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Pogo and The Street January 24, 2008

Posted by Jim Satterfield in Business & Society, Corruption, Economics.
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Do you think that any of the hotshots on Wall Street are familiar with Pogo? Maybe you remember the famous saying and maybe you don’t but Wall Street seems to be the latest capitalists to have become capitalism’s greatest enemies. I rarely agree with anything Robert J. Samuelson has to say but this column of his actually makes some sense. But of course, since it is critical of the current economic environment he just dips his toe into the water. He rightly points out that the compensation structure not only produces incredulity on the part of many that these people really deserve the huge pay packages they routinely get but also encourage behavior that has larger consequences for the country. The way their bonuses are structured encourage activities that have little to do with what’s good for their customers, the companies whos stocks and bonds they sell and certainly not what’s good for the average person who doesn’t work for them.

Consider this admission from someone who should know:

“People self-select for careers. On Wall Street, they self-select for the money,” says pay consultant Alan Johnson. “Wall Street is a sales business — they sell bonds, securities, transactions, ideas. . . . They’re not paid to be long-term, philosophical, reflective.” The pressure is to do the next merger, sell more stocks and bonds, do more trading — whatever boosts current profits and bonuses, the long-term consequences be damned.

The focus is an unrelenting one purely on personal gain and status in the company that accompanies doing well in the short term measurements that are pretty much all they deal in. The standard excuses are that they are responsible for the strength of our economy by their ability to provide capital to those companies that deserve it. But Samuelson points out the places where they have failed miserably at this task. I think that he could have listed more but after all, there’s only so much room for his column and so much time to research it, isn’t there?

Samuelson closes with this:

But if the subprime failure turns out to be a preamble to a larger financial breakdown, flowing from the creation of new securities that offered short-term trading possibilities but whose long-run risks were underestimated, then the mood could turn uglier. Indeed, many Americans may conclude that capitalism has run amok.

But let’s be honest, this current disaster in the making is related in a very basic way to Enron, Enron and other energy trading companies’ gaming of the California energy market a few years back, Tyco, Global Crossing, Adelphia, Arthur Andersen, Worldcom and the rest. It relates to the demands placed on publicly held companies by Wall Street. There is no restraint, no moderation. There doesn’t seem to be any such thing as enough. There isn’t enough profit to make them happy, there isn’t enough income to give traders and consultants the ego boost, status and material goodies they apparently crave. So eventually it becomes just too easy to step over the lines, whether they are the ones separating honesty from dishonesty or ambition from greed. Just remember that the very definition of greed includes the word excessive. MBA programs now include more discussion of ethics than before the wave of scandals that swept American business a few years ago. But how many of them ever address the simple idea that at some point people in business should say “Enough. That’s going too far.”. Because even if it’s legal that doesn’t mean it’s a good idea.

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