Risky business

Mark Cuban, who has accumulated a few dollars of his own, explains why we can expect more Wall Street turmoil in years to come:

Because Risk and Reward have been decoupled for CEOs on Wall Street.

If you are the CEO of a major public company, once you qualify for your golden parachute there is absolutely no reason not to throw the Hail Mary pass, and do high risk deals every chance you get.

If you run a major hedge fund or fund of any kind, once you have put enough cash in the bank to get to your “F U Money Level” there is absolutely no reason not to throw the Hail Mary pass and make high risk investments every chance you get.

And what’s more:

There is zero downside to a CEO for taking chances beyond the embarrassment of getting fired. Would you let someone fire and embarrass you for a check for $20mm dollars? So would CEOs.

Find me the one story where the headline is “CEO has to pay the company losses back for being an idiot” or “Risky moves cost CEO his lifetime savings” or “Hedge fund manager gives back bonuses and exits with $1500 dollars a month severance.”

I’d be willing to be embarrassed for a hell of a lot less than twenty million.

(Via Henry Abbott, who notes that a lot of Cuban’s dollars came from a company that is now essentially defunct.)

1 comment

  1. McGehee »

    17 September 2008 · 11:27 am

    Clearly the threshold for making executive decisions for any large corporation ought to be buying the largest single stake in it, and having the gains thereupon be the only compensation.

    That way the best decisionmakers will rise to the top and have the means to buy into more corporations.

    But we can’t have that in this day and age when making a lot of money is the second greatest possible sin (the first being “hypocrisy” as defined by one’s political opponents).

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