like them — are hot properties."
The article later gives several more examples of this irrational system of rewarding failure. However, the article doesn't really go into why Wall Street is different from other industries. Why do these firms survive when they're managed by incompetent managers and analysts-and pays them absurdly high sums of money for losing money?
The answer is that the Federal Reserve keeps bailing them out by their interest rate cuts and emergency credit. As long as this continues, we can expect this irrational system to continue.