How the same people who broke the financial system stand to make a killing fixing it
Americans face a difficult dilemma right now. On the one hand, there's no question that the profligate investment practices of the financial sector not only caused the credit crisis, but allowed for the shockingly inappropriate compensation decisions of companies like American International Group (AIG) and Merrill Lynch. The natural temptation is to exact revenge as deeply and broadly as possible. On the other hand, it's also true that giving in to any such impulse that punishes the sector as a whole could have grave consequences for the hoped-for recovery.
In order for the economy to heal, the financial and credit markets must heal. And in order for the markets to heal, Americans must get over their antipathy toward financial professionals and allow them to do what they do best: make money.
Many of the most successful traders and analysts on Wall Street have left their firms to avoid pay restrictions like the ones imposed on AIG executives. These gunslingers have decamped to hedge funds and private equity firms, where they are now in perfect position to take advantage of the government's programs to buy newly financed toxic assets. In fact, it could be said that the program can't succeed without them.
Here's the really tough part to swallow: If the value of that paper improves along with the market's liquidity, as is hoped, the profits on the transactions could be stupendous. In turn, many of the same people who took home enormous bonuses for trades that made the assets toxic in the first place will now earn additional enormous bonuses for helping to detox them.
It's a beautiful world, isn't it?
In an analysis of the credit crisis, its solutions and the ways Wall Street executives can still enrich themselves by taking advantage of the troubled economy, 24/7 Wall St. has put together a lenghty analysis of the new government regulations and the many loopholes that they contain. Be warned, though: As they sometimes say on TV, the following contains graphic material and may not be appropriate for all viewers.
Douglas A. McIntyre is an editor at 24/7 Wall St.