Author Topic: Interesting videos  (Read 6604 times)

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Offline kimmy

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Re: Interesting videos
« Reply #75 on: September 27, 2018, 01:35:49 am »
I think a big part of the problem is that so much of CEO compensation is tied to the stock price, so it's in the interests of the CEO to do whatever it takes to increase that stock price.

Everything is incentivized to encourage short term gain.

Lehman Brothers CEO Dick Fuld collected something like $300 million in bonuses during the 5 years before Lehman Brothers was destroyed by its own business practices.  His firm had originated so many mortgages based on such little real assets that even a modest market correction could wipe out all of their equity. Which it did.

During the Clinton years, Alan Greenspan had steadfastly refused to entertain the idea of regulating financial derivative products, based on the idea that businesses would regulate themselves using prudence.  Companies wouldn't risk their long-term security for the sake of making a few quick bucks, right? Right?

Well, when everybody from the front line mortgage advisor to the CEO gets rewarded based on what they do RIGHT NOW, who can afford to think about long-term security?  Everybody got rewarded for issuing more and more mortgages RIGHT NOW.  Nobody was rewarded for making sure the company would still be around 5 years later.   When everybody gets rewarded for short-term thinking and nobody gets rewarded for long-term thinking, how could the outcome be anything other than what it was?

Dick Fuld told the Congress panel that he felt really really bad that a 150 year old company died under his watch.  But at least he had $300 million of performance bonuses in his bank account to ease the pain.

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