Opinion

Felix Salmon

The multimillionaire men of Lehman

By Ben Walsh
April 30, 2012

On Friday, the LA Times published the of pay for Lehman Brothers’ top 50 employees in 2007.  That’s employees as in managing directors and below: pay for “named corporate officers” like Dick Fuld was publicly disclosed. This is how much you make if you’re not running the company, but just working there and making lots of money.

While LAT’s originals contain lots of interesting information like year-over-year comparisons, they’re not easy to read, and not searchable. So, as a public service, Ben Walsh put together the list in searchable form.

It’s worth noting a bunch of people with incredibly vague job titles like “MD, Executive Administration” (Benoit Savoret, $18 million in 2007.) These are managers — and pretty important ones, judging by their paychecks — yet not important enough that their pay needs to be disclosed to the SEC or to investors. Collectively, they’re more perpetrators than victims when it comes to the financial crisis: they can all live quite happily for the rest of their lives on what they made in that one single year.

To get into the Lehman Top 50 in 2007, you needed to be earning more than $8.2 million a year — that’s $158,000 a week. One man earned $9 million, six men earned $10 million, and four men earned $11 million, with no one earning anything in between: Lehman clearly found it easiest to round up or down to the nearest million. You know, as you do.

Of course, there’s nothing special about Lehman, in terms of pay. If we saw the Top 50 list for a really big investment bank, like JP Morgan or Goldman Sachs, it would have higher salaries and a higher cut-off, almost certainly north of $10 million.

The one thing which is most startling about this list is the number of women on it: exactly zero. (Update: It seems I missed one, Ros L’Esperance, #33.) One can’t help but suspect that the all-male culture at the upper reaches of Lehman was a corrosive and damaging thing, which in some way helped lead to the bank’s demise. Erin Callan, in 2007, was already a named corporate officer at Lehman, so she doesn’t make this list. (She was named CFO in September 2007.) From the outside, it looked as though Lehman had at least one woman in a senior leadership position. But looking at this list, it’s clear just how much of an exception Callan was.

Callan, it turns out, was the highly visible lone woman at Lehman, competing with and against nothing but men. I wonder what she thought, at the time, looking down this list, and seeing not but a single woman on it. At Lehman, it seems, in Dick Fuld’s immortal words, “the bros always wins”.

1. Millard, Robert B: $51,347,377 (MD, Global Trading Strategies)
2. Schwartz, Marvin C: $31,141,337 (MD, Asset Management)
3. Hoffman, Jonathan: $30,850,000 (MD, Trading – Global Rates)
4. Cassarini, John: $18,500,000 (SVP, Trading – US Proprietary)
5. Klein, Henry: $18,200,000 (MD, Global Trading Strategies)
6. Penkett, Paul Alexis: $18,000,000 (SVP Trading – Asia Proprietary)
7. Savoret, Benoit C: $18,000,000 (MD, Executive Administration)
8. Walsh, Mark A: $17,500,000 (MD, Fixed Income Administration)
9. Kirk, Alex: $17,000,000 (MD, Fixed Income Administration)
10. Glasebrook II, Richard J: $16,757,246 (MD, Asset Management)
11. Shafiroff, Martin: $16,495,404 (MD, Private Investment Management)
12. Bouzouba, Rachid: $15,000,000 (MD, Equities Administration)
13. Felder, Eric J: $15,000,000 (MD, Trading – High Grade)
14. Fee, Hyung S: $15,000,000 (MD, Fixed Income Administration)
15. Taussig, Andrew R: $14,085,000 (MD,  Retail/Transportation Investment Banking)
16. Donini, Gerald A: $14,000,000 (MD, Equites Administration)
17. Whalen, Patrick J: $13,005,000 MD, Equites Administration)
18. Kramer, Jeremy R: $12,875,403 (MD, Asset Management)
19. Amin, Kaushik: $12,500,000 (MD, Fixed Income Administration)
20. Fuchs, Benjamin A: $12,500,000 (MD, Global Opportunities Group)
21. Morton, Andrew: $12,500,000 (MD, Fixed Income Administration)
22. Mumphrey, Thomas P: $12,500,000 (MD, Fixed Income Administration)
23. Banchetti, Riccardo: $12,000,000 (MD, Executive Administration)
24. Nagpal, Ajay: $12,000,000 (MD, Equities Administration)
25. Thorkeisson, Sigurbjorn: $12,000,000 (MD, Equities Administration)
26. Weiner, David: $11,922,906 (MD, Asset Management)
27. Duramel, Olivier: $11,700,000 (SVP, Quants – US Systemic Trading)
28. Schneider, Gregoire: $11,700,000 (SVP, Quants – US Systemic Trading)
29. Shafir, Mark G: $11,500,000 (MD, Global M&A Investment Banking)
30. Weiss, Jeffrey L: $11,500,000 (MD, Financial Services Investment Banking)
31. Jotwani, Tarun: $11,250,000 (MD, Executive Administration)
32. Wickham, John R: $11,250,000  (MD, Equities Administration)
33. L’Esperance, Ros: $11,000,000 (MD, Financial Sponsors Investment Banking)
34. Parkor, Paul G: $11,000,000 (MD, Global M&A Investment Banking)
35. Rieder, Rick: $11,000,000 (MD, Global Principal Strategies)
36. Wieseneck, Larry: $11,000,000 (MD, Global Finance Administration)
37. Dauhajre, Munir: $10,000,000 (MD, Equities Administration)
38. Gatto, Joseph D: $10,000,000 (MD, Global M&A Investment Banking)
39. Higgins, Kieran Noel: $10,000,000 (MD, Trading – Global Rates)
40. Hoffmeister, Perry C: $10,000,000 (MD, Investment Banking Administration)
41. Meissner, Christian Andrea: $10,000,000 (MD, Investment Banking Administration)
42. Psaki, Jeffrey: $10,000,000 (SVP, Trading – High Grade)
43. Pearson, Thomas M: $9,000,000 (MD, Origination – Real Estate)
44. Ramallo, Henry: $8,579,023 (MD, Asset Management)
45. Assi, Georges: $8,500,000 (MD, Tradlng – Collaterallzed Debt)
46. Corcoran, Joseph: $8,500,000 (MD, Equites Administration)
47. Jordan, Nicholas: $8,500,000 (MD, Equities Administration)
48. Bacha, Mohamed-Ali: $8,250,000 (SVP, Trading – Volatility)
49. Mattu, Ravi K: $8,250,000 (MD, Fixed Income Administration)
50. Brewer, Paul E: $8,250,000 (MD, Global Trading Strategies)
51. Tarnow, Joshua R: $8,200,000 (MD, Global Trading Strategies)

Comments
40 comments so far | RSS Comments RSS

There has to be something wrong with the system when one bank pays so much the year before it went bust. It hasn’t changed either.

Posted by FifthDecade | Report as abusive
 

This would be fine if there was a lick of evidence these people actually had skills whose scarcity demanded this kind of pay.

But it is just a club. 5% of the populace could do this work, but rather than admit that it is much more lucrative to maintain a veneer of scarcity through nepotism and non-functional screening (screening out candidates who are fine for reasons that don’t matter).

I haven’t had a ton of contact with people in the investment banking world, but from what little contact I have had they did not impress with their intellect or with their mastery of trading/game theory/economics.

Posted by QCIC | Report as abusive
 

I agree with the above posters. Fwiw, recall that Drexel paid out $208mm in bonuses just before it collapsed:

http://www.nytimes.com/1991/10/04/busine ss/sec-report-attacks-big-drexel-bonuses .html

Posted by dedalus | Report as abusive
 

@QCIC:

And so your comment has merit based on… ?

I could write for a living. Granted, I haven’t had a ton of contact with writers… but from the few fleeting instances in which I interacted with them, they did not seem like the type that was good at writing.

Posted by gmail3121 | Report as abusive
 

Ros is female. Does not change the thrust of your article, of course.

Posted by Escriva | Report as abusive
 

argue the amounts paid if you want. But I worked closely with Jon Hoffman (#3). I don’t think I’ve ever met anyone with a bigger brain. He is undeniably brilliant.

Posted by Stonemoney | Report as abusive
 

Stonemoney, so are you saying that brilliant people should be paid a lot, regardless of their contribution? If Hoffman was masterminding a plan to create wealth for 50 people at the expense of the rest of the nation, does he still deserve it?

Posted by KenG_CA | Report as abusive
 

Usually, I’d be inclined to say that this (Lehman) is a private enterprise company; if the shareholders want to throw away their money on compensation like that described – so what?

Of course, it’s not truly private, is it? Perhaps that fiction could be maintained before Lehman Weekend, but surely not after that – we the taxpayers are the de facto guarantors of the entire financial services sector.

It was a crime of felony proportions that we paid-off on that guarantee without enforcing the authority over the industry that was our right, and without making any meaningful structural changes to the system that brought ruin to us all. A Northern Rock solution, as I have said before, would have been more just – and would have been seen to be so. But of course, Wall Street wanted none of that, and they own and staff all relevant sectors of government – so, that’s that.

I’m coming to have more appreciation for the French Revolution and its processes with each passing day.

Posted by MrRFox | Report as abusive
 

When both sides of the derivatives trades are recognising huge profits on them, the sum of these illusory profits paid out to staffers and in dividends tells you the size of the black hole at the centre of the financial system.

To get that money back requires being more aggressive in chasing the perpetrators, whether they consider themselves innocent or not. This is a matter of who should pay. Those who were paid incorrectly in the past should be the FIRST port of call.

Posted by hotairmail | Report as abusive
 

MrRFox, an extraordinary claim to make about LEH of all companies which was allowed to go bankrupt.

Stonemoney, I also interacted with a few of these people and anyone who claims that 0.05% of the population could do what they did let alone 5% is an idiot.

Of course what the LAT had the integrity to report and apparently Reuters doesn’t is that most of that money was in long-term shares and deferred cash which of course was worth exactly zero. Maybe you could get your shaved monkey to check what they actually got? Or even better, what they got paid vs the profits their dept made, especially given we know that it was the principal investments in Real Estate that brought the company down.

Posted by Danny_Black | Report as abusive
 

@Danny_Black, the *firm* went bankrupt. The people on this list made tens of millions of dollars apiece from the events that led to that bankruptcy. Though I guess the deferrals would reduce that significantly?

As for justifying the pay, my salary for the last three years has been $15k. I guess that makes Mr. Felder both 1000x more brilliant and 1000x more productive than I am. Or perhaps it just means that he is 1000x as money-hungry?

Hard to justify a salary like that on merit.

Posted by TFF | Report as abusive
 

That’s awesome that someone brought up Drexel, Burnham – the centre of the biggest insider trading case ever! IT HAS NOTHING TO DO WITH LEHMAN. Do you not realize that Lehman was sacrificed to the wolves mainly because the sitting Treasury Secretary didn’t like the CEO? They weren’t technically bankrupt when they had to close shop: they had matching assets and liabilities. What they had was a liquidity problem. Treasury and FED were busy playing pass the buck while the noose closed around Lehmans neck. And of course, after Lehman folded the FED opened their window and Treasury reclassified any investment shops as banks so they could use it. I think Hank Paulson has largely gotten a pass on this fact and hopefully people who study this crisis in the future (or perhaps lawmakers in the here and now) will acknowledge that Paulson’s inaction led the crisis to its terrifying climax when it could have resembled more a year or two of European style malaise.

Also, as far as thinking that only learned professionals can do any job… well, it depends how specialized it is. Writing – not so specialized. Banking…? Considering how many people can’t balance a check-book or do their own taxes, I’m leaning towards fairly specialized. I will say that exceptional people (whether by intelligence or ambition) can succeed and do better than 95% of people in ANY field; average people can’t even succeed in their own. It’s not a knock on average people – it is what it is.

Money isn’t a great measure of success; advancement in structured corporations may not be either. Graduating from elite schools with daunting admission requirements, fostering relationships that help your opportunities, CAPITALIZING on your opportunities… maybe none of them prove a damn thing, but DOING all that sure doesn’t make you stupid. If anything it makes you out-of-touch with normal people who don’t do/have any of those things.

Posted by CDN_Rebel | Report as abusive
 

Well said MrRFox – a massive crime against practically the entire nation! The bankers ran off with masses of tax-payer money, and the government got practically nothing in return.

If only our governments handled the banks like the Swedish did: http://www.nytimes.com/2008/09/23/busine ss/worldbusiness/23krona.html

For those who say that this is obvious in retrospect, I have to disagree – it was obvious at the time! We should have had a much better deal out of the banks.

Posted by ActionDan | Report as abusive
 

@KenG_CA no, i am saying someone couldn’t walk in off the street and do what he does.

maybe five people on the planet.

Posted by Stonemoney | Report as abusive
 

158k a week and not a single one of them created a single job

Posted by sleepyinhohokus | Report as abusive
 

Hey, A lot of these guys went to the same schools, had family associates and knew each other thru a friend of a a friend. These same people are moved back and forth between political positions to keep laws changing and in their favor.

Making money on Wall Street is not rocket science – it’s being in the know – so you know when to buy and sell based on insider tips. They are “socialists” – share the wealth – in their own group of course. There was lots of and are still lots of sheeps to keep the salaries fat.

Wonder how they would fare if everyone invested in real assets?

Posted by Butch_from_PA | Report as abusive
 

Hey Felix the not a gold bug!

Here’s a link for you from Kitco. Nadler mentions you at the end.

http://www.kitco.com/ind/Nadler/20120430 .html

==RED

Posted by REDruin | Report as abusive
 

TFF, and Mark Zuckerberg is how many times more brilliant and productive?

sleepyinhohokus, they created a whole industry of self-righteous wankers making up crap about them.

Posted by Danny_Black | Report as abusive
 

Dunno, Danny_Black, I’m still puzzled why anybody would waste time on Facebook.

But as to your point, I perfectly understand why capitalism generates very high income for people with certain talents in certain positions. I simply don’t buy arguments that they *deserve* that much money.

Capitalism is still better than the alternatives.

Posted by TFF | Report as abusive
 

Re: Jonathan Hoffman’s brilliance:
http://www.jenner.com/lehman/docs/debtor s/LBEX-DOCID%204075098.pdf
Email chain starts from bottom of doc.
“Subprime lenders will be shut but losses will be distributed and AAA stuff will be fine.”
Brilliant…

Posted by winstongator | Report as abusive
 

winstongator and the loss rates on AAA subprime RMBS was what exactly?

Posted by Danny_Black | Report as abusive
 

“And so your comment has merit based on… ?

I could write for a living. Granted…”

A) Like I said some time spent working on projects will federal reserve bankers and people in management at these firms. Small projects, but they were to a man above average college graduates, not geniuses. Strong on social skills and glad handing, obviously from money, weak on hard skills. We graduate hundreds of thousands of people with that brainpower each year.

B) And that is why writing is not well paid, because many people can do it well. Likewise many people (drastically less, but still many) can understand and execute complex trades, run mathematical models, have a grasp of statistics and economics. I went to a rather pedestrian state uni with say 50,000 students in the system. Each year there are hundreds of graduates who could do these jobs. Hundreds each year from each major university.

“no, i am saying someone couldn’t walk in off the street and do what he does.

maybe five people on the planet.”

Because of experience or because of skill? Very few people could walk in and manage the $6 or $7 million in various simultaneous non-profit projects I manage without first being trained. There are hundreds of funding sources and tens of thousands of pages of federal regulations. But that doesn’t mean that a huge number of people couldn’t do it.

“Stonemoney, I also interacted with a few of these people and anyone who claims that 0.05% of the population could do what they did let alone 5% is an idiot.”

Really? I would take that bet easily. He supposedly worth $10,000,000/year? I would bet you any amount of money me and 5 of my handpicked friends could outperform him at almost any task, yet we would only cost ~$500,000. Hell I would even go against him with say myself and 3 graduates of my choosing from a major state university, you could likely get them for just a bit more, say $750,000 total.

Of course that is assuming his job description isn’t having his particular social network, or experience with X particular client. That would be different. But then it is not so much his wage for his skills and labor, but a specific good he is selling, and the whole reason he has those contacts is because of his job.

The only reason he is paid that is because they can get away with it. It has nothing to do with efficient markets. Because they are handling huge amounts of money in their jobs (as opposed to huge amounts of labor, or huge amounts of construction projects, or huge amounts of herring) it is easy and acceptable to siphon off a little bit for themselves.

I have not found it the case at all that the top people in the financial field are better than the top people in other fields, they are just closer to the money and so it is more convenient and acceptable for them to funnel some off for themselves.

You see this throughout US society. When Timmy is a better than normal sales person for Best Buy and makes them an extra $1,500/day they don’t cut him in on that. Because he is replaceable. The market rules. It is only when you get up into management that suddenly, “fairness”, “motivation”, and “how much he brought in” start to matter.

Of course it is possible I could be wrong. It is possible the people I have worked with from the financial sector were all somehow unrepresentative samples. But given the structure of the institutions I think the alternate hypothesis that the people who manage the parts of the economy where we shuffle money back and forth make sure to siphon off a bit for themselves regardless of whether or not that makes sense is a lot more compelling.

Posted by QCIC | Report as abusive
 

“and the loss rates on AAA subprime RMBS was what exactly?”

As much as 20% peak to trough. Unless you’re trying to imply that it’s OK for someone holding down a job as Global Head of Rates Trading to ignore liquidity risk and hang on to his reputation as “brilliant”, but I’m sure you’re not.

Even Gary Gorton’s somewhat cherry-picked figure of 17bp (realized losses to date; I don’t have to tell you what’s wrong with that as a measure do I?) is more than 2 sd worse than the realised default rate on Aaa corporate securities. So not even “fine” for a hold-to-maturity investor. As Tybalt said of his wound, the loss rate on AAA subprime was not as deep as a well, nor as wide as a church door, but it served.

Posted by dsquared | Report as abusive
 

dsquared, I meant actual losses not mtm losses. I am sure you are not claiming that AAA refers to anything except expected credit losses right?

Or is this where you claim that hedge funds in Feb 2008 have the same repo abilities as a US primary dealer in Oct 2008?

Posted by Danny_Black | Report as abusive
 

QCIC, could you outperform him at his job, even with your hand-picked non-profit charity mates? I met alot of people from the non-profit world and whilst a few of them might be worthy of some positive adjectives, brilliant is not one of them,

Posted by Danny_Black | Report as abusive
 

QCIC, Wall Street has a way of siphoning the brilliance towards the top. The lower tiers of people working in finance are no brighter than average.

It is a very competitive environment, with evaluations that are far more objective/quantitative than most employment. Networking is critical in the hiring process, but after that people rise according to their various competence (and willingness to take big risks with other people’s money).

Posted by TFF | Report as abusive
 

TFF, in this case no different from other jobs where there is an order of magnitude difference between the average and the best – think writers, scientists, software developers, sportsmen etc.

One can complain about how much middle and lower tier people at banks were paid but at Hoffman’s level he is probably fair value.

Posted by Danny_Black | Report as abusive
 

If the cumulative losses in Feb 2011 were the total cumulative losses, then you’d have a story. However, since the other tranches have been wiped, losses since Feb 2011 have all accumulated to the senior tranches.

There are still millions of delinquent homes, and millions of additional foreclosures to happen. All to eat the AAA rmbses.

http://andolfatto.blogspot.com/2011/08/b ad-rap-for-bond-raters.html

If there were such small losses to be had, then there’d be tons of money to be had by buying the mbs at near par prices. Are people doing this?

Posted by winstongator | Report as abusive
 

winstongator, take a look at what happened to Maiden 3 assets either today or yesterday.

As for your claims about the other tranches being wiped out that is simply untrue. total losses on investment grade subprime RMBS to middle of last year were less than 6%. AA was around 18%, A 40% and BBB less than 60% – quoting from recollection on a post i read.

Posted by Danny_Black | Report as abusive
 

In London, a high proportion of the traders come from the London area. This isn’t because people from Nottingham, or Manchester, or Liverpool couldn’t do that job; it’s just because the City of London has an unintentional “catchment area” for recruitment. I bet the same is true to a lesser extent for New York.

The managers of these people though are mostly from a select group of people who went through the right schools, had the right family backgrounds, and only rarely come through from the bottom up. There are many more people that have the same skill sets that could do the same job of managing traders but they choose to apply for jobs in Nottingham, Manchester and Liverpool.

It’s even arguable, as Nassim Nicholas Taleb does in his book “Fooled by Randomness; The Hidden Role of Chance in Life and in the Markets” (the Black Swan book) that the success of these people in their jobs owes far more to luck than judgement; let’s face it, anyone can make a profit in a rising market, the successes are those who can survive through a downturn.

Posted by FifthDecade | Report as abusive
 

I think the focus on “deserving” the salary is misplaced. Teachers can be incredibly important–why do they earn so little? Because they are far from the levers of power and money, and society has not structured itself to reward them large sums. I don’t expect this to change. It is trivial to find countless similar examples in other fields. Any attempt to rectify compensation based on principles of who contributes how much, or how talented they are, is either doomed to failure, or would require such an upsetting of society that it is hard to imagine what might emerge.

That doesn’t mean, however, that there aren’t legitimate areas of concern related to topic at hand that might be addressed. I’ll throw out a few:

1. Unfettered, Opaque Derivatives Trading: We have plenty of evidence at this point that the system as structured is pretty much begging people to make very large bets on behalf of their institutions, with very little downside to them. They walk away with a large reward if it goes, or can be made to appear to go, right for long enough, and they see little penalty if it goes wrong while the system as a whole bears the brunt. We’ve incentivized people to insert huge risks into the system, and we shouldn’t be surprised that many are ready to respond to that incentive.

2. Conflicted Credit Rating Agencies: I’ll grant that there is *some* information provided by these agencies, but the mere fact that they are paid by those wishing to be rated is the proverbial elephant in the room that no one discusses. As above, we have recent ample evidence that they are totally unable to provide meaningful information in the presence of systemic risk, not to mention the myriad of other ways they can be hoodwinked, pressured (direct and indirect) and/or manipulated.

3. High-Frequency Trading: The primary purpose of securities exchanges is to provide liquidity and information through price discovery. HF traders provide essentially nothing to the latter, replace a steady flow of liquidity with a raging torrent in calmer times, dry up along with other sources in a panic, and in general impose a tax on those wishing to use the exchanges for its more mundane and useful purposes. So, in return for increased volatility, the rest of us get…well, we get to pay for it.

The common thread here is that some relatively straightforward changes to regulations could make significant improvements to these areas, to the benefit of everyone but a few ridiculously-well-compensated individuals. Those individuals would *still* be well compensated, perhaps just a little less so, and the rest of us would be living with a much lower state of risk. And frankly, until at least items 1 and 2 are changed significantly, we’re going to be living with a lot of risk.

Posted by injun9 | Report as abusive
 

There seems to be a dichotomy here between those who believe that the incomes cited by Felix (whether or not they were actually realized) is by definition excessive, and those who believe that “if I bring in X revenue in some way or other, I’m entitled to some proportion of X”.

Both arguments are probably false. I work in software, a field where owners of the company are largely paid in relation to an increasing stock price (or valuation), something that has been lacking in the financial industries for quite a while. The “best” non-owner employees (however you might define best) are largely paid a good salary with some bonus/stock component that can add somewhat less than a multiple of that salary. Perhaps 2-3 exceptional sales people earn more in commission than a single multiple of salary. I think this model is probably more normal across industries.

The banking companies (however you might define that) seems pretty unique as a model where employees (sales and at least some non-sales) expect a percentage of revenue seemingly generated (or profit, although that is a tricky thing to calculate at an individual level) as their due. I think this, more than anything, is what tends to annoy people. Ultimately, I think this will be the downfall of banking/finance.

Posted by Curmudgeon | Report as abusive
 

@FifthDecade, very insightful observation about luck versus skill/talent.

Posted by Curmudgeon | Report as abusive
 

“dsquared, I meant actual losses not mtm losses”

I was trying to be charitable and assume that you were merely confused rather than intentionally injecting a misleading statistic. If someone is head of rates *trading* (I do not see any “Head Of Holding Bonds To Maturity” on that list), at an institution with more than 20x leverage and a very high proportion of short term funding, then if they say a bond is going to be “fine”, they had better mean “fine”, not “potentially fine if you can wait twenty years”. The guy didn’t say “potentially only seeing three times the loss on other AAA securities in the long run, but we’d better sell it now”. He said “fine”.

And you’re ignoring the fact that the default rate so far, even on AAA tranches, has been significantly higher than similarly rated corporate securities. AAA aren’t meant to have any losses at all; they ought to be safer than, say, Japanese government bonds. So even from a hold-to-maturity credit investor’s perspective, they weren’t “fine”.

In general, your usual approach of combining bluster and other people’s talking points and trying to pass it off as expertise isn’t going to work this time. Very few people are likely to fail to notice that Lehman Brothers went bankrupty, or that it had huge losses on holdings of AAA rated subprime RMBS, so you have an uphill struggle in trying to establish that “the AAA tranches will be fine” was a really brilliant thing to say.

Posted by dsquared | Report as abusive
 

dsquared, you seem to be chopping and changing comparisons.

If you are saying “not fine” in the sense of short-term mtm losses then a) AAA corporates in later part of 2008 also suffered large peak to trough losses b) the email was written in feb 2007 and for the next 4 months he would have been absolutely right. Also LEH was one of the first to cut back on sub-prime when it first started declining in mid-2007.

I am also pretty sure I can find a 18 month period in which japanese government bonds differ peak to trough by 20% too.

If you are saying “not fine” in the sense of expected credit losses at maturity, then the proper comparison is AA corporates because in 2007 they were trading at roughly the same spread and AA corporate credit over that same time period is around 1%.

LEH went bankrupt because of its holdings of AAA subprime-RMBS? It took huge losses on AAA sub-prime RMBS? Because that is most definitely NOT what the bankruptcy examiner found:

“Lehman’s management also successfully hedged its subprime mortgage risk, at least until early 2008, and avoided some of the catastrophic investments that other financial institutions made in the mortgage market, for example in CDOs.”

“In general, your usual approach of combining bluster and other people’s talking points and trying to pass it off as expertise isn’t going to work this time” – weird because this is exactly what you do. You make claims that GS couldn’t repo CDOs in Oct/nov 2008 when it clearly could through TSLF. You made claims that libor-OIS spread was not coming down in end Oct/ beg nov 2008 when it clearly was. You are claiming here that LEH took huge losses on AAA subprime when it didn’t and implying that it had something to with LEH bankruptcy when if the rest of their investments had performed as well they would still be here.

Let me guess… equities right?

Posted by Danny_Black | Report as abusive
 

It should be remembered too that the figures quoted by Felix were not exceptional, one can assume they were the norm. That nullifies all arguments that these salaries may not have been received, because salaries of similar scale from previous years that became ‘freed up’ (and let’s make no bones about this, simply to save tax) would have been paid in 2007. There may be some variability in the actual values, but not by orders of magnitude.

The issue for most people is whether such salaries are justifiable, in the interests of shareholders, markets, or economies, or even necessary as a means of recruitment.

Of course, those who receive the salaries will always try to justify them, while headhunters (paid again by proportion of salary achieved) will always say they are necessary. Remuneration committees will always say they are worthwhile for the company because executives sit on each others’ remuneration committees. Shareholders – in the form of institutions – will not say it is not in the interests of the company because they always vote with the management and sit on each others’ remuneration committees, or are paid a commission bonus basis for the running of their funds and would hardly vote against the system that keeps them feeding from the same trough.

As for the politicians, they vote with their backers, and their backers are very often rich bankers – this is certainly true of the UK Conservative Party. Any political system that depends on high spending to be elected will be susceptible to the influence of those with the biggest pockets.

Posted by FifthDecade | Report as abusive
 

FifthDecade, why can you assume the salaries of the top 50 people in an organisation with thousands of people are the norm? Are you suggesting that the salary bill for LEH was 8,000,000 * 25,000 = 200bn every year or that “order of magnitude”.

dsquared, to be fair in my initial response I did misunderstand why you thought 0.17 credit losses was not a valid measure for AAA as opposed to mtm losses. I have heard over and over again that that AAA are “ultra-safe” and you “can’t lose money” when in fact it is merely a statement on how likely the issuer is to make the promised coupon and principal payments on time.

Posted by Danny_Black | Report as abusive
 

@Danny_Black, those salaries are the norm for top management at investment banks. List the top 50 at JPM or GS and you’ll get numbers at least that large. As FifthDecade says, that nullifies the objection that these individuals did not receive the delayed compensation that they expected.

As for AAA bonds, you are correct. **HOWEVER** investment professionals seem to get the two confused sometimes. Doesn’t matter if the bonds pay out if you fail from a lack of liquidity (triggered by MTM losses).

Posted by TFF | Report as abusive
 

Danny, the guy said “fine”. The securities were not “fine”.

Posted by dsquared | Report as abusive
 

Will have to agree to disagree… Shame someone mentioned Hoffman rather than say Walsh who most certainly did contribute in a major way to LEH collapsing along with their loan portfolio to companies and private equity. If someone had said these guys were brilliant, it would be a much shorter conversation.

Posted by Danny_Black | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •