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Wall Street's Dangerous Refusal to Learn

Edward Liddy, the government-appointed CEO of AIG, has been slow to recognize that old ways won't fly anymore.
Edward Liddy, the government-appointed CEO of AIG, has been slow to recognize that old ways won't fly anymore. (By Kin Cheung -- Associated Press)
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One of the reasons AIG gave for offering retention bonuses in the first place was that the employees who had negotiated the infamous derivatives contracts are the best people to help the company unwind those positions at the lowest cost. Indeed, over the weekend, it was reported that some of the employees were being recruited by other banks and hedge funds, which hope to use the inside information to inform their own trading strategies.

This is, of course, a time-honored tradition on Wall Street, whereby uncovering the trading strategies of counterparties can reap huge profits. But it surely speaks volumes that other Wall Street players still think it not just their right but their duty to their investors to try to take advantage of AIG's weakness, even if it is the taxpayers who will suffer.

Then there is Richard "Is This America?" Kovacevich, the chairman of Wells Fargo. Late last week, Kovacevich gave a talk at Stanford University, complaining about how unfair it is that the government forced his bank to take $25 billion in bailout money last year when it could have easily raised private capital -- and then compounded that outrage by changing the terms of the deal and forcing Wells to cut its dividend. Kovacevich said it was "asinine" for the Treasury to order his and other big banks to undergo a special "stress test," explaining that well-run banks like Wells were routinely doing their own stress tests.

Kovacevich apparently believes that because his bank is still relatively healthy, he and his shareholders shouldn't have to assume the same costs and burdens as banks that aren't, particularly when those costs and burdens are imposed by incompetent government officials. That's the way it works in America.

Except, of course, when it doesn't. The reality is that, if the government had not stepped in to take over Fannie, Freddie and AIG; had not recapitalized Citigroup and Bank of America; had not provided the guarantees to allow for the orderly sale of Merrill Lynch and Bear Stearns; had not become the buyer of last resort for commercial paper and home mortgages, then the entire financial system would have melted down by now and taken Well Fargo and its arrogant chairman with it. Rather than bellyaching about how un-American it all is, Kovacevich ought to be thanking the government and asking what more he could do to help.

Like it or not, we're all in this together now. It's cooperation and compromise, not the usual every-man-for-himself competition, that is going to get us out of this mess. And the sooner people on Wall Street embrace that reality, the better it will be for everyone.

Steven Pearlstein is moderator of a new Web site, On Leadership, at http://washingtonpost.com. He can be reached at pearlsteins@washpost.com.


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