7 ms·

Nobel Prize Winner Joseph Stiglitz Calls for Jail Time for Corporate Crooks

68 points by lotusleaf1987 16y ago

DevX101 16y ago
Rob a liquor store for $40 bucks and get sent away to prison for 5 or more years. Rob homeowners and investors, like Mozilo of Countrywide Financial, and collect a $140M+ paycheck and the SEC gives you the biggest fine ever of ....drumroll...$67M, $40M of which is going to be paid for on your behalf by Bank of America. This is roughly the equivalent of law enforcement telling the liquor store robber to pay back $7bucks and we'll call it even.
marze 16y ago
And why not?
- webXL 16y ago
  Because the government and consumer are just as culpable. Fannie and Freddie bought any loan a bank generated. They didn't care about the borrowers ability to pay back the loan! It's inexcusable that a Nobel laureate ignores this fact. It's like blaming the drug dealer for the existence of the drug. No, there are two other parties involved. It's no coincidence that there are huge price distortions in that market either. People who think they know what's best for us telling us it's the "American dream" to own a house and drugs are bad (mmm kay?) are screwing up the market, and freedom. Artificially low interest rates attracted people that otherwise wouldn't be able to afford a house. Laxed lending standards turned a blind eye to the credit worthiness of borrowers. Land use restrictions limited supply and tax credits drove up demand. Big banking and big government created the big bubble and big recession. And they're still rolling in the dough: http://blogs.law.harvard.edu/philg/2009/10/17/how-wall-street-is-making-its-billions/ http://blogs.law.harvard.edu/philg/2009/10/17/how-wall-stree... (devaluing our money in the process) Vote out people like Dodd and Frank (and any republican who supports fiddling with the market - subsidies). Have the wealthy bankers who made their fortunes off of this bubble help those responsible people who are in danger of losing their homes.
  - marze 16y ago
    William K. Black, professor at the University of Missouri (and the senior regulator investigating the savings and loan crisis of the 1980s) said: "This is a crisis that we know empirically involved million of fraudulent mortgages being made. We know that the losses are out there. We know that the industry extorted FASB to gimmick the accounting rules, so they didn't have to recognize the losses. We know that the Fed has huge positions as collateral in these fraudulent mortgages. We've seen the Fed, Ambac, Fannie, Freddie, Pimco, Blackrock -- all putting back after investigating tens of billions of dollars of mortgages, and saying, these were sold under false representations and warranties -- frauds, and absolutely no one has gone to jail for it." and "And the problem is we have zero criminal referrals out of most of the regulatory agencies. In comparison in the savings and loan debacle again - maybe 1/40th of the size -- we had thousands of criminal referrals , we got over a thousand priority felony convictions of the elites - these are not the little tellers, the vice presidents -- these are the top people at the savings and loans. There are NONE now. The regulators have to serve as the sherpas to have successful criminal prosecution. We've got to do the heavy lifting, and we have to do the guide function, because the FBI can't possibly do this on its own. Next thing that has to be done - the FBI formed a partnership with the Mortgage Bankers Association -- that's the trade association of the perps."
    - webXL 16y ago
      "these were sold under false representations and warranties -- frauds" Including the fraud politicians put on the American people: everyone should own a house, which came in the form of artificially low interest rates, laxed lending standards, and tax credits. Here's what I have to say to investors of mortgage-backed securities, including Fannie & Freddie: caveat emptor. The ultimate buyer was the U.S. taxpayer, because those investors knew Fannie & Freddie forays into subprime were covered, why shouldn't theirs be? It's the American Dream, right? And sure enough, they got their bailout, aptly named TARP! We all got TARPed!
T_S_ 16y ago
Revenge is satisfying, but misguided, because most people assume that is enough. Criminalizing business will mean that only crooks will want to run businesses. Instead, most problems of this sort can be prevented in the first place by full transparency. Put the books and records of financial companies on the web, continuously updated, and you won't see as much bad behavior. Of course, this is nothing like our current system and would make most business leaders howl in protest, since they would not know how to "add value" in such a world.
- rauljara 16y ago
  "Criminalizing business will mean that only crooks will want to run businesses." What an absurd sentiment. We already have corporations that brazenly break laws with the understanding that the penalties they suffer will be less than the profits they take. The motivation behind giving already illegal actions real penalties is to actually prevent said illegal actions, which our current system fails to. Revenge needn't be a consideration. We already have crooks running businesses. By penalizing crooks we might actually give honest business people a fair chance.
  - oiuytgfrgh 16y ago
    So who exactly goes to jail? Put it in simple terms, a garage working on your car's brakes screws up. Do you jail the mechanic that worked on the car? Or the service manager that told him to hurry up? Or the middle manager that set the targets for the service time? Or the CEO of the service division? Or the CEO of the car company? Or the CEO of the pension fund that is the main owner of the company - and so the one that benefited from saving money on your service? Corporate manslaughter was introduced in europe after a ferry sinking where a ferry left port with the bow doors open. The captain was the only one charged - but he claimed the company ordered captains to close the doors while at sea to save time in port. Under the old health and safety law the managers who gave the orders couldn't be punished since they weren't present Naturally the only people to have been prosecuted aren't the managers of major industrial accidents - it was a single plumber that fitted a faulty boiler.
  - T_S_ 16y ago
SkyMarshal 16y ago
The Savings & Loan scandal in the early 80s sent hundreds of financiers to jail and almost ended John McCain's political career. The current fraud-ridden crisis has damaged both the economy and government much worse, but has only seen a few show-trials like Bernie Madoff. Moral Hazard is all but non-existent, Wall Street is laughing behind closed doors, the US Government is their mark/whale now. Lawrence Lessig has a good TED talk linking problems like this and others to the influence of money and revolving doors in Washington: http://www.fixcongressfirst.org/blog/entry/lawrence-lessigs-new-ted-talk/ http://www.fixcongressfirst.org/blog/entry/lawrence-lessigs-... Edit: Direct link to the video - http://blip.tv/file/4266077 http://blip.tv/file/4266077
- dhimes 16y ago
  That link won't take you to the talk itself (the linked pages within say "this video is hidden" at Blip tv). This link, which I found from a Facebook link, might work: http://www.youtube.com/watch?v=Odbul86485w http://www.youtube.com/watch?v=Odbul86485w but it wanted me to sign in, and I wouldn't. (I don't have a youtube account and didn't want to use my goog)
  - SkyMarshal 16y ago
    Thanks, I added the direct link.
- iron_ball 16y ago
  People have short memories, though. McCain was one of the Keating Five, yeah, but he was also a candidate for President of the United States of America. As you say, there's no reason to think that the key figures in the Great Recession will endure any lasting stigma either. American capitalism admires grand failure; this is a blessing and a curse.
  - SkyMarshal 16y ago
    I'd say the people who admire grand failure only admire it when they're not negatively impacted by it. For example, tech startups vs Wall Street. There's a difference between grand failure in fields where the expected payoff is asymmetrically positive, like the former, and asymmetrically negative, like the latter. Failures in the former may cost their investors their investment, but it won't cost them more money than they've ever made, or put them into the red so deep as to destroy their whole industry, or bring down the global financial system. While both sides play the odds and spread their bets, the nature of risk and payoff is very different. Also, startups represent an attempt at creating real wealth where none was before - combining labor, capital, innovation, and raw materials to make products that can be sold for more than the sum of their inputs, or services that save time. Alot of what caused the financial crisis was more akin to gambling, despite protestations of 'financial innovation' to the contrary. Failure in the former is admirable, the latter not so much.
pmichaud 16y ago
Jail Time is a nice rallying call, but his real point is that the incentives are perverse for the leaders of corporations. Jail time may or may not realign incentives. I doubt it would --we need much a deeper, systemic overhaul to really realign the incentives of corporations and society at large.
pmichaud 16y ago
Jail Time is a nice rallying call, but his real point is that the incentives are perverse for the leaders of corporations. Jail time may or may not realign incentives. I doubt it would --we need much a deeper, systemic overhaul to really realign the incentives of corporations and society at large.
lkrubner 16y ago
At least in the USA, since the 60s/70s, the tendency has been toward increasing the penalties for any imaginable crime: murder, rape, smoking pot, misstating income, jumping a turnstile when trying to get on a subway - all of these have seen increasing penalties. (For 1st degree murder, the death penalty was reinstated.) The penalties against drugs were increased to the point that the majority of people now being held prison are held for non-violent crimes. The trend toward heavier penalties has effected business, and will effect it more so in the future. Some people find it satisfying to think that criminals will have to face severe penalties, but past a certain point, the law becomes so punitive that rational people will be afraid to take leadership roles, fearing the legal consequences that they may have to face as leaders. The article says: "An institutionalized system of skewed incentives allowed Wall Street bankers and other corporate executives to gamble with America's wealth and then get away largely scot-free after the house of cards came tumbling down, plunging the U.S. into the worst economic crisis in decades and destroying trillions of dollars of wealth worldwide." Tolerance of failure is the first pre-requisite of a dynamic economy. Imagine the kind of laws that would be required to punish every business person who takes large gambles with credit and then fails - I think you would have to say goodbye to the culture of startups that now exists in the USA. Most entrepreneurs take large risks, and most fail during their first attempt at a startup. The implication of Joseph Stiglitz's words is that we should do away with the "limited liability" of the modern corporation. Instead, when corporate officiers gamble with credit and fail, Stiglitz suggests that they face jail time. Certainly, getting rid of limited liability would be in keeping with the trend towards greater and greater punishments. What is limited liability but an impediment to inflicting punishment on people who have gambled and failed? But think this through to the end: do we want to go back to the system we had in the early 1800s, before limited liability was introduced? Do we want to bring back debtors prisons, and all the other awful punishments that once kept the economy semi-frozen? Limited liability has been part of the extraordinary economic dynamism that the world economy has seen over the last 150 years. Tolerance of mistakes, failures and screw-ups is essential to a dynamic economy. If you have any friends who have attempted to launch a startup, ask yourself under what circumstances you think your friends should go to jail. If they gamble with credit and fail, and go bankrupt, should they go to jail? In other words, if they act like a normal startup, should they go to jail? Certainly, their bankruptcy will harm others - the money came from somewhere, after all. Shouldn't they be punished for doing harm to others? I get the reasoning that might lead some to say that such failures should be punished, but please realize the end result will probably be a stifling of innovation. This issue has come up on Hacker News before, and I've written my thoughts about it before: http://www.teamlalala.com/blog/2009/12/24/laws-such-as-sarbanes-oxley-with-punitive-measures-for-business-officers-will-probably-stifle-innovation/ http://www.teamlalala.com/blog/2009/12/24/laws-such-as-sarba...
DevX101 16y ago
We need to separate two types of leaders that often get conflated when talking about "corporate greed". There are: 1) CEOs that explicity break the law. Examples include Mozilo of Countrywide who insider traded, or deliberately misinformed investors through investor calls or financial reports. These guys should go to jail AND pay heavy financial penalties. Then there are 2) CEOs/traders that made legal but unwise all-in bets. This is pretty much much of the leadership from banks in the most recent crash. These leaders should NOT go to jail, as they have not broken any laws. But they and their companies should be held financially liable for any big losses when they inevitably come. Investment banks have been pretty successful at taking their hefty cut of the pie when times are good, but dodging the bullet when bad times inevitably come. JPMorgan (and other banks) have divisions that do investments for pension funds. When times are good, they get their share, but recent losses were completely offloaded onto the city pension funds. Privatization of profits, socialization of losses. Under this scheme, it's actually economically rational for them to make wild bets. They need to feel the pain when those bets don't pan out.
lionhearted 16y ago
I agree. And why stop there? Let's throw politicians and activists and bureaucrats in jail too. Lobbyists, definitely. Lawyers? Definitely. Hey, maybe we can kick the whole thing off by throwing economists in jail. Edit: The point is, Stiglitz is saying let's penalize people for taking ill-gotten gains when things are riding high, and cashing out when things get low. This isn't just a business problem - politicians, activists, bureaucrats, lobbyists, lawyers, and yes, economists all do the same thing. No one seriously suggests clawing back or punishing a politician for making false promises or screwing up the economy, nor anything like that when an economist gets it wrong.
jedwhite 16y ago
This is so dangerous. The problem is you end up with cultures like Australia and Great Britain where corporate failure becomes a crime. In Australia, when you say the word entrepreneur, people think of corporate crooks (Bond, Skase, Adler). Legitimate entrepreneurs who failed, like Jodee Rich with One.Tel, get labelled as crooks. So failure gets stigmatized. So startups become the insanity option. And the entire country gets held back and relies on digging dirt out of the ground and flogging it to China with no added value. Because only big established industries with government sponsored franchises and monopolies are "respectable". Disaster. Don't let a few minority cases pervert America's strength. You don't want to take on a risk averse, "entrepreneurs and company directors are scam artists" culture.
- lotusleaf1987 16y ago
  You're making assumptions and misrepresenting Stigletz argument. Stigletz isn't suggested we should punish failure with prison. He is saying the penalties for corporate criminals need to be enough to discourage deceptive practices that encourage corporations to break the law because that's what's best for business: "the financial industry was engaged in predatory lending practices, deceptive practices. They were optimizing not on producing mortgages that were good for the American families but in maximizing fees." "Meanwhile, stock-based compensation created further skewed incentives by encouraging executives to pursue short-term stock gains at the expense of long-term corporate sustainablity, Stiglitz said, and in some cases encouraged them to deceive their own shareholders." We're not talking about punishing failure, we're talking about punishing crime, note the word deception, in other words fraud or lying.
- electromagnetic 16y ago
  Corporations can be charged with crimes, anywhere. What this is suggesting is that the CEO's actually be held accountable. Yes incorporation protects you from the fiscal results of your actions - the loss of your company should be enough of a punishment for 99% of business owners who fuck up through negligence or greed. However, when you're purposefully embezzling, tax evading and outright breaking moral, ethical and legal codes, then there should be a nice concrete cell waiting for you. If you think fiscal immunity equates to legal and moral immunity, then you have a very distorted view of the world. You'll go away for years for a non-violent mugging, but when you embezzle millions into offshore accounts you're given a slap on the wrist and allowed to leave the country to live in the Bahamas and not even attempt to pay your debt to the people you robbed blind.

68 points by lotusleaf1987 16y ago

Rob a liquor store for $40 bucks and get sent away to prison for 5 or more years. Rob homeowners and investors, like Mozilo of Countrywide Financial, and collect a $140M+ paycheck and the SEC gives you the biggest fine ever of ....drumroll...$67M, $40M of which is going to be paid for on your behalf by Bank of America. This is roughly the equivalent of law enforcement telling the liquor store robber to pay back $7bucks and we'll call it even.

marze 16y ago

And why not?

webXL 16y ago
Because the government and consumer are just as culpable. Fannie and Freddie bought any loan a bank generated. They didn't care about the borrowers ability to pay back the loan! It's inexcusable that a Nobel laureate ignores this fact. It's like blaming the drug dealer for the existence of the drug. No, there are two other parties involved. It's no coincidence that there are huge price distortions in that market either. People who think they know what's best for us telling us it's the "American dream" to own a house and drugs are bad (mmm kay?) are screwing up the market, and freedom. Artificially low interest rates attracted people that otherwise wouldn't be able to afford a house. Laxed lending standards turned a blind eye to the credit worthiness of borrowers. Land use restrictions limited supply and tax credits drove up demand. Big banking and big government created the big bubble and big recession. And they're still rolling in the dough: http://blogs.law.harvard.edu/philg/2009/10/17/how-wall-street-is-making-its-billions/ http://blogs.law.harvard.edu/philg/2009/10/17/how-wall-stree... (devaluing our money in the process) Vote out people like Dodd and Frank (and any republican who supports fiddling with the market - subsidies). Have the wealthy bankers who made their fortunes off of this bubble help those responsible people who are in danger of losing their homes.
- marze 16y ago
  William K. Black, professor at the University of Missouri (and the senior regulator investigating the savings and loan crisis of the 1980s) said: "This is a crisis that we know empirically involved million of fraudulent mortgages being made. We know that the losses are out there. We know that the industry extorted FASB to gimmick the accounting rules, so they didn't have to recognize the losses. We know that the Fed has huge positions as collateral in these fraudulent mortgages. We've seen the Fed, Ambac, Fannie, Freddie, Pimco, Blackrock -- all putting back after investigating tens of billions of dollars of mortgages, and saying, these were sold under false representations and warranties -- frauds, and absolutely no one has gone to jail for it." and "And the problem is we have zero criminal referrals out of most of the regulatory agencies. In comparison in the savings and loan debacle again - maybe 1/40th of the size -- we had thousands of criminal referrals , we got over a thousand priority felony convictions of the elites - these are not the little tellers, the vice presidents -- these are the top people at the savings and loans. There are NONE now. The regulators have to serve as the sherpas to have successful criminal prosecution. We've got to do the heavy lifting, and we have to do the guide function, because the FBI can't possibly do this on its own. Next thing that has to be done - the FBI formed a partnership with the Mortgage Bankers Association -- that's the trade association of the perps."
  - webXL 16y ago
    "these were sold under false representations and warranties -- frauds" Including the fraud politicians put on the American people: everyone should own a house, which came in the form of artificially low interest rates, laxed lending standards, and tax credits. Here's what I have to say to investors of mortgage-backed securities, including Fannie & Freddie: caveat emptor. The ultimate buyer was the U.S. taxpayer, because those investors knew Fannie & Freddie forays into subprime were covered, why shouldn't theirs be? It's the American Dream, right? And sure enough, they got their bailout, aptly named TARP! We all got TARPed!

T_S_ 16y ago

Revenge is satisfying, but misguided, because most people assume that is enough. Criminalizing business will mean that only crooks will want to run businesses. Instead, most problems of this sort can be prevented in the first place by full transparency. Put the books and records of financial companies on the web, continuously updated, and you won't see as much bad behavior. Of course, this is nothing like our current system and would make most business leaders howl in protest, since they would not know how to "add value" in such a world.

rauljara 16y ago
"Criminalizing business will mean that only crooks will want to run businesses." What an absurd sentiment. We already have corporations that brazenly break laws with the understanding that the penalties they suffer will be less than the profits they take. The motivation behind giving already illegal actions real penalties is to actually prevent said illegal actions, which our current system fails to. Revenge needn't be a consideration. We already have crooks running businesses. By penalizing crooks we might actually give honest business people a fair chance.
- oiuytgfrgh 16y ago
  So who exactly goes to jail? Put it in simple terms, a garage working on your car's brakes screws up. Do you jail the mechanic that worked on the car? Or the service manager that told him to hurry up? Or the middle manager that set the targets for the service time? Or the CEO of the service division? Or the CEO of the car company? Or the CEO of the pension fund that is the main owner of the company - and so the one that benefited from saving money on your service? Corporate manslaughter was introduced in europe after a ferry sinking where a ferry left port with the bow doors open. The captain was the only one charged - but he claimed the company ordered captains to close the doors while at sea to save time in port. Under the old health and safety law the managers who gave the orders couldn't be punished since they weren't present Naturally the only people to have been prosecuted aren't the managers of major industrial accidents - it was a single plumber that fitted a faulty boiler.
- T_S_ 16y ago

SkyMarshal 16y ago

The Savings & Loan scandal in the early 80s sent hundreds of financiers to jail and almost ended John McCain's political career. The current fraud-ridden crisis has damaged both the economy and government much worse, but has only seen a few show-trials like Bernie Madoff. Moral Hazard is all but non-existent, Wall Street is laughing behind closed doors, the US Government is their mark/whale now. Lawrence Lessig has a good TED talk linking problems like this and others to the influence of money and revolving doors in Washington: http://www.fixcongressfirst.org/blog/entry/lawrence-lessigs-new-ted-talk/ http://www.fixcongressfirst.org/blog/entry/lawrence-lessigs-... Edit: Direct link to the video - http://blip.tv/file/4266077 http://blip.tv/file/4266077

dhimes 16y ago
That link won't take you to the talk itself (the linked pages within say "this video is hidden" at Blip tv). This link, which I found from a Facebook link, might work: http://www.youtube.com/watch?v=Odbul86485w http://www.youtube.com/watch?v=Odbul86485w but it wanted me to sign in, and I wouldn't. (I don't have a youtube account and didn't want to use my goog)
- SkyMarshal 16y ago
  Thanks, I added the direct link.
iron_ball 16y ago
People have short memories, though. McCain was one of the Keating Five, yeah, but he was also a candidate for President of the United States of America. As you say, there's no reason to think that the key figures in the Great Recession will endure any lasting stigma either. American capitalism admires grand failure; this is a blessing and a curse.
- SkyMarshal 16y ago
  I'd say the people who admire grand failure only admire it when they're not negatively impacted by it. For example, tech startups vs Wall Street. There's a difference between grand failure in fields where the expected payoff is asymmetrically positive, like the former, and asymmetrically negative, like the latter. Failures in the former may cost their investors their investment, but it won't cost them more money than they've ever made, or put them into the red so deep as to destroy their whole industry, or bring down the global financial system. While both sides play the odds and spread their bets, the nature of risk and payoff is very different. Also, startups represent an attempt at creating real wealth where none was before - combining labor, capital, innovation, and raw materials to make products that can be sold for more than the sum of their inputs, or services that save time. Alot of what caused the financial crisis was more akin to gambling, despite protestations of 'financial innovation' to the contrary. Failure in the former is admirable, the latter not so much.

pmichaud 16y ago

Jail Time is a nice rallying call, but his real point is that the incentives are perverse for the leaders of corporations. Jail time may or may not realign incentives. I doubt it would --we need much a deeper, systemic overhaul to really realign the incentives of corporations and society at large.

pmichaud 16y ago

lkrubner 16y ago

At least in the USA, since the 60s/70s, the tendency has been toward increasing the penalties for any imaginable crime: murder, rape, smoking pot, misstating income, jumping a turnstile when trying to get on a subway - all of these have seen increasing penalties. (For 1st degree murder, the death penalty was reinstated.) The penalties against drugs were increased to the point that the majority of people now being held prison are held for non-violent crimes. The trend toward heavier penalties has effected business, and will effect it more so in the future. Some people find it satisfying to think that criminals will have to face severe penalties, but past a certain point, the law becomes so punitive that rational people will be afraid to take leadership roles, fearing the legal consequences that they may have to face as leaders. The article says: "An institutionalized system of skewed incentives allowed Wall Street bankers and other corporate executives to gamble with America's wealth and then get away largely scot-free after the house of cards came tumbling down, plunging the U.S. into the worst economic crisis in decades and destroying trillions of dollars of wealth worldwide." Tolerance of failure is the first pre-requisite of a dynamic economy. Imagine the kind of laws that would be required to punish every business person who takes large gambles with credit and then fails - I think you would have to say goodbye to the culture of startups that now exists in the USA. Most entrepreneurs take large risks, and most fail during their first attempt at a startup. The implication of Joseph Stiglitz's words is that we should do away with the "limited liability" of the modern corporation. Instead, when corporate officiers gamble with credit and fail, Stiglitz suggests that they face jail time. Certainly, getting rid of limited liability would be in keeping with the trend towards greater and greater punishments. What is limited liability but an impediment to inflicting punishment on people who have gambled and failed? But think this through to the end: do we want to go back to the system we had in the early 1800s, before limited liability was introduced? Do we want to bring back debtors prisons, and all the other awful punishments that once kept the economy semi-frozen? Limited liability has been part of the extraordinary economic dynamism that the world economy has seen over the last 150 years. Tolerance of mistakes, failures and screw-ups is essential to a dynamic economy. If you have any friends who have attempted to launch a startup, ask yourself under what circumstances you think your friends should go to jail. If they gamble with credit and fail, and go bankrupt, should they go to jail? In other words, if they act like a normal startup, should they go to jail? Certainly, their bankruptcy will harm others - the money came from somewhere, after all. Shouldn't they be punished for doing harm to others? I get the reasoning that might lead some to say that such failures should be punished, but please realize the end result will probably be a stifling of innovation. This issue has come up on Hacker News before, and I've written my thoughts about it before: http://www.teamlalala.com/blog/2009/12/24/laws-such-as-sarbanes-oxley-with-punitive-measures-for-business-officers-will-probably-stifle-innovation/ http://www.teamlalala.com/blog/2009/12/24/laws-such-as-sarba...

DevX101 16y ago

We need to separate two types of leaders that often get conflated when talking about "corporate greed". There are: 1) CEOs that explicity break the law. Examples include Mozilo of Countrywide who insider traded, or deliberately misinformed investors through investor calls or financial reports. These guys should go to jail AND pay heavy financial penalties. Then there are 2) CEOs/traders that made legal but unwise all-in bets. This is pretty much much of the leadership from banks in the most recent crash. These leaders should NOT go to jail, as they have not broken any laws. But they and their companies should be held financially liable for any big losses when they inevitably come. Investment banks have been pretty successful at taking their hefty cut of the pie when times are good, but dodging the bullet when bad times inevitably come. JPMorgan (and other banks) have divisions that do investments for pension funds. When times are good, they get their share, but recent losses were completely offloaded onto the city pension funds. Privatization of profits, socialization of losses. Under this scheme, it's actually economically rational for them to make wild bets. They need to feel the pain when those bets don't pan out.

lionhearted 16y ago

I agree. And why stop there? Let's throw politicians and activists and bureaucrats in jail too. Lobbyists, definitely. Lawyers? Definitely. Hey, maybe we can kick the whole thing off by throwing economists in jail. Edit: The point is, Stiglitz is saying let's penalize people for taking ill-gotten gains when things are riding high, and cashing out when things get low. This isn't just a business problem - politicians, activists, bureaucrats, lobbyists, lawyers, and yes, economists all do the same thing. No one seriously suggests clawing back or punishing a politician for making false promises or screwing up the economy, nor anything like that when an economist gets it wrong.

jedwhite 16y ago

This is so dangerous. The problem is you end up with cultures like Australia and Great Britain where corporate failure becomes a crime. In Australia, when you say the word entrepreneur, people think of corporate crooks (Bond, Skase, Adler). Legitimate entrepreneurs who failed, like Jodee Rich with One.Tel, get labelled as crooks. So failure gets stigmatized. So startups become the insanity option. And the entire country gets held back and relies on digging dirt out of the ground and flogging it to China with no added value. Because only big established industries with government sponsored franchises and monopolies are "respectable". Disaster. Don't let a few minority cases pervert America's strength. You don't want to take on a risk averse, "entrepreneurs and company directors are scam artists" culture.

lotusleaf1987 16y ago
You're making assumptions and misrepresenting Stigletz argument. Stigletz isn't suggested we should punish failure with prison. He is saying the penalties for corporate criminals need to be enough to discourage deceptive practices that encourage corporations to break the law because that's what's best for business: "the financial industry was engaged in predatory lending practices, deceptive practices. They were optimizing not on producing mortgages that were good for the American families but in maximizing fees." "Meanwhile, stock-based compensation created further skewed incentives by encouraging executives to pursue short-term stock gains at the expense of long-term corporate sustainablity, Stiglitz said, and in some cases encouraged them to deceive their own shareholders." We're not talking about punishing failure, we're talking about punishing crime, note the word deception, in other words fraud or lying.
electromagnetic 16y ago
Corporations can be charged with crimes, anywhere. What this is suggesting is that the CEO's actually be held accountable. Yes incorporation protects you from the fiscal results of your actions - the loss of your company should be enough of a punishment for 99% of business owners who fuck up through negligence or greed. However, when you're purposefully embezzling, tax evading and outright breaking moral, ethical and legal codes, then there should be a nice concrete cell waiting for you. If you think fiscal immunity equates to legal and moral immunity, then you have a very distorted view of the world. You'll go away for years for a non-violent mugging, but when you embezzle millions into offshore accounts you're given a slap on the wrist and allowed to leave the country to live in the Bahamas and not even attempt to pay your debt to the people you robbed blind.