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March 09, 2009

Wealth Creation (?!) via Financial Engineering

Friedrich von Blowhard writes:

Dear Blowhards,

Thank goodness that by a careful application of incentive pay, we have attracted the best and the brightest to their highest and best uses, throughout our economy. Bloomberg’s story, “Making $34 Million at Merrill Means No Bonus Escapes Subpoenas,” just brings one more piece of evidence from the world of finance to light:

Andrea Orcel’s reported $33.8 million compensation for 2008, a year when his employer, Merrill Lynch & Co., had net losses of $27 billion, doesn’t come without a price.

Orcel, 45, Merrill’s top investment banker, has been subpoenaed to testify by New York State Attorney General Andrew Cuomo, who’s looking into the firm’s decision to pay $3.6 billion in bonuses to 700 employees just before it was swallowed by Charlotte, North Carolina-based Bank of America Corp. on Jan. 1.


Last year, Orcel advised Royal Bank of Scotland Group Plc on its $19 billion acquisition of Dutch Bank ABN Amro Holding NV, which was completed in April. Royal Bank of Scotland, once the second-biggest U.K. bank by market value, is now controlled by the government after reporting the biggest loss in the country’s history.


“ABN Amro and Royal Bank of Scotland are [today] both bankrupt and their leaders are disgraced, but the investment banker who put it together walks off with $30 million,” Paul Volcker, a former chairman of the Federal Reserve and now head of President Barack Obama’s Economic Recovery Advisory Board, said at a conference at New York University’s Stern School of Business last week. “There’s something the matter with that system.”

Thank goodness for principal-agent conflicts! Where would our economy be without them! Where would the entire New Class expert-ocracy be without them!



posted by Friedrich at March 9, 2009


And, why shouldn't she? She engineered a deal that was doomed to fail (approximately 70% of mergers and acquisitions fail, so there was a pretty good chance this one would), put a lot of people out of work and moved on. Why shouldn't she be compensated for her work? Evil deserves to be paid, just as much...if not more...than Good, doesn't it?

BTW, did the article mention how much the bank execs walked away with? Let's not forget that regardless of how much a corporation loses, the execs continue to make more each year...because they're worth it! I'm sure Orcel's compensation was a drop in the bucket.

Posted by: Upstate Guy on March 10, 2009 11:08 AM

Upstate Guy,

Its amazing isn't it? How on earth can the execs at a company that is bleeding money get large bonuses that would be so much better spent shoring up the financial health of the company.

What really gets me, is that when the company gets bought out by a new company in better shape, why the execs are retained. I mean, didn't they pretty much wreck the old company?

Ive always wondered about this arrangement. If some entity was really smart, they could pay some high-touted execs under the table to get hired at other companys and help ruin them with ridiculous "forward-looking-ultra-PC" schemes, and when the company gets bought out because its stock price has tanked, get hired by the new company that was their real employer all along. That sounds (and is) outlandish of course, but my God some of the ideas that have been run by banks in the last few years were so bad that its hard to imagine they were done "on purpose".

Posted by: miles on March 11, 2009 4:25 PM

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