Ten Years After Lehman: An Interest-Rate Perspective

by Edward Chancellor*

Back in November 2002, Ben Bernanke, then a governor of the Federal Reserve, attended Milton Friedman’s 90th birthday party. In his writings, the legendary monetarist had pinned the Great Depression on policy failures of the American central bank. Bernanke was a keen disciple and apologised to Friedman on behalf of his employer, vowing that the Fed wouldn’t make the same mistake again. Less than six years later, Bernanke found himself at the helm of the Fed on that fateful day, Sept. 15, 2008, when Lehman Brothers collapsed. Another Great Depression beckoned. But now the Fed chairman was ready to make good on his promise.

Financial Crisis from Lehman to Europe

by Chidem Kurdas

The current financial crisis is a reverse of the 2008 disaster in key respects. Then, investment banks were seen as the main culprits while governments appeared in the guise of cavalry riding to the rescue. The trouble originated in the United States and spread to Europe. This time, the culprits are certain governments, the problem is European and how badly it will affect the American financial system is a question. How did the crisis go from US-based mortgage securities and Lehman Brothers to Italian sovereign debt and French banks? 

Executive Compensation as Lottery Prize

by Chidem Kurdas

Last week the WSJ published a list of the past decade’s best-paid chief executives. You might nod approvingly at some names but gag at others. In the former group is Steve Jobs of Apple, whose company’s share value grew by about 11-fold in the period from 2000 to 2009. In the latter category is Richard Fuld, the last chief executive of Lehman Brothers, whose $457 million compensation during the decade is hard to swallow given what happened to Lehman. 

It is notable that these compensation figures consist almost entirely of the value of company shares the executives received via stock options or as restricted stock. It is stock awards that account for the big numbers, starting with the $1.84 billion that won Larry Ellison of Oracle the top spot in the ranking. Cash salaries by comparison are miniscule.

The obvious argument in favor of stock options is that they  give executives incentive to work at boosting share value—thereby serving the owners of the company. But do they really have to be given such large blocks of stock? Smaller amounts of stock are likely sufficient incentive.