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'A Peculiar Moral Code'


Steve Pearlstein took a long, hard look at the Mulligan Club yesterday. "[T]hey were the financiers who earned huge bonuses for creating, trading and investing other people's money in those complex securities that resulted in trillions of dollars in losses and brought global financial markets to their knees," he says. "And now they're out there again hustling for investors and hoping to make another score buying and trading the same securities."

Steve tracked down some members of the Mulligan Club and read interviews with a bunch more. The excuses, he reports, are all rather the same. "The bad stuff happened after I left. . . . The losses that occurred on my watch were more than offset by our profits during the boom. . . . I saw it coming and sold off most of it before the crash. . . . Our securities performed better than most."

There is probably some truth to these excuses, but taken as a whole, they are really nothing more than a cop-out. It's hard to believe that large organizations could really go from being smart and honest one day to being stupid and deceitful a year later. Nor is it credible that the money they earned during the good years was the result of individual brilliance while the money lost in the bad years was the result of uncontrollable market forces. It is also a peculiar moral code that says it is okay to traffic in crappy securities, just as long as you don't get stuck with them in your own portfolio when the market finally craters.

That last is an important point: A trader might think he's outwitted the market by dumping a sack full of tanking CDOs onto his naif-ish competitor. But the people he's really screwed are the people who invested with his competitor: pension funds and colleges and investors who had no reason to believe that the highly qualified professionals staffing Bear Stearns didn't know what they were doing. As Steve says, it's a peculiar business when hurting those people is somehow supposed to reflect well on your performance. But that's Wall Street.

Photo credit: AP/Mary Altaffer.

By Ezra Klein  |  September 3, 2009; 9:41 AM ET
Categories:  Financial Crisis , Solutions  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Against the Grain
Next: Can You Beat Centrists at Their Own Game?


This passage, from John Kay's FT review of several "I was there" books about the meltdown, is pertinent here:

"Widely expressed among financial market participants is the view that we would never have trashed the house if our parents had supervised us properly. But it won’t do. If self-interested behaviour, inadequately restrained by state actions, leads to social and economic disaster it does not follow that the individuals and businesses which engage in the self-interested behaviour escape culpability. We don’t apply that standard to lorry drivers. We expect them to drive safely and professionally and hold them responsible when their failure to do so causes accidents. “I would have had to slow down” is not an excuse. It is not apparent that we should lower our expectations when it comes to the senior executives of banks."

Posted by: bdballard | September 3, 2009 9:56 AM | Report abuse

( Kay's review was in the July 31 print edition of the FT)

Posted by: bdballard | September 3, 2009 9:56 AM | Report abuse

I think the focus on bonuses is totally misguided. It's the structure of our finance industry that led to such bonuses. What we should do is bring back sanity to our financial industry by limiting their size (and hence the harm they can do).

The bonus problem will take care of itself.

Bring back Glass-Steagall.

Posted by: leoklein | September 3, 2009 12:39 PM | Report abuse

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