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Lehman's Demise, Dissected
If simple incentives had been in place on Wall Street, could the latest crisis have been largely avoided?
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Lehman’s Demise, Dissected
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141 Readers' Comments
Perhaps you should follow up in your next column by admitting how impossible corporations make it for stockholders to effect policy changes. I understand the bill(s) moving through Congress are supposed to give stockholders a limited say about executive compensation, but if experience is any indicator, the bills will have no practical effect.
I suppose hardly a stockholders' meeting passes without some gadfly standing up & complaining about some egregious or perceived egregious behavior on the part of the board or company executives, after which a spokesperson applies a bromide, or -- perhaps more often -- security whisks the gadfly out of the room as fair warning to others who may think they can get away with questioning the almighty.
Offer a concrete, workable solution next time, please, rather than suggesting a fairy tale "what if the world were perfect?" scenario.
The Constant Weader at www.RealityChex.com
It is going to take a some real cultural, political and legal weight-lifting to scrape away the corruption and rot in American society.
www.jonjost.wordpress.com
www.cinemaelectronica.wordpress.com
And if such a penalty were in place, there would be quite a few who would do just as they please (albeit with other people's money) because they would never for a minute imagine that anyone as brilliant as themselves would ever be caught. Mr. Cohan's suggestion might work if in addition to being stripped of their worldly, ill-gotten gains, the criminals whose recklessness collapsed the economy to point of breaking were handed out long (and I mean looooong) prison sentences. Not to any country club "jail" either. Hard time, breaking rocks or better yet, on chain gangs digging ditches for sewer lines. Their pictures on post office walls with other wanted criminals and their names erased from every plaque, stone, scroll, and award certificate, with the exception of a prison roll.
That MIGHT suffice. But then again, maybe not.
Fundamental changes that re-arrange incentives so that pigs are not paid to gorge themselves is absolutely necessary.
This requires not only effective swine control, but a broader view on the role of finance.
So the Lehman felons will keep their freedom & their personal fortunes, and GoldmanSachs will rake in even more billions with less competition, & still no govt regulation, only public welfare insurance, the remaining banksters doing God's work continuing the same scams that caused the '08 crash & that will cause the even more severe coming.
What a fabulous return on investment GoldmanSachs execs get for their political "donations."
What do Wall Street CEOs say to members of Congress behind closed doors? "Who's your daddy?"
*Apologies to genuine working girls.
Cynicism about the US economy and politics is destroying our nation. But until some justice is done, there's no argument against the cynicism, because it's basically on target.
By now, the public is ( or should be ) finally aware that the real reason that financial organizations felt free to take "massive risks" is that they really were not risks at all, given that their agents at the highest level of government could be relied upon to provide bailout safety nets to the biggest investment banks and their allied institutions like AIG.
Lehman Brothers fully expected to be bailed out like the vast majority of the other big players on the Wall Street casino- it was only the animosity between their bosses and the more powerful Goldman Sachs alumni in government such as Henry Paulsen which cut off their supply of taxpayer loot.
There is just one defect: “shareholders must demand that corporate boards of directors revamp the entire compensation structure on Wall Street away from one based on revenue generation to one that rewards long-term profits”. That will happen about the same time as Bernie Madoff tells the world where he hid the billions he stole.
The answer lies in how we regulate Wall Street. Bring back Glass-Steagall. Mandate that only private partnerships can conduct the “non commercial bank” business.
Wall Street should only be in the business of financing productive enterprises. It should not be trading for its own accounts.
As things currently work at high levels, compensation systems are made by the lackeys of those who are being compensated. If shareholders at company "A" object, the executives can easily migrate to or create company "B" that will give them what they want. The rest of us will still be left paying the price.
I wonder what NYSE rule was changed to enable the public ownership of these companies? Clearly, to fix the dynamics that created this sorry mess, we need rule changes once again. But which rules and where? The NYSE is now only one exchange of many so these rules need to reside at level that is more universal than at a single exchange.
Thank you for this enlightening article Mr. Cohen.
Unbelievable! If this doesn't get legislators off their backsides, nothing will!
Rather than rewarding risk indiscriminately (as done in recent years) or penalizing risk indiscriminately (as recommended here), incentives should favor risks that are worth taking. Risky financial assets should pay higher returns than low-risk ones, which means that risky projects or deals should not be undertaken unless they actually will generate higher returns.
Also, of course, people aren't Skinner-box pigeons, responding to reward and punishment without having any internal state of mind. We take risks that seem reasonable when we feel secure enough to do so. And we base our sense of what's reasonable, to a large extent, on what others around us seem to consider reasonable.
Don't trust human nature to change on its own any time soon. Just look at that pervasive evil influencer on the lazy and feeble minded, Glen Beck, who has taken to interpreting the words "social justice" as code language for Naziism and Communism. By-the-way, those two philosophies were strongly opposed to each other. When ignorance is rewarded with a high-paying pulpit in the mass media, and is portrayed as the spokesperson for the Tea Party movement, I despair. Sadly funny how many advocates of that ideology are anti-abortion, gun-toting, fundamentalist Bible belters with a penchant toward libertarianism (anarchy) and bigotry.
You didn't get the memo?
Obama is for the PEOPLE.
He's not a Republican - We Can Trust Him.
If He Says Something's Ok, I blindly Trust Him.
Praise Be To Obama!
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