Wall Street's cushy exile

Stan O'Neal got $48 million while Merrill took billions in losses.

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(Fortune Magazine) -- Even if you flame out on Wall Street, you still get to keep the money. That's one of the lessons we learn from the fall of Chuck Prince and Stan O'Neal, who have bitten the dust because Citigroup and Merrill Lynch had to take billions in losses on securities that were overvalued on their books.

Those write-offs will soon be followed by layoffs of a lot of people, some of whom may get retraining money or a buck of two of extra severance, if they're lucky. But the CEOs get to walk away with a bundle, and board members get to keep their highly paid part-time jobs. Sure, they'll lose some face, but they'll still be able to send the kids to college and keep the fancy house, and they will never have to rely on Social Security to retire.

Now, watch this. You can make a case that by writing down these securities now, Citi and Merrill are in effect saying that some of the profits they recorded in earlier years, when the securities went onto their books, were overstated. But Prince and O'Neal were paid like royalty - $25.6 million in cash, stock, and options for Prince last year, $48 million for O'Neal - in large part based on the profits that Citi and Merrill reported.

In a world that believed in capitalism for all, Citi and Merrill would ask their now former chief executives to return the portion of their 2006 income that derived from those overstated profits. What are the chances of that? Roughly zero. About the same as board members of either firm returning part of their directors' fees - minimum $225,000 a year at Citi, $260,000 at Merrill - as a tangible show of regret for having presided over this fiasco.

You can't expect Citi's and Merrill's bosses or boards to get collateralized debt obligations and other toxic esoterica right when their risk managers, who specialize in this stuff, got it so wrong. But you can expect them to assume some responsibility, share the sacrifice, and give back some of what they earned because of the (unintentionally) overstated profits. It's not the legal system's job to handle this, it's the leaders' job. But they won't do it.

It's an old story. We let small people like mortgage borrowers who don't know what they're doing get wiped out, because that's the market. We talk about "creative destruction" when small employees get whacked to pay for their bosses' errors. But when it comes to the big guys who run the show and don't know what they're doing? They suffer embarrassment and bad press and loss of the company plane - but they still get to laugh all the way to the bank.