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Lessons of the last meltdown

"There are concerns that bonuses may increase the appetite for risk," warned Anthony Bellchambers of London’s Futures & Options Association in a prophetic comment from a January 1998 Euromoney, ‘The end of the bonus bonanza?

Much of that issue appears eerily familiar 11 years on, with a feature on "red-faced ratings agencies" coming under fire after a financial crisis, tales of banks making cutbacks and trimming bonuses, and stories of governments stepping in to rescue troubled banks. One market is highlighted in the story on bonuses as being particularly susceptible to massive pay packages: Andy Stone, then managing director of CSFB’s commercial mortgage product division, won’t confirm or deny reports that he earns more than $20 million but does say "I’m overpaid, whatever the case."

Pointing out that his group originated or purchased $8 billion of real estate debt compared with just $500,000 the previous year, Stone notes that the mortgage market is in a bull phase "much to [his] luck". Stone, who learned his trade under the legendary Lewis Ranieri (of Liar’s Poker fame), would swiftly fall from favour as the deals he had sourced turned sour and by November 1999 CSFB had let him go.

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