The Five Dumbest Things on Wall Street: March 20

3. Mass Wealth Destruction

While the media busied itself with the demise of Bear Stearns this week, a nifty little proxy filing from bond insurer MBIA MBI managed to squeeze in under the radar.

Shares of MBIA dropped 78% last year, and they're down another 33% so far in 2008. Nevertheless, the insurance giant disclosed this week that its former CEO, Gary Dunton, who was edged out in late February, will be paid a $1 million bonus for 2007 and another $960,000 for his efforts in raising $2.6 billion in new capital this year.

Dunton will also make off with a $2.55 million cash settlement for a long-term incentive grant that won't be paid out, along with $241,000 in prorated bonus for this year.

Yes, mass wealth destruction is a highly lucrative racket on Wall Street these days. For its part, MBIA needs all the money it can get to shore up its highly questionable Triple-A credit rating so it can continue as a going concern. Doubts have spread that the firm won't have enough capital to pay out claims that are in store on its giant structured finance portfolio.

Major ratings agencies Standard & Poors and Moody's Investors Service have maintained their credit ratings on MBIA, but their ratings are increasingly suspect amid a housing and credit crisis in the U.S. that has led billions of dollars in Triple-A rated securities to suddenly become junk.

MBIA rewards the agencies richly for their generous ratings, and when Fitch Ratings recently went off the script with a downgrade, MBIA ended its relationship with the agency.

Joseph "Jay" W. Brown, who was CEO of MBIA from 1999 to 2004, has returned to the company to take back the reins from Dunton. The company's board concluded that Brown is "singularly qualified" to run it, probably because during his previous tenure, he oversaw MBIA's growth in the mortgage-backed securities market.

"We clearly increased our exposure to residential real estate at the wrong time," said Brown.

Dumb-o-meter score: 85. Quick, somebody give this guy a fat bonus.