September 24, 2008
Wall Street Financial Crisis: Executive Compensation was a Driving Force
When we look at the blame game that is coming on fast in Washington and around the world for the Wall Street meltdown, many believe it is the deregulation that is the cause. Certainly this warrants a review. But it certainly seems that the US has a bevy of regulations even WITH deregulation. So it is not so much deregulation that is the villain but maybe a more important reason: Executive Compensation schemes that incented excessive risk taking.
In the business world, most people are driven by money let's face it. Executives often have the most gain if they are able to show big earnings and share appreciation. So with much at stake, and even regulations in place not working, it is no wonder that there was world wide collaboration to sell high risk securities that no one really understood the total value or ramifications.
It seems that these days the securities and program trading calculations are so complex, that there are probably five mathematicians somewhere that dreamed them up and they understand their calculations, but when you combine it with a swap and a division and resale and factor in a meltdown, who really understands the ramifications of the securities.
So while regulators should have been watching more closely, it seems that the real villains are the Board of Directors who approved the executive compensation schemes that encouraged this type of greed and risk taking and the executives themselves who did not employ care and proper consideration in their activities.
It comes down to right and wrong and you cannot legislate that. You either have it or you do not. But certainly all these executives signed Code of Ethics as did Board of Directors. But no one seems to really believe what they are signing. We have lost the moral high ground in the business world when there are no rules and standards and when people will argue that if it is legal it can be done.
This is not just a Wall Street problem but a world wide epidemic in the financial sectors around the world.
Whatever happened to good old fashioned ethics, corporate responsibility and a morality? Without that, we can fix the current crisis, but there will always be another one around the corner because there will be another loop hole that creative financial engineers can find. Some moral judgment and high standards would be a refreshing change in the financial sectors. Let's start there before we begin more regulation.
In the business world, most people are driven by money let's face it. Executives often have the most gain if they are able to show big earnings and share appreciation. So with much at stake, and even regulations in place not working, it is no wonder that there was world wide collaboration to sell high risk securities that no one really understood the total value or ramifications.
It seems that these days the securities and program trading calculations are so complex, that there are probably five mathematicians somewhere that dreamed them up and they understand their calculations, but when you combine it with a swap and a division and resale and factor in a meltdown, who really understands the ramifications of the securities.
So while regulators should have been watching more closely, it seems that the real villains are the Board of Directors who approved the executive compensation schemes that encouraged this type of greed and risk taking and the executives themselves who did not employ care and proper consideration in their activities.
It comes down to right and wrong and you cannot legislate that. You either have it or you do not. But certainly all these executives signed Code of Ethics as did Board of Directors. But no one seems to really believe what they are signing. We have lost the moral high ground in the business world when there are no rules and standards and when people will argue that if it is legal it can be done.
This is not just a Wall Street problem but a world wide epidemic in the financial sectors around the world.
Whatever happened to good old fashioned ethics, corporate responsibility and a morality? Without that, we can fix the current crisis, but there will always be another one around the corner because there will be another loop hole that creative financial engineers can find. Some moral judgment and high standards would be a refreshing change in the financial sectors. Let's start there before we begin more regulation.
