Wednesday, March 26, 2008

Sympathy for Bear's employees

Part of the media blitz used by BS shareholders to improve their bargaining situation by twisting JP's/the Fed's arm via public opinion has centered on the effect of the bailout on the wealth of BS employees.

There are three arguments here: direct emotional impact (employees seen crying in through the windows of BS headquarters); loss of jobs/income; loss of savings (a third of BS's stock was owned by employees). The latter one sometimes gets refined into not-a-choice argument: it's not ESOPs, it's things like options, it's part of their pay tied in stocks for X years.

I find these arguments rather pathetic attempts at manipulation. Shareholders should get hurt, no matter what their other sources of income are (were). I don't see why shareholders who also happen to be employees fall under a different moral category.

I do hope that workers who had nothing to do with how recklessly BS was run and who have now lost their jobs find another one soon, hopefully an even better one. But that sorry state of affairs should have nothing to do with the terms of the deal (or whether it should have happened in the first place); if the issue is unemployment, the the direct solution goes through unemployment insurance, not through a financial bailout.

Firstly, a (likely large) subset of BS employees were part of the dealings that pushed the company into insolvency. They profited on the way up and, apart from taxes and possible mortgage-default costs, nobody will take away the wealth that they kept in safer (non-BS stock) assets. Even when it comes to things like mortgage defaults, my position is that, if they leveraged themselves in their private life like they leveraged their company, then they should have kept a close eye on how stable their jobs were and consider that as part of the risk when jumping into debt.

About having their wealth in BS stocks: I've blogged before about what I think about ESOPs: it's gambling and you do it at your own risk, specially when we're talking about stock from a bank known to be so highly leveraged bank as BS was. Be responsible, enjoy your proceeds when you win, don't come crying for a bailout when you lose.

That leaves the other reason to own BS stock: it was part of their compensation, perhaps as options, so they couldn't help but be invested in the company. Nope, I don't buy that either: it's true given you're in the job, but when you decide to accept a job in the first place, you (should) know where your compensation is coming from and have some sense of how risky its components are, at least relative to each other. Fixed vs variable pay, sales people evaluate it all the time, why can't financiers?.

Please, these people are supposed to be savvy risk-managers! If they can't cope with risk and plan accordingly, then we should shut down the markets and take all businesses under government control because there'd be no hope for anyone to make intelligent decisions under anything but total certainty.

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