With theories flying about the cause of the problems in the financial sector, just about every possibility has been discussed. Unfortunately, the media has given tremendous attention to the "evil short-seller conspiracy" idea but, on his blog, billionaire Mark Cuban offers a more sane alternative: "Risk and reward have been decoupled for CEOs on Wall Street."
Cuban writes: "If you are the CEO of a major public company, once you qualify for your golden parachute there is absolutely no reason not to throw the Hail Mary pass, and do high risk deals every chance you get.... Lets just say for example, you run Fannie May or Freddie Mac. You basically f*** up the entire housing economy. Your punishment ? You walk away with 9mm and 14mm dollars as severance."
Instead of cracking down on short-selling, regulators and especially directors should be looking at the corporate governance issues that led executives at companies like Fannie Mae (NYSE: FNM), Lehman Brothers (NYSE: LEH), and American International Group (NYSE: AIG). One possible solution that is already beginning to take hold at many companies is providing executives with restricted stock grants instead of options so that there is an incentive to retain value rather than betting the farm on growth.
While Cuban's analysis is probably overly simplistic -- the recent mayhem is not only a result of poorly structured CEO pay -- the huge unchecked risks and excessive leverage at so many companies should lead to a renewed call for changes in corporate America.
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Reader Comments (Page 1 of 1)
9-20-2008 @ 5:41PM
steven b ruza said...
the government should put the ceo's of all these companies in jail and take away there money. the subprime adjustable is poison and millions of homeowners never had a chance on these loans. i believe a big time law suite should be filed against alan greenspan for allowing all this to happen. he called them sucker loans. lets take his pension away
9-20-2008 @ 7:01PM
Jay said...
Only on Wall Street one would be allowed unlimited credit lines. These companies should have been shutting off the money spicket, trimmed expenses and started mass liquidation of assets to beef up their cash positions. But, they borrowed more, paid the insiders more and basically cheated the U.S. population out of millions. These "insiders" need to do some hard time!!!!
9-20-2008 @ 7:12PM
william lindblad said...
The amount of blame for this one is going to look like the "Boss Tweed " cartoon found in most high school history books. Everyone get in a circle and point the finger at someone else. Personally, I blame the Congressional finance and banking committees. There is no way on this earth that a large group of intelligent people could not have seen this coming. I presume this was ignored because the bankers were all major campaign contributors.
Some people should hang their heads in shame, and resign. They have screwed just about everyone in this country.
(except the banker CEO's and other execs)
9-21-2008 @ 12:08PM
Wy said...
Yes! yes! yes! Lindblad has hit the nail on the head! The problem is OK, short selling may NOT have the downfall of the banks, but it's symptomatic---GREED!!!!! and really profiteering at the expense of Joe SIxpack! Is this right? NO! The thing is this...we can't dictate CEO salaries but we need to clamp down wherever and whatever we can. Business is apparently incapable of policing itself or caring about ethics...period! Those of us who can need to do everything we can to protect the interests of the general American public, and, in the long term protect the economy of the middle class. The nose bleed guys on Wall Street don't understand this, but why the hell should they care...they're walking away with $14M severance packages! We need to sound a loud a clear "We're mad as hell and we're not going to take it anymore" message! NOW!
As for the actual lending agencies--they're next on my hit list! I had to laugh at the message on TDAmeritrade's web site -- "we're not directly involved in the mortgage lending business". HELLO! Ever hear of dominos?!
9-21-2008 @ 4:20AM
Bill Kear said...
"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."
John Maynard Keynes, 1931
A sound banker, alas, is not one who sees a bazooka and avoids it, but one who , when he is confronted with cash, steals it in the conventional way, along with his fellows, so that no one can really blame him.
Bill Kear, 2008
Portfolio protection consultant
9-21-2008 @ 9:59AM
Jerry said...
THE STOCK MARKET "IS NOT" A CASINO. Betting the market will go down is wrong and should be outlawed. The stock market is just that, A means of taking stock in a business. The concept of making it more and more like a casino is imoral and wrong.
9-21-2008 @ 9:30AM
Bob said...
Mark Cuban is a traitor who helped cause this mess.
9-21-2008 @ 11:37AM
Steve said...
Shortselling is gambling, not investing. It's like betting on a horse to lose which racetracks don't even allow.
9-22-2008 @ 8:37AM
Tom IU Alumni said...
If you think Mark Cuban's comments are " probably overly simplistic ", you either do not understand Mark Cuban or you do not understand Business
12-16-2008 @ 1:21PM
Judyg said...
growth? since when are these miscreant ceo's interested in growing any business. they are only concerned with their own personal treasury, at our expense. we can dictate whatever we want. if these guys don't like that, they can get another sort of job. it's a laugh. pundits are always telling us how ceo's have to gorge themselves or they will be lost to other companies. ok, what company? those jobs are already filled with loser shmucks, just like them. look where they've led us, these do nothing bribe taking political hacks plunked in by their washington buddies and sitting around scratching their asses and counting their coins.