2009... the year of change!

"There is nothing new under the sun."

Well, the recession continues! John Thain resigned today from Bank of America. Thain's quite an interesting man, aside from looking rather orange in recent photos. He led the NYSE during the boom era, and then in Nov. 2007, rolled over to Merrill-Lynch to take over as CEO, where he received a $15M signing bonus. During the 2007 year, he was nicely compensated with a reasonable $83.8M. Under his stellar leadership, the company entered the recession. Unfortunately, even with Thain's brilliance, the company could not stay afloat, and had to be bought by Bank of America. Despite that, Thain requested a $10M bonus for his 2008 performance. Outcry from the NY Attorney General and the public, led to Thain withdrawing his request. Apparently, the reason he's being fired is that he really didn't know what's going on with the company, hence the additional write-downs of $15.3B this last quarter! This complete lack of awareness led to the tension between Bank of America CEO Ken Lewis and Thain, ultimately resulting in Thain's exit. Either that, or without getting the $10M bonus, it really wasn't worth Thain's time... he'd probably rather go enjoy a massage or whatever $83.8M can buy you.

My key thought on all this...
...is the importance of doing your homework and sticking to the fundamentals. I was reading the prospectus of my mutual fund, which thankfully I don't have to retire on for at least another 40 years, and the fund executive summed it up very nicely. He basically said that financial people had forgotten the fundamental principle of accurate risk management. It's not difficult to imagine how you could turn a blind eye to risk, or not do your homework to identify risks, when you have the opportunity to make mad cash. I don't blame Thain for going big--hey, if I could make $83.8M, I'd definitely go for it--but the problem was that people got so excited about winning, that they forgot the fundamentals of the game. They 'were lookin' down field before they got the ball tucked away' (I still can't believe those Colts, amazing!). Unfortunately, we all now get to pay the price by enduring this recession. In the future, I don't think we'll see the same sorts of gains that we saw in the past because people will manage risk better from now on. I'm expecting mostly single digit returns for a long time, until people forget the fundamentals again, make tons of money, and then crash. Life has a way cycling. I guess the wise man was right when he said,

"There is nothing new under the sun."