

Wall Street Execs Who Cashed In on the Crisis - gnosis
http://motherjones.com/politics/2010/01/wall-street-bailout-executive-compensation

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winestock
Robert Rubin is on that list. Quote:

CLAIM TO FAME: As Clinton's treasury secretary, he pushed to overturn
regulations prohibiting finance-bank hybrids such as...Citigroup. QUOTE:
Wishes he could have reined in Citi but "I don't know what I could have done"
as just a board member.

HIS HAUL, 1999-2009: $124 million

When I was in high school, I read Liar's Poker. I came to despise Rubin based
on that book. Everything which I have heard of him thereafter has confirmed my
opinion.

While he was at Solomon Brothers during the 1980s, Rubin's demands for
compensation shocked even the greediest traders. Rubin then joined the Clinton
administration, the same administration whose electoral campaign decried "the
decade of greed." Then he played a part in the current crash, getting yet
another obscene pile of money for himself courtesy of the American taxpayer
(or the Treasury Department printing press, take your pick).

We are ruled by fools and phonies.

~~~
asto
And they are ruled by pools of monies.

------
grandalf
The cause of the crisis was unexpected systemic risk. There are thousands of
other systemic risks which would have an equal impact on our economy which we
have no protection against. This is the nature of systemic risk.

In some cases it's just ignored (such as an asteroid landing on NYC) and in
other cases it just turns out to be inaccurate (the probability of average
housing prices dropping more than x% (edit, originally had 8 which may be low)
in a single year was considered close enough to 0 to effectively not exist...
effectively on par with an asteroid strike -- though we know both do not have
a probability of zero.

In the context of complex financial products, the impact of the low
probability event is magnified, since in each case the assumption that the
event won't happen is repeated. When it does happen, the result is
catastrophic.

It's naive to think that housing prices were somehow special.

Consider that our laws require only fractional underwriting of risk capital.
The amount set by law effectively a threshold for how paranoid to be about
various risks (including systemic ones). It is hardly a cautious approach.

The market prices in this risk to some extent, but there is one factor that
significantly harms its ability to do so, especially in the case of housing
prices -- government involvement.

Consider that Fannie and Freddie (government sponsored housing lenders) did
not submit financials to wall street during much of the Bush administration.
Normally, private firms would be delisted and shut down for such behavior. If
anything, a proper accounting of their books might have led to greater caution
on the part of investors. Instead, the government's decision to look the other
way emboldened investors to bet on high housing prices and made investors
confident that the government would step in to bail out these entities if
housing prices fell.

Clearly, if the public had thought that housing prices were likely to fall in
2002 the US would not have gone into two expensive wars. Bush had a clear
motive to hide this from the public. Even Greenspan urged the administration
to make its stance on Fannie and Freddie clear, and was rebuked for his
meddling in the buildup to the wars.

So the claim that these financial execs (who went along with the falsehoods
crafted by government in order to sell a war) are _obviously_ unworthy of
compensation for their managerial skill is in my opinion absurd. Some may not
deserve their salaries, but nor do many who are paid $100K+ as engineers and
nor do many who sweep the floor at WalMart. There will be some bad apples.

But this does not mean that these individuals did anything wrong. They simply
went along with government policy. If they bore any responsibility it was to
back Greenspan in his remarks about Fannie and Freddie, to try to prevent
subterfuge and malfeasance on the part of the executive branch and/or inaction
by congress.

But frankly, everyone believed that the probability of housing prices falling
more than 8% was effectively zero. To speak out in a contrarian way about this
would have been viewed as a tinfoil hat endeavor.

~~~
ajkessler
I'm not sure who "everyone" is... Since housing prices had dropped more than
8% a few times over the last 80 years, anyone who thought there was _zero_
probability of it happening _again_ was clearly a moron.

As for the tinfoil hat crowd, I guess John Paulson, Steve Eisman, Michael
Burry, Charles Ledley and James Mai weren't believed by the mainstream, but a
lot of people saw what was coming. Those guys were just a few of the ones who
were lucky enough to time it just right. There were many, many more who simply
bet that the crash would come a few months earlier than it did.

~~~
grandalf
I agree with all of your points. Maybe the figure was greater than 8% for the
price drop -- there is some percentage that represents the worst case that was
typically considered in all the contracts.

I realize many foresaw the crisis. My main point is that we had a government
program to keep housing prices high/rising, which led to much of the
perception that the risk of a housing price drop was low. When considering who
is to blame, we should blame our government at least as much as the financial
executives.

~~~
ajkessler
Minor correction: it's not that we "had" a government program... we "have":

FHA is still handing out 3.5% down loans to people with 580 FICO scores. It's
like 2008 never even happened. People actually sued about this last year:
[http://www.washingtonpost.com/wp-
dyn/content/article/2010/12...](http://www.washingtonpost.com/wp-
dyn/content/article/2010/12/03/AR2010120302784.html)

~~~
grandalf
Quite true. Arguably though, the programs are part of the overall short/medium
term "solution" for the crash. Yet nobody seems concerned that the same thing
could happen again.

------
salem
It would be more interesting to see which execs got huge compensation while
getting big government handouts that have _not_ been repaid, and/or did not
make the government money.

~~~
potatolicious
Urgh, HN should let you take back downvotes. My bad, my mouse slipped :(

