To folks in Silicon Valley and those that share their business values, a big payday for steering your company into catastrophe smells.
I share their business values.
Conversely, "Heads I win tails I win" is a business value I don't share. It doesn't seem very entrepreneurial at all.
Edit: Who's saying that "all high-level pay needs to be regulated"? I didn't see that in the article.
Edit 2: changed wording in response to comment below.
You're wrong. The free market comes from the board of directors who approve such the "heads I win, tails I win" package. The board was not forced by any non-free-market laws. Thus, these compensation packages show the free market working.
How do they stop others from entering their market?
The typical means involves govt action....
When buying and selling is regulated, regulators are the first thing to be bought and sold.
Theft of life and property. Not exactly free market either.
[~] Edit: by contrast, npk's comment implies that "free" means "absence of laws". A different definition.
1. They don't risk their own money. The true capitalist risks his own money for some productive enterprise, and is rewarded if it comes off, or walks away with nothing if it doesn't. Most investment banker chiefs walk away with millions even if they run the company into the ground.
2. They don't produce anything tangible. Ultimately they just move money around. It's worth something, but multi-million dollar salaries? Probably not. Also, the things they produce don't have visible impacts on normal people unless it goes belly up.
3. The intrinsic value of an investment banker's production is arguably a lot lower compared to how much they are compensated. I'm not going to go into this, but how much is capital allocation intrinsically worth? In my opinion, the work they do is probably more comparable to the value of a tax accountant.
The article was about why people hate bankers. You've argued why the market values them so highly, but it doesn't necessarily mean that the vitriol of the common man is unjustified.
There are lots of people willing to do those jobs for a lot less money. The problem is that no one in a position to hire such people trusts the "lot less money" folks.
Instead, they hire the few folks who have demonstrated success on the ladder up to those jobs.
If you think that's easy, go for it and turn down the big bucks when it's offered.
In a good scenario, wall street will be allocating money to where it is more efficient, in our case, they just shuffled money around in esoteric papers, and pinched a bit of it every time it changed hand, which contributed nothing to the economy, except their own pockets. Now the music has stopped, and a lot of these banks are left with hot potatoes in their hand, and brought us to this mess.
Now that you mention it, hot potato and musical chairs at the same time could make a pretty good game. :)
Three major financial institutions (Lehman, Bear Stearns, and Merryl Lynch) had their shareholders loose most of their assets and are no longer operational or independent. The remaining two investment banks Morgan Stanley and Goldman Sachs abandoned this business models and are now on their way to become bank holding companies.
In all cases, shareholders have seen massive (>50%) declines in the value of their shares due to excessive risk taking.
Do you seriously think that any institution except for Hedge Funds will ever leverage themselves 30:1 based on shaky opaque assets in the near future (I say near because every ~10 years, wall street goes haywire).
Furthermore, you are happy bashing wall street but have you ever taken a look at the balance sheet of the US government?
Look at your own last paragraph:
"lot of these banks are left with hot potatoes in their hand, and brought us to this mess."
Capitalism at work. These banks took foolish bets and now they are paying for it. The biggest blot in this picture is the $700 billion bailout which is sponsored by ... the US government.
Furthermore, if top level execs were really overpaid, we would see competition from outsiders capable of offering similar quality at lower price. It is not unusual for corporations to hire outside the company. That executive pay is still high is an indication that maybe, CEOs really are worth a few million dollars a year.
This is further complicated by federal regulation surrounding this sector of the economy. Banking regulations make it nearly impossible to start a bank. Other financial institutions are similarly constrained (though maybe not to such an extent). This artificially decreases supply and therefore, increases prices.
Are there some abuses in pay? Sure, just like there are abuses in everything else. However, because business execs are paid X times the average American and some demonstrably bad CEOs are rewarded extravagantly for their incompetence does not imply that capitalism has failed and all high-level pay needs to be regulated.