Coming from Richard Fuld, it is a quote that will be remembered for a long time. "You don't have a gun; that's good," he told a Reuters journalist who found him shortly before the anniversary of Lehman Brothers' collapse.
When your name and face are forever associated with the Crash of 2008, your definition of "good" is altered, one supposes. A restaurant meal that's consumed without being interrupted by a stranger yelling "crook"; an unexpected visitor who's packing a tape recorder instead of a lethal device - these are the small victories in the life of a capitalist villain.
Mr. Fuld, it's clear from the media accounts, remains saddened by the demise of the investment bank one year ago this week, and is still struggling with his changed circumstances. It's a rough blow for a man who, less than 18 months before Lehman went bankrupt, was praised in Barron's magazine as one of the world's best CEOs.
But before you run out of Kleenex in weeping for Dick Fuld, there are other facts to consider. Where did that Reuters reporter track him down? At his house "in a bucolic setting beside a river and amid tree-covered slopes in Ketchum, Idaho." When you think about it, that was pretty good detective work by the news agency, since he just as easily could have been at the Fuld estate in Greenwich, Conn., or at the Fuld mansion in Jupiter, Fla., or the Fuld home in Middlebury, Vt. That's a pretty good summary of why so many are so angry about how bankers are paid, and why it remains such a hot political issue, 12 months after Lehman, Merrill and AIG plunged the world of finance - and the global economy - into crisis.
When ordinary folks lose their jobs because of recession or corporate bankruptcy, they sit down with their spouses and figure out whether to cut off the cable or get rid of their second car. When senior bankers lose theirs, they retreat to the country home in the Rocky Mountains. Banking, or at least investment banking, seems far too similar to playing the lottery, except with far better odds of getting rich. But if that's so awful, why is it so hard to do something about it?
"Let's reform bankers' pay," goes the cry, repeated by prime ministers and finance ministers and regulators all over the G20. But a year A.L. - after Lehman, that is - we are still only edging closer to action. Turns out that it's not as easy as it sounds. The U.S. Federal Reserve is drafting a proposal that would give it a sweeping veto power over bank pay, allowing it to reject compensation schemes that would encourage bank employees to take too much risk, says The Wall Street Journal. Fine. But this is the same central bank that allowed a historic real estate and credit bubble to inflate right under its nose, with disastrous consequences. Are we expected to believe, somehow, that its sense of risk is now so finely tuned that the Fed will be able to judge the nuances of, say, Morgan Stanley's incentive program for traders? Get real.
Fed bankers are not alone in thinking they've got the answer. Our own finance minister does, too. "One of the major things is to spread out bonuses so that they are not paid for short-term profit, which was one of the issues that led to the financial crisis in the past year," Jim Flaherty said yesterday.
Yes, this makes sense. But it's hardly new. A few years ago, one of the biggest Canadian banks adopted a policy of deferring its CEO's bonus, just to ensure he wasn't being unfairly rewarded for high-risk moves that resulted in one good year. That bank was CIBC. And which Canadian bank has taken the biggest losses on U.S. risky mortgage bets? Yep, CIBC.
Another old chestnut is that, by paying senior bankers mainly in stock rather than cash, they'll be more careful about risk. That makes sense - so much sense that many banks already do this. In fact, one major Wall Street CEO who earned the awesome sum of $34.4-million (U.S.) in 2007 was paid largely in stock and options. His name? Richard Fuld, of Lehman Brothers.
Politicians and regulators can bleat about bankers' compensation all they want; that's to be expected. But the problem can't be fixed by tweaking the design of pay schemes in financial firms. It's deeper than that. As long as a career in investment banking or trading is seen as a ticket to riches - as long as the culture is to richly reward not only the most talented employees, but the mediocre ones who happened to catch a rising market - it's going to attract a few smart people who aren't quite smart enough to avoid the minefields of finance. And it's going to attract those who are happy to take risks with the house's money.
Want to avoid a repeat of the events of 2008? Change how financial employees are paid, yes. But change how much they're paid, too.
Derek DeCloet