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Opinion: If You're So Rich, Why Aren't You Smart?

Stocks in this article: MS BAC AIG

The pay plan's backers celebrate reining in perceived excess rewards for those responsible for failing enterprises that are crashing the nation's economy. There is more than public relations at work here. They also see fairness. With Obama's plan, there will be more clear pay for performance links for executives as their earnings will now depend on their company's performance. The $500,000 ceiling on executive salaries -- currently being proposed in President Obama's plan -- can be supplemented by substantial grants of restricted stock incentives that can be cashed in once borrowed taxpayer money is returned to the government. And even this is accelerated if shareholders can vote on executive pay.

This pay-for-performance match restores some of the lost logic of Wall Street riches -- which is risk. The term "risk" is bandied about so often by Wall Streeters that you'd think it was their money at risk. That used to be the case in era of 19th Century merchant bankers and even 20th Century investment bankers -- and still generally is for private equity -- where either it was the partner's money or a small group of investors.

There were virtually no public companies on Wall Street until the 1980s, and now the major firms are all public. When it was their own capital at risk, the partners were entitled to large rewards on their triumphant investments. In the 1970s, half the partners of Morgan Stanley (MS) were listed in the Social Register, certifying their common Mayflower lineage. John Mack, of Lebanese decent, would not have been on that list. In fact, only one firm, Bear Stearns, used the TITLE tile "chief executive" before the 1980s.

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