Why Does this Man Still Have His Job

Yesterday, on The Business Insider, we noted the appalling fact that the head of AIG's risk management team still has his job. Today, the WSJ follows up by noting that the WHOLE AIG RISK MANAGEMENT TEAM still has their jobs. The apparently incompetent overseer of Citigroup's risk-management group got an $8 million retention bonus last year. And so on.

So much for the myth of accountability.

Firing, as Leona Helmsley might have said, is for the little people. In today's American capitalism, as long as you get high enough in the machine to dole out huge helpings of stock, cash, and favors to friends who might make trouble for you, you can survive just about anything.

No one symbolizes this cancerous trend more than Ken Lewis, the CEO of Bank of America.

Ken Lewis may be an excellent banker. He may be the pillar of his community. He may be a kind, considerate, and fair boss who is admired by his troops. He may, generally, be a real asset to his company.

But Ken Lewis just screwed up. Massively.

Ken Lewis screwed up so massively that he singlehandedly demolished at least half of the value his shareholders' spent decades accumulating -- through a knee-jerk decision last fall to buy the sinking super-tanker known as Merrill Lynch. Six months ago, in one tense weekend, Ken Lewis let himself get duped into thinking that if he didn't bid now and bid high for an imploding Merrill, he'd lose the prize he'd had his eyes on for years.

Knowing full well what was on the line, he pulled the trigger. And he damn near sent his own firm spiraling with Merrill to the bottom of the sea.

Six months later, even after a major bank stock rally, Bank of America's stock trades for $7.50, less than half of what it would likely have fetched if Ken Lewis hadn't made that disaster of a decision.

If you made a mistake half as devastating as the one Ken Lewis made, you'd have packed your bags long ago. You wouldn't have subjected your boss to the guilt and awkwardness of having to fire you. You would have accepted responsibility and resigned.

But Ken Lewis still has his job!

We do need to make changes to our economic system. We need regulatory changes, we need attitude changes, and we need rule changes. But most importantly, we need accountability.

We need the folks who make important decisions to take responsibility for those decisions -- and when they make monumentally destructive ones, to resign. Not because they will be forced out if they don't (which they must be), but because it's the right thing to do.

Until we do that, the whole system will remain infected with the rot that destroyed AIG: An incentive structure that can be summarized as "Heads we win, and tails we win, too." A system like that is no way to run a vibrant economy.

See Also: AIG Wife: We Were Betrayed!

 

 

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Comments

[darker]

Those guys do not want "to run a vibrant economy."
They want to TAKE THE MONEY & RUN.
only I wish they'd get out and start running right now.
With CEOs like THAT, it's amazing that America's economy runs at all.

[darker]

OPPORTUNISTIC American corporate CEOs take EVERY opportunity to fire employees
and are rewarded with huge bonuses. Then they TAKE THE MONEY & RUN.
Instead, those CEOs should be fired.

CEOs have run the biggest profiteering scam in history,
and they ran the American economy to the ground.

FIRE ALL CEOs! It's time to start fresh with people who work! instead of CORPORATE SCAMMERS.

[larry278]

Check it out. Boss Obama, aka POTUS, just canned GM's CEO, Rick Wagoner. Ken Lewis could be next. AIG's retired 'Hank' Greenberg may ge a terse message from Boss Obama. It could be an offer that Mr Greenberg can't refuse. At last, Boss Obama is making much needed changes in American business quickly, quietly, with no advance notice.

[ljmck]

Figures. Meanwhile, in Detroit union members are being asked for more concessions.

So many people profess a hatred for unions, but their hard bargaining has kept the gap in executive compensation and worker wages from being as huge as it is in many industries. Would that there were unions on Wall Street; maybe we'd have had an earlier look at the outrages there that have brought us all to our knees.

[mjwca]

When the American people at large stop glorifying making money by any means rather than by making it honestly and responsibly, then there just might start to be some accountability. When we truly believe those with money must live by the same rules as the rest of us, then maybe we can effect change. Our laissez faire attitudes towards white collar crime and unethical behavior in the workplace have bred the Ken Lewises and AIG's as well as elected our laissez faire government. We rail against social safety nets as "the nanny state" yet we elect and keep electing those in both parties bought and paid for by corporate lobbyist money who spend billions every single year on corporate welfare. Yet we expect those bought and paid for politicians to "take care of us" while we play the victim and pretend there is little we can do. Well, we voted them in and we can vote them out. When the American people get off their lazy, overly affluent butts and let Washington, Corporate America and the Media know "NO MORE", only then will change begin. But it won't be easy and it won't happen overnight. The recent media blitz against the "rage", "mob mentality", and "ignorance" towards all of us (the great unwashed) who have said "ENOUGH" is only the first backlash by the guilty against being held accountable. Its time for a little more David vs Goliath and less Nell expecting Dudley to save her from Snidley Whiplash.

[paixa3]

Henry, thank you as always for your blog. The fact that wall street types, bankers, hedge fund managers, Paulson, Geithner and Summers et al are NOT in prison signifies that your nation has become a lawess land filled with coniving thieves. Include congress and most of the last administration as well.

[iluvsam]

The sad part is, BOA would have no problem firing a single mom for being 5 minutes late for work because she had a sick child at home and had to find a babysitter at the last minute, but this guy continues to be allowed to run amok. Workers have to endure sexual and racial discrimination in the workplace, rampant violations of FLSA, abusive managers, employer intimidation from joining unions, etc. with almost no legal recourse for the worker.

However, these jokers can bring a world economy to its knees, steal BILLIONS of shareholder dollars, and evade billions in taxes and there are no consequences. It is time the American worker takes some pride in themselves and demand to be treated better by strengthening the laws of this country and that they demand accountability from the corporate machines.

[charleez]

If you made a mistake half as devastating as the one Ken Lewis made, you'd have packed your bags long ago. You wouldn't have subjected your boss to the guilt and awkwardness of having to fire you. You would have accepted responsibility and resigned.

To go to the root cause, read this:

http://democracyandsocialism.com/Articles/BordersOnCorruption.html

[TheWanderer]

Why doesn't your question end with a question mark.

[snow]

First, thank you for dicephering some of these complex issues...
though, it does seem that once distilled the concepts are relatively simple.
Perhaps the obfuscation is intentional.
Summing it up with "Heads we win, and tails we win, too." is something I understand.
CEOs take risks and expect someone else to pay the consequences.
CEOs have made "monopoly" out of the economy for too long!
Time for the "Loose your job, back to go!" card!

[dragonfly2x]

I'd like an answer to the question in the headline...

[veracity]

Well, the OBVIOUS answer to "Why does the Head of AIG's 'Risk Management' Division" stil have his job" is because the DEMOCRATS are VERY NEARLY as CORRUPT as the Republicans, and KEEPING THEIR TOP-10 DONORS happy is the FIRST order of business for "Democrat" Congress-critters.

The even worse answer is, "Because President Barack Obama, like Nancy Pelosi before him, REFUSES to use the INVESTIGATIVE POWERS at his fingertips, to ROOT OUT CORRUPTION " and save taxpayer dollars (much less stop or prevent criminal conduct).

This is THE STORY of the Coming Year.

Obama's bankster economic advisors (ALL FOUR of Obama's Top 4 'economics' advisors ARE BANKERS: Rubins, Summers, Geithner, & EMANUEL) - have all convinced him that he can have his CAKE and EAT IT TOO... hand HUNDREDS OF BILLIONS OF DOLLARS to BANKERS, and ALSO stimulate working-stiff employment.

If this bet goes bad (as both Krugman & Stiglitz conclude it will), Obama will follow Bush - going from 70%+ approval, to NEEDING PROTECTION every time he appears in public!

IT IS SIMPLY INSANE that Obama is taking his advice from Two Bankers who PRESIDED OVER DISASTER last year - Rubins at Citi, Geithner at NY Fed - but like Clinton, Kerry, Gore, & Edwards before him, Obama is exhibiting an exasperating degree of tone-deaf elitism & and blinders-on fixation.

[mingjia]

What a dumb post. America's corporate/financial system has been corrupt for decades--executive compensation is a scandal, rampant cronyism on big company boards, runaway greed by the investment banks, who push mergers on clueless ceos to line their own pockets, insider trading, the whole nine yards. I didn't realize Obama was the reason Lewis and this risk-management incompetents still have their jobs! We need tougher regulation--period. The GOP idea that the financial sector and Big Business will regulate itself is laughable. The whole U.S. financial system is gamed by fat cats and has been for decades.

[RonGallion]

So your fine with Obama taking over Corporations as he sees fit? Are you ok with the government taking over the banking system? Are you ok with the government taking over the automobile companies, Are you ok with Obama scraping the dollar in lieu of a world currency? I did not even mention health care, If he does just part of this we will be in finical ruin. If you fine with most of this then move to Europe, it dose not work there either and they are broke.

[josephXY]

There are two book authors whom I find quite useful and interesting:
Niall Ferguson: Beyond the Age of Leverage: New Banks Must Arise
Ferguson, Scotland born, is a really good finance / money historian. There are not that many with
that gift. He also wrote a couple of equally interesting book, like "Ascent of Money".
Ferguson compares the contemporary banks to dying dinosaurs on life which are sort of real
deadweights on all and everybody. it's time to start new banks, he says. (And I would agree with
him.) Here's his site:
http://www.niallferguson.com/site/FERG/Templates/ArticleItem.aspx?pageid=204

The other is Charles R. Geisst: Undue Influence
published a couple of years ago it gives an insight into eighty years of Wall Street lobbying. Because
of the historical perspective this otherwise rather complicated, often confusing stuff comes across
very easy to read.
Geisst also wrote a number of other books, like "Wall Street: A History".
He can certainly be found very easily on the net including reviews and synopsis.

[veracity]

Thanks for those excellent links. Page 1 of the Google-book (on-line book, first result for "Undue Influence Geist') tells the scene of _Repubicans_ Celebrating the KILLING of the Glass-Steagal Act.. the 1933 law which probibited BANKS from going in to the SPECULATION (aka "casino gambling") business, aka "Investment banking."
Sad to say, "DEMOCRATS" ROBERT RUBIN & LAWRENCE SUMMERS _both_ , as Clinton Treasury Secretaries, lobbied relentlessly for ("Democrat") President Bill Clinton to sign the ATROCIOUS Glass-Stea­gal-killin­g Gramm-Leach-Rudman Act
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
(and the equally atrocious Commodity Futures 'Modernization" act of 2000)
http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

With Mr. Obama including Rubins AND ANOTHER Glass-Steagal killing, pro-GLBA lobbying "investment banker" in his cabinet,
http://en.wikipedia.org/wiki/Gary_Gensler

we effectively have ONE PARTY RULE in this critical area of... "leading" The NATION's ECONOMY !!

Mr. Obama promised us "Change" BUT HE HAS KEPT THE FOXES RIGHT IN the hen-house!!


(the CRITICAL "hen-house" of overseeing America's financial institutions!)

[habajebe]

Well said. Accountability, integrity, honor... all needed, and apparently lackiing, in our economy. Those were admirable traits before Ronnie Raygun and his ilk made greed a virtue. Modern day capitalism dictates that avarice triumphs over honor in every instance. That's how we got to where we are and not likely to change.

[zanzig]

Mr Blodget, this comes back to what Mitchell Bard said recently in a post (completely paraphrased): these are people who are apparently devoid of the conscience gene. They have absolutely no intention of resigning, and when they forced to the gate with their bags packed and escorted by armed guards, they have no idea why. Look at Jake De Santis. He gets a bonus of $742,000 after agreeing to a reduced salary of $, and cannot understand why the American taxpayer (and the rest of the world, like me, for that matter) is demanding that he return the bonus. It is not only a conscience that they lack, it is also a connection to the world of ordinary folk.