Risk Management principles had no place on Wall Street during the boom years. Bonuses came first. Bonuses were paid first, before investments performed. Bigger risks drove bigger bonuses. Bonuses dwarfed salaries exponentially. Bonuses drove the risk taking engine, that is, the taking of risks with other people's money drove up the amount the risk takers were paid. See Louise Story, "Wall St. Profits Were a Mirage, But Huge Bonuses Were Real/Questions on Role of Risk and Pay in Losses" p. A1, col. 1 (New York Tiimes Nat'l Ed., Thursday, December 18, 2008).
Bonuses are still the exponential multiplier of compensation for Wall Street risk takers. Id.
Everything is changing, nothing is new. Except -- compensation to Wall Street is now coming from you and from me, the Federal Taxpayers. Return to or learning to apply Risk Management principles is overdue. Their place on Wall Street should always have been paramount. So it should be now, especially now.
Update of Friday, December 19, 2008:
The changing but still frequently encountered short-term or so-called "mid-term" focus on performance of investments in order to 'earn' bonuses on Wall Street is examined by Louise Story and Eric Dash, "What Goes Around/At Credit Suisse, Troubled Investments Will be a Factor in Bankers' Bonuses" p. B1, col. 2 (New York Times Nat'l Ed., Business Day Section, Friday, December 19, 2008), published online under the headline, "Banks Try New Ways to Handle Bonuses".
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