Stan Dziedzic recently published his second book, “Lehman Brothers’ Dance with Delusion,” that recalls his experiences as a mortgage bond salesman for Salomon Brothers and then for Lehman Brothers, where he served as a managing director and manager of its Atlanta office from 1996 to 2005.
Dziedzic (pronounced “Dez-ick”), an Olympic wrestling bronze medalist in 1976, recently talked with The Atlanta Journal-Constitution about financial risk, Wall Street greed and wrestling.
Q: Why did you write your book?
A: I think I have a unique perspective and solution to what has happened to our financial institutions. What I propose is a system that does not have the taxpayers burdened with the risk of subsidizing purchases while others reap the profits. We need to rework the risk factor.
Q: What is the risk factor?
A: The argument was that these big banks and financial institutions were too big to be allowed to fail so that the taxpayers would pick up the tab, and that is essentially correct. But the long-term health of these institutions should require that the risk be isolated, for the most part, to those responsible for taking the risk. Let's face it, if a trader knows that the taxpayers' money stands behind the bets, the ability to take a risk is sanctioned, even encouraged. But if that person knows that he or she is betting their money, they are less likely to put that money in danger.
Q: How would you structure risk in our financial institutions?
A: Establish secure capital within divisions and structure trading desks to a kind of common ownership or partnership. This aligns personal wealth with risk and lessens the temptation to take excessive risk.
Q: How?
A: I would compartmentalize the risk and maintain a meaningful portion of employees' retained earning within their division. This would help solidify the partnership and provide a credible mechanism for supervisors to intervene. It would allow supervisors to close units without breaking up the fundamental or utility bank. The benefits that large integrated banks provide in today's global economy would be retained.
Q: What should the government's role be in overseeing our financial institutions?
A: Unfortunately the current capital mandates apply singularly to the bank holding company and are terribly easy for Wall Street to game. Supervisors do not have the authority to require minimum capital levels for trading desks. Regulators need the authority to intervene.
Q: Why can't we let these institutions fail?
A: Lehman's failure illustrates the economic havoc and immeasurable harm that occurs after a large financial entity goes into bankruptcy. A more orderly method of failing is necessary if we are to avoid another crisis. And size isn't the issue; it's function. The global industry needs global banks.
Q: Didn't the economy tank because of pure greed on Wall Street?
A: There was a confluence of political, supervisory, managerial missteps that created the foundation for an unprecedented housing bubble. Greed played a role.
Q: What can be done to prevent the financial collapse again and restore integrity and confidence in our financial institutions?
A: We need an oversight committee that stands ready to moderate irrational prices and a banking system that governs risk-taking at the trading desks' level.
Q: Should traders make tens of millions of dollars and multimillion-dollar bonuses?
A: People should be paid for adding value. Again, if their own money is at risk and the profits are realized, then yes. But, as it is now, their pay and bonuses often are paid out on marked, not realized, gains.
Q: How did you go from wrestling to Salomon Brothers?
A: I had won an Olympic bronze medal in wresting in 1976 and was a world champion in 1977. I was the first national coach and did that for six years. In my travels, especially in the Soviet Union and other Iron Curtain countries, I witnessed the heavy hand of communism. I lived in a capitalistic country and decided I wanted to benefit from our economy. I started taking MBA classes and prepared to work on Wall Street.
Q: What are you doing now?
A: I'm talking about my book, but I am also the U.S. representative to the international wrestling federation responsible for the Olympics. I go on six or seven trips a year — not your garden spots but interesting places like Azerbaijan, Russia, or Turkey.
Q: How does our wrestling team look for the 2012 Olympics in London?
A: Not as good as we'd like to think. I don't think we'll take seven or eight medals; maybe four or five.
Q: What do you think of pro wrestling?
A: I look at those ultimate fighters and those other shows, and to me, it's just looks like bad wrestling.
About the Author
