THE BLOG
03/18/2010 05:12 am ET Updated May 25, 2011

Is Wall Street Full of Human CDOs?

Human CDOs, perhaps that is the name we should give to banking executives who need the lure of excessive compensation in order to remain at US firms that are yet to repay the taxpayers who bailed them out.

CDOs, you may recall, were the financial instruments that were at the center of the global financial crisis. Unlike financial instruments such as savings accounts and loans that serve the purpose of helping people build and create a business or buy a home in which to live, CDOs, or collateralised debt obligations, serve little concrete purpose. Instead, CDOs bundle together asset backed securities with the aim of creating a new vehicle which can be bought and sold, so as to make another profit on the underlying securities.

The Wall Street community, in its warnings that limiting executive compensation to $200,000 will result in an intractable brain drain with its best and brightest lured to work overseas, is painting itself as being populated by nothing more than human CDOs.

Their aim is not to effectively steward other people's money so as to help them achieve their goals, but rather to simply create profit, for themselves.

Before becoming a financial journalist, I worked for many years in the corporate communications department of a large bank. I know what it is to argue the case of management, defending and selling its angle to the media and its staff. The arguments can be enticing and are not without credit. A healthy company can pay more in taxes, employ more people, will generate a better share price, and thus bolster the United States and its clout in the international community.

These things are generally true.

But there is an inherent problem when Americans are being sold the idea that executives need to make market value salaries or else they are likely to jump ship at the sight of a better offer from a firm that either never needed or has already paid back bailout money.

It may be true that many executives may well receive and take better offers of compensation than those on the table from the taxpayer owned bank or insurance companies for which they currently work. However, if the American taxpayer is told that executives need massive compensation or else their loyalty is for sale, surely this is past the point of good taste.

Sending such a message only reinforces Main Street's notion that Wall Street is not really interested in them, but only itself, for the sake of itself. Kind of like a CDO.

People whose primary concern is personal profit with loyalty to company and patriotism for building a strong America through a strong financial system being factors of lesser, or perhaps, no concern. Yep, human CDOs.

It seems these executives have not yet grasped the fact that their market value changed the minute they needed a bailout to enable their companies to stay afloat and thereby allowing them to stay in their jobs. That is the simply truth of it. They are not in their current position anymore by virtue of their own skill. Not anymore.

These are the people who sat watch during the biggest financial meltdown in recent history, and they are now saying we should be worried about American companies being drained of their brains. But if these are the brains that oversaw the meltdown, quite frankly, is their drain from the system such a great loss?

As I mentioned, I worked in a large bank for many years, selling the agenda of its management to the media and its staff. One idiom that never ceased to amaze me was the message of company loyalty that was sold by executives to the thousands of staff they oversaw, after all having to constantly train staff to replace those who leave is a drain on the bottom line, while all the time executives were the least loyal of all employees. The mere sniff of a better deal or stock option plan and many executives were out the door.

Perhaps there is an element of unfairness that those executives at companies like AIG who had nothing to do with creating the conditions that led to the need for a bailout will have their compensation reduced. However, there is a dire need for Wall Street to relearn a sense of accountability not only to the wider community, but to itself.

Responsibility to an immediate community is a central pillar that allows financing to work at the most basic of levels. Consider micro-loan arrangements in the developing world where the responsibility for repaying a loan that is not repaid by the lendee reverts to family and/or the immediate community. It is because this element of accountability to family and community, that the repayment rates of micro-loans in the developing world are among the highest in the world.

It is this sense of accountability to an extended community that Wall Street continues to demonstrate that it lacks. For those at companies like AIG, who did not contribute to the company's problems, but who compensation will be impacted nonetheless, consider yourselves the extended family of a lendee in a mico-financing deal that went bad. If the actions of your co-workers mean that you will not make what you thought you would, hold them accountable.

Perhaps the economic meltdown will bring a cleaning out, not only of supercilious financial products from Wall Street, but also people. After the fiasco of the last year, the financial community should be getting back to the fundamentals of its job, which is to be stewards of the community's wealth.

If self profit is the self-confessed, primary aim of the game, whether demonstrated by profit for profits sake products like CDOs or the attitude of those who oversee them, it is indeed time for a changing of the guard.