And did not Ho Jinx insist that Merry Lynch had a 'GREAT FRANCHISE' when she squandered billions on it? Fxxx the butch!
<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>What brought Merrill to its knees
</TR><!-- headline one : end --><TR>Wall Street's pay structure, which gave huge bonuses based on ephemeral profits, encouraged employees to act like gamblers at a casino. It allowed them to collect their winnings while the roulette wheel was still spinning. </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Louise Story
</TD></TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->
For Mr Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was US$350,000 (S$504,000), his total compensation was 100 times that - US$35 million.
The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill's mortgage business.
Mr Kim's colleagues also pocketed large pay cheques. In all, Merrill handed out up to US$6 billion in bonuses that year. A 20-something analyst with a pay of US$130,000 collected a bonus of US$250,000. And a 30-something trader with a US$180,000 salary took home US$5 million.
But Merrill's record earnings in 2006 - US$7.5 billion - turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly powered some of those profits plunged in value.
Unlike the earnings, however, the bonuses have not been reversed.
As regulators and shareholders sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle.
Scrutiny over pay is intensifying, as banks like Merrill prepare to dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers' money.
While bonuses are expected to be half of what they were a year ago, some bankers could still collect millions of dollars.
Critics say bonuses never should have been so big in the first place, because they were based on ephemeral earnings. These people contend that Wall Street's pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino - and allowed them to collect their winnings while the roulette wheel was still spinning.
'Compensation was flawed top to bottom,' said Professor Lucian Bebchuk of the Harvard Law School and an expert on compensation. 'The whole organisation was responding to distorted incentives.'
Even Wall Streeters concede they were dazzled by the money. To earn bigger bonuses, many traders ignored or played down the risks they took until their bonuses were paid. Their bosses often turned a blind eye because it was in their interest as well.
'That's a call that senior management or risk management should question, but of course their pay was tied to it too,' said Mr Brian Lin, a former mortgage trader at Merrill Lynch.
The highest-ranking executives at four firms have agreed under pressure to go without their bonuses, including Merrill's CEO John Thain, who initially wanted a bonus this year since he joined after the firm's ill-fated mortgage bets were made.
And four former executives at one hard-hit bank, UBS of Switzerland, recently volunteered to return some of the bonuses they were paid before the financial crisis. But few think others on Wall Street will follow that lead.
For now, most banks are looking forward rather than backward.
Morgan Stanley and UBS are attaching new strings to bonuses, allowing them to pull back part of workers' payouts if they turn out to have been based on illusory profits.
Those policies, had they been in place in recent years, might have clawed back hundreds of millions of dollars of compensation paid out in 2006. Gilded Age
For Wall Street, much of this decade represented a new Gilded Age.
Salaries were merely play money - a pittance compared to bonuses.
Bonus season became an annual celebration of the riches to be had in the markets.
Bankers celebrated with five-figure dinners, vied to outspend each other at charity auctions and spent their new-found fortunes on new homes, cars and art.
The bonanza redefined success for an entire generation.
Graduates of top universities sought their fortunes in banking, rather than in careers such as medicine, engineering or teaching.
Wall Street worked its rookies hard, but it held out the promise of rich rewards. In college dorms, tales of 30-year-olds pulling in US$5 million a year were legion. On Wall Street, the first goal was to make 'a buck' - a million dollars.
More than 100 people in Merrill's bond unit alone broke the million-dollar mark in 2006. Goldman Sachs paid more than US$20 million apiece to more than 50 people that year.
Pay was tied to profit, and profit to the easy, borrowed money that could be invested in markets like mortgage securities.
As the financial industry's role in the economy grew, workers' pay ballooned, leaping sixfold since 1975, nearly twice as much as the increase in pay for the average American worker.
'The financial services industry was in a bubble,' said Mr Mark Zandi, the chief economist at Moody's Economy.com. Big bonuses, paper profits
Mr Kim stepped into this milieu in the mid-1980s, fresh from the Wharton School at the University of Pennsylvania.
Born in Seoul, South Korea, and raised there and in Singapore, he moved to the United States at 16 to attend Phillips Academy in Andover, Massachusetts.
A quiet workaholic in an industry of workaholics, he seemed to rise through the ranks by sheer will. After a stint trading bonds in Tokyo, he moved to New York to oversee Merrill's fixed-income business in 2001. Two years later, he became a co-president.
Yet, Mr Kim was growing restless. That same month, he told Mr Stanley O'Neal, Merrill's chief executive, that he was considering starting his own hedge fund.
But Mr O'Neal persuaded him to stay, assuring him that the future was bright for Merrill's mortgage business and, by extension, for Mr Kim.
In November, the company hosted a three-day golf tournament at Pebble Beach, California.
Mr Kim, an avid golfer, played alongside Mr William Gross, a founder of Pimco, the big bond house, and Mr Ralph Cioffi, who oversaw two Bear Stearns hedge funds whose subsequent collapse last year would send shockwaves through the financial world.
'There didn't seem to be an end in sight,' said a person who attended the tournament.
Back in New York, Mr Kim's team was eagerly bundling risky home mortgages into bonds. One of the last deals they put together that year was called 'Costa Bella', or beautiful coast - a name that recalls Pebble Beach. The US$500 million bundle of loans, a type of investment known as a collateralised debt obligation (CDO), was managed by Mr Gross' Pimco.
Merrill Lynch collected about US$5 million in fees for concocting Costa Bella, which included mortgages originated by First Franklin.
But Costa Bella, like so many other CDOs, was filled with loans that borrowers could not repay. Initially, part of it was rated AAA, but Costa Bella is now deeply troubled. The losses on the investment far exceed the money Merrill collected for putting the deal together.
By the time Costa Bella ran into trouble, the Merrill bankers who devised it had collected their bonuses for 2006.
Mr Kim's fixed-income unit generated more than half of Merrill's revenue that year, according to people with direct knowledge of the matter. As a reward, Mr O'Neal and Mr Kim paid nearly a third of Merrill's US$5 billion to US$6 billion bonus pool to the 2,000 professionals in the division.
Mr O'Neal himself was paid US$46 million. Mr Kim received US$35 million.
About 57 per cent of their pay was in stock, which would lose much of its value over the next two years, but even the cash portions of their bonus were generous: US$18.5 million for Mr O'Neal and US$14.5 million for Mr Kim.
<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>What brought Merrill to its knees
</TR><!-- headline one : end --><TR>Wall Street's pay structure, which gave huge bonuses based on ephemeral profits, encouraged employees to act like gamblers at a casino. It allowed them to collect their winnings while the roulette wheel was still spinning. </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Louise Story
</TD></TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->
For Mr Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was US$350,000 (S$504,000), his total compensation was 100 times that - US$35 million.
The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill's mortgage business.
Mr Kim's colleagues also pocketed large pay cheques. In all, Merrill handed out up to US$6 billion in bonuses that year. A 20-something analyst with a pay of US$130,000 collected a bonus of US$250,000. And a 30-something trader with a US$180,000 salary took home US$5 million.
But Merrill's record earnings in 2006 - US$7.5 billion - turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly powered some of those profits plunged in value.
Unlike the earnings, however, the bonuses have not been reversed.
As regulators and shareholders sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle.
Scrutiny over pay is intensifying, as banks like Merrill prepare to dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers' money.
While bonuses are expected to be half of what they were a year ago, some bankers could still collect millions of dollars.
Critics say bonuses never should have been so big in the first place, because they were based on ephemeral earnings. These people contend that Wall Street's pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino - and allowed them to collect their winnings while the roulette wheel was still spinning.
'Compensation was flawed top to bottom,' said Professor Lucian Bebchuk of the Harvard Law School and an expert on compensation. 'The whole organisation was responding to distorted incentives.'
Even Wall Streeters concede they were dazzled by the money. To earn bigger bonuses, many traders ignored or played down the risks they took until their bonuses were paid. Their bosses often turned a blind eye because it was in their interest as well.
'That's a call that senior management or risk management should question, but of course their pay was tied to it too,' said Mr Brian Lin, a former mortgage trader at Merrill Lynch.
The highest-ranking executives at four firms have agreed under pressure to go without their bonuses, including Merrill's CEO John Thain, who initially wanted a bonus this year since he joined after the firm's ill-fated mortgage bets were made.
And four former executives at one hard-hit bank, UBS of Switzerland, recently volunteered to return some of the bonuses they were paid before the financial crisis. But few think others on Wall Street will follow that lead.
For now, most banks are looking forward rather than backward.
Morgan Stanley and UBS are attaching new strings to bonuses, allowing them to pull back part of workers' payouts if they turn out to have been based on illusory profits.
Those policies, had they been in place in recent years, might have clawed back hundreds of millions of dollars of compensation paid out in 2006. Gilded Age
For Wall Street, much of this decade represented a new Gilded Age.
Salaries were merely play money - a pittance compared to bonuses.
Bonus season became an annual celebration of the riches to be had in the markets.
Bankers celebrated with five-figure dinners, vied to outspend each other at charity auctions and spent their new-found fortunes on new homes, cars and art.
The bonanza redefined success for an entire generation.
Graduates of top universities sought their fortunes in banking, rather than in careers such as medicine, engineering or teaching.
Wall Street worked its rookies hard, but it held out the promise of rich rewards. In college dorms, tales of 30-year-olds pulling in US$5 million a year were legion. On Wall Street, the first goal was to make 'a buck' - a million dollars.
More than 100 people in Merrill's bond unit alone broke the million-dollar mark in 2006. Goldman Sachs paid more than US$20 million apiece to more than 50 people that year.
Pay was tied to profit, and profit to the easy, borrowed money that could be invested in markets like mortgage securities.
As the financial industry's role in the economy grew, workers' pay ballooned, leaping sixfold since 1975, nearly twice as much as the increase in pay for the average American worker.
'The financial services industry was in a bubble,' said Mr Mark Zandi, the chief economist at Moody's Economy.com. Big bonuses, paper profits
Mr Kim stepped into this milieu in the mid-1980s, fresh from the Wharton School at the University of Pennsylvania.
Born in Seoul, South Korea, and raised there and in Singapore, he moved to the United States at 16 to attend Phillips Academy in Andover, Massachusetts.
A quiet workaholic in an industry of workaholics, he seemed to rise through the ranks by sheer will. After a stint trading bonds in Tokyo, he moved to New York to oversee Merrill's fixed-income business in 2001. Two years later, he became a co-president.
Yet, Mr Kim was growing restless. That same month, he told Mr Stanley O'Neal, Merrill's chief executive, that he was considering starting his own hedge fund.
But Mr O'Neal persuaded him to stay, assuring him that the future was bright for Merrill's mortgage business and, by extension, for Mr Kim.
In November, the company hosted a three-day golf tournament at Pebble Beach, California.
Mr Kim, an avid golfer, played alongside Mr William Gross, a founder of Pimco, the big bond house, and Mr Ralph Cioffi, who oversaw two Bear Stearns hedge funds whose subsequent collapse last year would send shockwaves through the financial world.
'There didn't seem to be an end in sight,' said a person who attended the tournament.
Back in New York, Mr Kim's team was eagerly bundling risky home mortgages into bonds. One of the last deals they put together that year was called 'Costa Bella', or beautiful coast - a name that recalls Pebble Beach. The US$500 million bundle of loans, a type of investment known as a collateralised debt obligation (CDO), was managed by Mr Gross' Pimco.
Merrill Lynch collected about US$5 million in fees for concocting Costa Bella, which included mortgages originated by First Franklin.
But Costa Bella, like so many other CDOs, was filled with loans that borrowers could not repay. Initially, part of it was rated AAA, but Costa Bella is now deeply troubled. The losses on the investment far exceed the money Merrill collected for putting the deal together.
By the time Costa Bella ran into trouble, the Merrill bankers who devised it had collected their bonuses for 2006.
Mr Kim's fixed-income unit generated more than half of Merrill's revenue that year, according to people with direct knowledge of the matter. As a reward, Mr O'Neal and Mr Kim paid nearly a third of Merrill's US$5 billion to US$6 billion bonus pool to the 2,000 professionals in the division.
Mr O'Neal himself was paid US$46 million. Mr Kim received US$35 million.
About 57 per cent of their pay was in stock, which would lose much of its value over the next two years, but even the cash portions of their bonus were generous: US$18.5 million for Mr O'Neal and US$14.5 million for Mr Kim.
