Problems like AIG don’t have to occur and other companies don’t have to get the infection. However, the only department head who doesn’t receive a bonus from the derivative operation is the only one who warns of the potential problem. The controller or v. p. finance is the only one monitoring the quality of the balance sheet. That can be a very lonely position when pitted against a half dozen other department heads, whose bonuses increase in direct relation to the risk ignored. It seems companies like Wells Fargo, U.S. Bank, Met Life and Prudential had presidents and boards of directors who gave proper weight to potential risks pointed out by their financial executives.
This problem reminds me again in retirement of how lucky I was to serve the college president I did. I wasn’t about to compromise what I saw as basic finance principles. My aggressive management of the budget process and analysis of program additions was evidently what he wanted. If we had not reached a clear understanding during the interview process, I would not have lasted more than a year.
I tink the greatest problem that he looked at was the sub prime business... had the goberment not gotten involved and pushed housing and ninja loans, then the mortgage brokers wouldn’t have been fraudulently pumping value> Its great to blame someone, but the banks had to give up bankers prudence to allow the gooberrment to meet its policies...left to their own devices, there probably would not have been a bubble.