Business Columns & Blogs

Wall Streeters lack shame, intelligence

It’s not the dollar amounts themselves in the current debate over pay for Wall Street and banking-industry executives that people find so galling and that threaten to turn even the most hidebound laissez-faire capitalist into a pitchfork-waving, tar-and-feather-preparing populist.

OK, maybe it is a little bit. But by now we’re almost numb to inflated salaries with no connection to talent or performance, paid to bench-riding professional athletes or hack singers and actors or corporate chief executive officers who wreck their companies. We understand that people with the most dangerous, most essential or least pleasant jobs are also often the least compensated. Life is unfair. We get that.

And it’s not the element of greed evident in the complaints that Wall Streeters should not be subject to pay caps, limits or taxes on excessive compensation. We’re all greedheads – the question is a matter of degree. Greed is omnipresent. We get that too.

Nor is it even the ingratitude of those whose jobs and industry were preserved with your and my financial backing. Selfishness and self-absorption abounds? Yep, got that one as well.

The most grating, annoying and infuriating aspect of the current debate is the argument that without the ability to pay extravagant bonuses and other wretchedly excessive compensation, Wall Street will not be able to attract and retain the bright talent needed to continue its record of financial innovation.

Let’s do a quick accounting. Wall Street has just engineered the worst economic calamity in 80 years, one that threatened to pull down the entire global financial system. And we need to pay even more to keep hiring the sort of minds that made such a narrow brush with disaster possible?

If that’s the correlation between pay and performance, think how expensive mere competency might be.

And yet Wall Street firms and the huge banks continue to insist that they be allowed to pay whatever their market will bear, and then some, to prevent what is referred to with straight faces as a potential brain drain from the financial sector.

If that notion is not challenged and rebutted, that will be the greatest lost opportunity of this recession, far more than any regulations that are or aren’t written, restructuring that is or isn’t done, changes that are or aren’t made.

We need to establish this point once and for all: People on Wall Street aren’t very bright.

Wall Street would have you believe that the work done there, aside from being crucial to the nation’s economic vitality and health, is mind-bendingly complex, requiring the finest minds to tackle financial challenges and appropriately high compensation to get those minds there.

Actually, what’s done on Wall Street isn’t that complex at all – or shouldn’t be.

Whatever you want to call the activity – investment banking, finance, investment management, trading – its core focus can be summed up in one word: risk.

The job of those in the financial system is to identify risk, to assess risk, to accurately price risk, to minimize risk, to mitigate risk and to diversify risk. That’s what they get paid for.

Wall Street failed spectacularly at all of those tasks.

In the current recession, Wall Street – aided, abetted and even encouraged by everyone from mortgage lenders to regulators to borrowers – not only didn’t recognize risk, much less seek to minimize it, they engineered financial strategies and investment instruments that poured accelerant on a smoldering fire – and darn near burned down not just their own houses but the entire city.

Isn’t that just another example of the consequences of unbridled greed? Greed certainly figured into the equation, but it wasn’t the most important factor. Plenty of greedy people, whether by intelligence or luck, manage to accumulate (and keep) wealth.

The Wall Street crowd, however, confused complexity and hubris for intelligence. It would be unfair to say they ignored the basic job of managing and containing risk only because it never occurred to them that was their job.

So what to do? The obvious answer is to let Wall Streeters collect unlimited bonuses, provided the checks are to be found at the bottom of an old-fashioned dunking tank or at the end of a corridor lined with human rotten-tomato throwers. How, short of that, are we to issue public chastisement to a profession that even now seems unaware of such outrage?

It is important that we have such chastisement, and not just to satisfy our own lust for revenge. Even more important to the future well-being of this country than a heavily regulated Wall Street is a Wall Street that understands how it screwed up, and is sufficiently contrite not to do it again – at least for a while.

Problem is: Can you shame into more sensible behavior those who don’t see either common sense or shame as part of the job description – even when accompanied by a bonus payment calculated in the tens of thousands of dollars?

Bill Virgin’s column on business and economics appears Sunday in The News Tribune. He is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at