"The turd in the punchbowl"

Finance types generally speaking have a fair knack for "colourful metaphors" -- but this is one of my favourites. It's attributed to Hank Paulson, who used it in reference to Bank of America, which ended up $20 billion in extra bailout money after its merger with Merrill Lynch.

BTW, I've just finished "Too Big To Fail" by Andrew Ross Sorkin. Overall it was an enjoyable read and it did a very good job of piecing together the behind-the-scenes machinations during the financial crisis. I think a truly authoritative work will have to wait until the after effects have played out more fully, but in the meantime I'd say this was a pretty decent effort.

Despite myself, I come away from the book with a bit more respect for some of the major players. Dick Fuld, for one, was roundly vilified by the media for his reckless mismanagement of Lehmann Brothers. But he comes across as a fiercely loyal character, who was trying until the bitter end to find a way out for the company. It's also interesting that he lost close to $1 billion in Lehmann when they went under -- leaving him with a net worth of "only" about $250 million. That suggests to me that (1) he had as much of a vested interest in the company's long-term survival as anyone could have and that therefore (2) the idea that management and shareholder interests can be "aligned" by paying out bonuses in stock doesn't have much basis in reality.

Another character who has climbed in my estimation is good ol' Hank Paulson: love or hate the guy, you can't deny he gave his all for the cause. He was apparently operating on a couple of hours sleep a night during the key few weeks of the crisis (around the very time I was begrudging having to get up a little earlier than usual to catch the train after relocating from Camden to Tunbridge Wells), and on a few occasions was so overcome by the stress/fatigue that he would be seen dry-retching into dustbins during meetings.

For my 2 cents, the real villains of the piece are the shadowy cast of characters operating well below the level of senior management, who are nevertheless able to command bonuses in the 10s of millions on the basis of their nebulous "talent". In other words, you've made the firm 100s of millions this year, and have a rolodex full of important clients, so we have to pay you that much or you'll just jump ship to the highest bidder, presumably taking that list of clients with you. A good example of this was articulated recently by Morgan Stanley CEO John Mack, who cited the case a 28 year-old trader at the firm whose desk made a profit of $300-400 million last year: after receiving an $11 million bonus from MS he promptly left for a hedge fund who offered him $25 million.

To tie this in with one of my favourite rants: it's reminiscent of the way the English Premier League has gone in recent years (viz. Ronaldo leaving MUFC for Real Madrid). There's obviously no simple answer to the problem, but I would argue that a good first step is eliminating the merry-go-round of mercenary "rogue traders" shameless pursuing ever-bigger bonuses, and encouraging long-term loyalty to the company that has allowed the profits to be generated in the first place.