The following is from
a November 5 Wall Street
Journal opinion article, typical of any I've bothered to read in the past few
years. The title is theirs. The bolded italic comments are mine; I was
responding to a Republican friend who sent me the article.
One thing the story of Jon Corzine and MF Global isn't is a natural indictment of CEO pay. He received a big stock option incentive for signing aboard. He received a rich severance guarantee that, before the outcome of his tenure could be known, would pay him well no matter what happened, thereby inducing him to accept the job, with the attendant risks and time commitment, in the first place.
Why should anyone get a "big stock option" for shuffling around other people's money, without producing a solitary tangible good or service? Am I missing something in asking the question?
But Mr. Corzine did not impose himself on nameless, faceless, powerless shareholders with his pay package. In fact, we know who recruited him--his fellow Goldman alumnus and private equity honcho J.C. Flowers, whose firm two years earlier had acquired a big stake in MF Global and had become keen to coax Mr. Corzine to assume the helm.
Flowers net worth is in the billions, according to Wikipedia. What good or service has he provided for me, you, or any other human being? He is a speculator who leverages other people's money, near as I can tell. I unabashedly call such a person "Chickenshit."
The logic of such packages is to incentivize risk-taking. In that sense it worked. The trouble begins when such high-rolling CEO incentives are wedded to companies whose risks are borne involuntarily by taxpayers. You might even say, as this column has, that this is the central regulatory challenge implied by the problem of too big to fail.
There is no risk taking I am aware of for those involved in money shuffling schemes, except that they waste their lives and working people's livelihood. Paraphrasing the last two sentences: The central regulatory challenge of companies being "too big to fail" is tying CEO incentives to taxpayer money. The challenge could be easily met by putting the proper people and oversights in charge. We've had them before. WSJ is the prime crier on the planet whenever this happens, near as I can tell.
But this is not MF Global. The losses from Mr. Corzine's failed risk-taking will be borne entirely by shareholders and bondholders, leaving no room for public complaint.
Shareholders and bondholders are of the public, as are we all. Any right-minded person ought to be concerned that such things can happen in what we call civilization.
In one way, however, the Corzine story offers a parallel to some of the punditry it has occasioned. Cramming this episode into a prefab narrative of the horrors of CEO pay bespeaks mainly a lack of inspiration. Likewise, lack of inspiration appears to have been the problem with Mr. Corzine's strategy for the firm he was supposed to save.
Goldman Sachs, if you study their history, has rightly been called "an octopus on the face of humankind."
MF Global was going nowhere fast. It had been losing money for years as spreads narrowed and as electronic platforms squeezed the role of the middleman. But Mr. Corzine's only solution was to hike its leveraged gambling for its own account in hopes of juicing profits.
Leverage, meaning screwing around with OPM for high stakes gambling, would certainly go against any values I grew up with. Even David Michael Green would agree with that, based on all the writings of his that I've read (my friend criticized DMG for, among other things, trashing the values our parents taught us).
He may well have spotted an opportunity in undervalued, soon-to-mature European sovereign bonds. But by borrowing heavily to place these bets, he invited his own creditors to doubt his ability to keep financing these positions at a time when the world is rightly spooked about the possibility of highly-leveraged businesses losing access to liquidity overnight.
Worrying about lining their own pockets, rather than doing anything for the benefit of our species and the planet, is an excellent example of WJS's underlying value system. Gold on the Titanic is not of much value, unless your goal is to go down rapidly.