Michael Lewis is an excellent writer and his latest piece on portfolio.com is well worth reading. Lewis argues that Wall Street's demise has been due in large part to: (1) the bulge bracket firms' transition from partnerships to public corporations (a process that began in the 1980s); and (2) the development of collateralized debt obligations, swap contracts and other derivatives -- financial instruments that are dangerous when misused. Lewis argues that the directors of the bulge bracket firms (as employees/shareholders) had inadequate incentives to manage the risks inherent to these new financial instruments.
Incredibly, a share of Salomon Brothers stock purchased in 1986 for $46 -- the share price when Lewis started on the Salomon bond desk -- would be worth only $25 today (as 2.26 shares of Citigroup stock).
Posted by Paul Malmfeldt on November 17, 2008.
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