Thoughts On Thain

My dad's an actor. And he taught me that when actors play a villain or a jerk, they have to find a way to sympathetically understand that person. After all, villains and jerks don't think of themselves as villains and jerks. They generally think they are decent people responding to an unfair world, or whatever other justification they have. When an actor doesn't do the work of finding some way to sympathetically embody a bad character, you can tell: they play it as a crude caricature.

So, I've had a lifelong habit of trying to sympathetically understand villains and jerks. This is helpful for a journalist (particularly, for me, when covering the Middle East), though it can make your head hurt sometimes. And John Thain—probably more of a jerk than a villain—is really putting me through my paces.

Where is the soul-searching? Where is the self-doubt? Where is the slightest hint that this guy understands this moment in history?

A quick summary: John Thain was the hero CEO of the New York Stock Exchange who brought success and glory to a company embarrassed by its previous head. He was then hired by Merrill Lynch in 2007 when it was already clear that the investment bank was on shaky ground.

Merrill had a rough 2008, to put it mildly. It lost a lot of money and, eventually, was sold to Bank of America in a panicked weekend.

Thain has done everything he can to stay on the front pages of the Wall Street Journal in a less-than-flattering light. We're told he was preparing to demand a $10 million bonus in 2008 until the board said, effectively, "No friggin' way, buddy, the company is in trouble. We're laying off thousands and you want a BONUS?"

He then forced through a multi-billion dollar bonus package for leading executives. He pushed it through early so that it would happen before Bank of America officially took over. This meant, arguably, that US taxpayers were helping to pay for bonuses to executives who ran a company into the ground.

Then we learned that Thain may have hidden Merill's truly huge losses from Bank of America.

Then we learned that Thain—in his best Kozlowski/Helmsley imitation—spent a fortune redecorating his office when he was demanding employees cut way back on expenses. His $35,000 commode will, no doubt, become the physical embodiment of this crisis (turns out this is not a toilet, but a chest of drawers. Darn. The story would be way better if he was, literally, crapping on gold).

So, let me try to sympathetically understand Thain.

I actually have a reasonably easy time understanding his desire for a bonus and even his maneuvering to get billions in bonuses for his co-executives. He came to Merill after the worst problems were baked in. Many of the executives ran departments that had nothing to do with the subprime crisis. Why should they be punished because of mistakes made by others.

I can sort of imagine someone convincing themselves that, to save Merill, they need to show a powerful optimistic presence, so why not spend over a million on your office. Also, when you're running Merill Lynch, a million bucks just doesn't seem like a lot of money.

What I have a harder time with is how incredibly tone-deaf Thain has been. Every one of these moves seems guaranteed to place him in the gunsights of every state attorney general and banking regulator and congressperson. He seems so blind to the fact that employees in his company and regular folks around the country will zero in on his excesses and choose him as the focus of their rage.

Why is there no moment in which he somehow shows that he is aware that the world in which he excelled was somewhat broken. It was, in part, built on nonsense. Shouldn't he feel some shame if not at his own excess than at his inability to spot the weak foundation of his entire universe?

I want that. I want him and others like him to 'fess up. To show us they know their excesses and arrogance are a bit ridiculous.

Maybe he knows all this and feels deep shame and is telling his friends or his family or his god. I doubt that.

There's something in me that feels unable to rest until I see that he KNOWS.

I'm not going to get that. I don't think. Not any time soon.

So, I find peace, oddly, in economics. I realize that my relationship with Thain is not like mine with my wife or my best friend or a co-worker. The role he and others like him play in my life is more like a machine in a factory. Our capitalist system, if it's working right, should create incentives that push him to make the US and world economies more productive. If they do it correctly then I benefit. Just like I benefit from the fact that factories are much more productive than they were 100 years ago or even 10 years ago. It makes my standard of living much higher; I can buy more goods with less money, I can sell my services to factory workers who make more money because they produce more goods.

If I found out that a machine in, say, an aircraft factory cost more than the benefit it brought the world, I wouldn't want the machine to feel bad. I wouldn't care if the machine was well taken care of and got to live in a really nice factory. I'd want it fixed or tossed away and replaced with a better machine.

I think it's fair to say that the Thain machine and many of the other bank CEO machines haven't fully earned their keep lately. So, I want them fixed.

To fix a CEO, you have to look at the incentive structure. You want them to make money when they actually make their companies more productive and you want them not to make money when they don't. The board of Merrill and the shareholders didn't insist on this. Or they thought they did but they did it wrong. There is a lot of talk now among academics and regulators (if not, yet, among board members and shareholders) about ways to get incentives right so that people who make a lot of money don't actually destroy the company that's paying them.

So, I think while the habit I learned from my dad is helpful—it is a good idea to try to figure out what makes even the jerkiest among us tick—it's not a path to peace on this one, I've found. For me, it's best to look at John Thain as a machine that was programmed improperly. Thinking of him as an actual human being just makes me too mad.

UPDATE: The WSJ publishes Thain's memo defending himself.



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