Greed Cycle

Table of C ontents Week 2: Time Value of Money and Interest Rate Determination Article: "The Greed C ycle"

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Article: "The Greed Cycle"

The Greed Cycle:

BY: John Cassidy The New Yorker September 23, 2002

How the financial system encouraged corporations to go crazy.

There are many ways to take the measure of what has happened to corporate America in recent years. As good a way as any is to flip through some back copies of the Financial Times, which recently published a remarkable series of articles on what it termed the "barons of bankruptcy - a privileged group of top business people who made extraordinary personal fortunes even as their companies were heading for disaster." The FT examined the twenty five biggest business collapses since the start of last year. From the beginning of 1999 to the end of 2001, senior executives and directors of these doomed compa​ walked away with some $33 nies billion in salary, bonuses, and the proceeds from sales of stock and stock options. Some of the names on the list were fa​iliar to anybody who reads the pa​ m pers: Global Crossing's Gary Winnick ($512.4 million); Enron's Kenneth Lay ($246.7 million); and WorldCom's Scott Sullivan ($49.4 million). How​ there were also ever, many names that haven't received much public attention, such as Clark McLeod and Richard Lumpkin, the former chairman and the former vice chairman, respectively, of McLeod USA, a telecommunica​ company based in Cedar tions Rapids, Iowa. These two corporate philan​ thropists cashed in stock worth ninety nine million dollars and a hundred and sixteen million dollars, respectively, before the rest of the stockholders were wiped out.Even veteran observers have been taken aback by recent events. "It became a competitive game to see how much money you could get," Paul Volcker, the former chairman of the Federal Reserve Board, told me when I visited him at his office in Rockefeller Center a couple of weeks ago. Earlier this year, Volcker tried...