Deleveraging and conservative restructuring may work for a commercial bank, but not the hybrid commercial and investment banks that we're talking about here. These companies are involved in many diverse business lines and, bungling in the mortgage-backed business aside, many of these businesses are hugely profitable. This is why institutions like Goldman Sachs and Morgan Stanley were able to report large losses instead of collapsing: mortgage losses have been mostly offset by gains in other businesses. A CEO will need to continue to invest in the profitable business lines, with an eye on risk, to avoid being shut out of them by aggressive competitors, leaving the bank with nothing but toxic assets and low margin operations.

In "How to Make Wealth" pg wrote about how salesmen are an exception to compensation rules because their performance can easily be measured. The same is true for traders who do not deal in positions that must be held for a long time the way mortgage bonds are. If a trader makes $30 million in this way, he is in a position to demand, say, $5 million to $10 million or he will be happy to join a different firm that will pay him that amount. Thus, the reduction of compensation at the top levels cannot trickle down to the lower levels without destroying the firm by causing its top performers to leave.