The defense of the behavior of Wall Street bankers leading up to last year's collapse is to say that they didn't see it coming. After all, the likes of Dick Fuld & Co. had billions tied up in stock and options at their companies, so why would it be in their interests to take undue risks? They lost more than anybody in the collapse, so at least the incentive structure was properly aligned. Some profs connected to Harvard Law School give the lie to this idea by analyzing the dough banking execs pulled out of their operations before the music stopped.

The execs got away with so much loot beforehand (including bonuses based on "profits" that proved illusory), the study shows, that they were well rewarded for ruining the shareholders. Even if those shareholders included themselves.

In 2000-07, the top five executives at Bear and Lehman pocketed cash bonuses exceeding $300m and $150m respectively (adjusted to 2009 dollars). Although the financial results on which bonus payments were based were sharply reversed in 2008, pay arrangements allowed executives to keep past bonuses.

Furthermore, executives regularly took large amounts of money off the table by unloading shares and options. Overall, in 2000-08 the top-five teams at Bear and Lehman cashed out close to $2bn in this way: about $1.1bn at Bear and $850m at Lehman. Indeed, the teams sold more shares during the years preceding the firms’ collapse than they held when the music stopped in 2008.

Altogether, equity sales and bonuses over that period provided the top five at the two banks with cash of about $1.4bn and $1bn respectively (an average of almost $250m each). These cash proceeds considerably exceed the value of the executives’ holdings at the beginning of 2000 (which we estimate to be in the order of a respective $800m and $600m).