Just to add to your post – the reality is that if Fuld didn’t participate in the madness, Lehman’s returns would have lagged behind its competitors and Fuld would have been replaced with a CEO willing to do the return-at-any-price bidding of investors. Then, we wouldn’t be talking about Fuld but some other guy. Make no mistake – there would have been a guy.

This is a reason I think I-banks made a mistake going public. Julian Robertson decided to simply shut down Tiger Management when value investing fell out of favour and capital fled his funds to join in the tech bubble. Growth investing was not what Tiger knew how to do well and the partners decided to shutter the fund instead of jumping into the bubble – and they could do that because Tiger was a private partnership. A CEO of a public company doesn’t have that luxury.

That’s because the good professor is getting distracted from the real issue: it was a bubble–nearly everyone was fooled. That’s what bubbles are. No reasonable changes to the incentive structure are going to insulate large numbers of businessmen from mistakes consequent to a system-wide misdirection of signals.

When the ground moves, those dependent upon the ground move with it. Fuld didn’t move the ground, he just rode it.

And, by the way, Wall Street loves a risk taker. So, it’s not uncommon to find more of them at the top of firms in this industry.

I think moral hazard and Fuld’s net worth are separate issues. At any time investors could have punished Fuld’s risky bets by dumping the stock and creditors could have refused to lend to Lehman. They didn’t.