Between the Lines: September-October 2009

In an e-mail exchange this August, financial writer Bill Cohan muses about where he would place the blame for the financial meltdown. Was it debt-indifferent consumers or careless regulators or not-so-independent rating agencies or a financial industry conditioned to ignore risk?

Or was it, perhaps, all those factors and forces? In an earlier New York Times op-ed column that he co-wrote with a former broker, Cohan '81 declared, "We can no longer pretend that our collective behavior as a nation for the past twenty-five years has been worthy of us as a people." In our cover story for this issue, Cohan focuses on a particular set of people—prominent Duke-related players who, from the beginning, were deeply involved in the crisis.  

Cohan's op-ed called for "dynamiting the foundation" on which financial services have (shakily) rested and building a new system that encourages prudent risk-taking, allocates capital where it's needed, and runs with transparency. But now he singles out a warped rewards system. "If only the compensation on Wall Street were changed, so that the top guys had some real skin in the game —rather than just an incentive to take risks with their shareholders' money—we would have a real shot of preventing a recurrence of the next, inevitable bubble." Unfortunately, he adds, there's "less than zero interest in reforming the compensation system."

Just a couple of days after Cohan made that observation, The Times reported that Wall Street banks had become so eager to lure and keep top deal makers and traders that they were "reviving the practice of offering ironclad, multimillion-dollar payouts—guaranteed, no matter how an employee performs."

All of which sheds light on Cohan's key concern: Even with word this summer of somewhat improving conditions in the financial markets and a modest improvement in the unemployment rate, nothing has really been fixed.