4 ms·

I think we're mixing up a bit of stuff, mainly the training and legal structure of corporations and the actions their directors might or might not take. Let's

I think we're mixing up a bit of stuff, mainly the training and legal structure of corporations and the actions their directors might or might not take. Let's be very clear: directors who release a toxin into the environment, if done purposely, will end up in jail. Corporations who do it accidentally will end up paying for damages. If they don't, that's a failure of our criminal justice system, not the way corporations are formed. most directors may be very amoral sorts only caring for the bottom line. That's fine. Our system is full of folks only looking for short term gain, yet the greater good is still served. That's the beauty of our system. No matter how hard we try and how much we want it, nobody has ever created a complex system of people that worked solely on altruism. What it looks like to me is that directors have evolved corporations into sort of a representative republic. Shareholders elect them to be autonomous and free to manage as they see fit -- not move hither and fro based on the opinion-of-the-day. Just like with Congress, there's probably a very good reason corps have evolved like this. It'd be interesting to see a study of more participatory shareholders and how things shook out. I'm willing to bet there are a lot of problems with direct shareholder rule and that what we're seeing is at least a local maximum.

jbooth 15y ago
Representative republic, really? I'm not advocating to burn the whole system to the ground or anything but I'd say you're overstating the not-brokenness of it in 2011. As far as going to jail for being sociopathic burdens on society, well this one's hot off the presses, nobody goes to jail from Citibank or Goldman for committing fraud: http://www.usatoday.com/money/industries/banking/story/2011-10-19/sec-citigroup-mortgage-securities-fraud/50825740/1 http://www.usatoday.com/money/industries/banking/story/2011-... I don't have access to their books but it's likely they made more money on the fraud than they paid in the fine. Goes doubly for Goldman. And that's just externality-brokenness. I don't think the corporations even function as a representative republic. How do you explain HP's board? Or any of the nepotism that seems to happen across many similar boads so regularly? How many non-board-member-shareholders exercise any influence whatsoever?
- yummyfajitas 15y ago
  ...nobody goes to jail from Citibank or Goldman for [allegedly] committing [civil, not criminal] fraud... Fixed that for you. Note that neither Citi nor Goldman were convicted of fraud, they merely settled with no admission of wrongdoing to make it go away. Further, even if convicted, you don't go to jail for civil offenses. I don't have access to their books but it's likely they made more money on the fraud than they paid in the fine. From the article: "The payment includes the fees and profit Citigroup earned, plus $30 million in interest and a $95 million penalty." In Goldman's case, the settlement money does not subtract the money Goldman lost on ABACUS.
  - jbooth 15y ago
    Hey, I know you work in finance on your own, and that's fine, good luck to you, but "too big to fail" should include things like "don't make a bunch of terrible bets and then hoodwink your customers into taking the fall on those bets for you". Sounds like they did great on the deal to me, considering the alternative was to be the last one holding those CDOs when they exploded. If I were them, I'd call that fine the cost of doing business for a great business decision.
    - yummyfajitas 15y ago
      ... "too big to fail" should include things like "don't make a bunch of terrible bets and then hoodwink your customers into taking the fall on those bets for you". I don't understand the mechanics of this. It should be illegal for "too big to fail" banks to sell a security when they believe it's price will go down? Should it also be illegal to buy when one believes a security is going up? ...the alternative was to be the last one holding those CDOs when they exploded... Goldman was the last one holding (some tranches of) ABACUS when the housing market collapsed. That's why they lost money. Incidentally, I no longer work in finance.
      - jbooth 15y ago
        So, the mechanic that did happen is that those banks were holding a ton of CDOs, and unloaded as many as they could before they exploded by calling their customers and saying "Hey, check this out, these bonds are super-hot right now, great deal, you should buy it". As far as the mechanics of my perfect system, "too big to fail" should be done away with, along with proper enforcement of our existing fraud laws. We'll have eliminated the means (smaller banks) and motive (deterred by steep penalties) for this happening again. As of now, I don't see what's changed since 2008. That settlement's ridiculous. A few hundred million for each bank? How many of these things did they take off their balance sheet in 2007-2008 while selling them to their customers as perfectly good bonds?
gnosis 15y ago
"Our system is full of folks only looking for short term gain, yet the greater good is still served." I don't know where you live, but it can't be in the United States of America.
- vannevar 15y ago
  "Our system is full of folks only looking for short term gain, yet the greater good is still served." This is the hypothesis of unfettered capitalism, the proof remains elusive.
  - drunkpotato 15y ago
    The free market is such a beautiful theory that no proof is required. The free market can never fail, you see, it can only be failed. Thirty years of deregulation and regulatory capture led to economic disaster because the market just wasn't free enough. That is seriously the argument some people make. I find it obnoxious and so trivially, obviously false it baffles me that people who are not rich actually make this argument.(1) I have trouble believing in a system which collapses at the slightest deviation from perfection. (1) I can, however, easily see why an ethically challenged rich person would make such a self-serving argument. No, I don't think all or most rich people are ethically challenged. Certainly some are. I hate making so many caveats and having such a defensive tone in these footnotes, but I've argued on the internet before. It went okay.
aaronbrethorst 15y ago
Let's be very clear: directors who release a toxin into the environment, if done purposely, will end up in jail. I'm pretty sure no one from Sherwin-Williams ever went to jail over dumping toxins into the Cuyahoga River (http://www.wbez.org/frontandcenter/2011-06-22/anniversary-cuyahoga-fires-igniting-environmental-movement-88161 http://www.wbez.org/frontandcenter/2011-06-22/anniversary-cu...) Corporations who do it accidentally will end up paying for damages. If they don't, that's a failure of our criminal justice system, not the way corporations are formed. Except that a) most of these cases are civil, not criminal (which, haha, is a crime in my opinion), and b) writing off tragedies of the commons as a "failure of our system" only serves to perpetuate this sort of behavior. * most directors may be very amoral sorts only caring for the bottom line. That's fine.* How is it acceptable to support or encouragement amoral behavior? That's a slippery slope. Today we're talking about whether or not it's acceptable to dump toxins, tomorrow we might be talking about whether or not it's ok for companies to foment a coup d'etat (oh wait, that's already happened, too).

jbooth 15y ago

Representative republic, really? I'm not advocating to burn the whole system to the ground or anything but I'd say you're overstating the not-brokenness of it in 2011. As far as going to jail for being sociopathic burdens on society, well this one's hot off the presses, nobody goes to jail from Citibank or Goldman for committing fraud: http://www.usatoday.com/money/industries/banking/story/2011-10-19/sec-citigroup-mortgage-securities-fraud/50825740/1 http://www.usatoday.com/money/industries/banking/story/2011-... I don't have access to their books but it's likely they made more money on the fraud than they paid in the fine. Goes doubly for Goldman. And that's just externality-brokenness. I don't think the corporations even function as a representative republic. How do you explain HP's board? Or any of the nepotism that seems to happen across many similar boads so regularly? How many non-board-member-shareholders exercise any influence whatsoever?

yummyfajitas 15y ago
...nobody goes to jail from Citibank or Goldman for [allegedly] committing [civil, not criminal] fraud... Fixed that for you. Note that neither Citi nor Goldman were convicted of fraud, they merely settled with no admission of wrongdoing to make it go away. Further, even if convicted, you don't go to jail for civil offenses. I don't have access to their books but it's likely they made more money on the fraud than they paid in the fine. From the article: "The payment includes the fees and profit Citigroup earned, plus $30 million in interest and a $95 million penalty." In Goldman's case, the settlement money does not subtract the money Goldman lost on ABACUS.
- jbooth 15y ago
  Hey, I know you work in finance on your own, and that's fine, good luck to you, but "too big to fail" should include things like "don't make a bunch of terrible bets and then hoodwink your customers into taking the fall on those bets for you". Sounds like they did great on the deal to me, considering the alternative was to be the last one holding those CDOs when they exploded. If I were them, I'd call that fine the cost of doing business for a great business decision.
  - yummyfajitas 15y ago
    ... "too big to fail" should include things like "don't make a bunch of terrible bets and then hoodwink your customers into taking the fall on those bets for you". I don't understand the mechanics of this. It should be illegal for "too big to fail" banks to sell a security when they believe it's price will go down? Should it also be illegal to buy when one believes a security is going up? ...the alternative was to be the last one holding those CDOs when they exploded... Goldman was the last one holding (some tranches of) ABACUS when the housing market collapsed. That's why they lost money. Incidentally, I no longer work in finance.
    - jbooth 15y ago
      So, the mechanic that did happen is that those banks were holding a ton of CDOs, and unloaded as many as they could before they exploded by calling their customers and saying "Hey, check this out, these bonds are super-hot right now, great deal, you should buy it". As far as the mechanics of my perfect system, "too big to fail" should be done away with, along with proper enforcement of our existing fraud laws. We'll have eliminated the means (smaller banks) and motive (deterred by steep penalties) for this happening again. As of now, I don't see what's changed since 2008. That settlement's ridiculous. A few hundred million for each bank? How many of these things did they take off their balance sheet in 2007-2008 while selling them to their customers as perfectly good bonds?

gnosis 15y ago

"Our system is full of folks only looking for short term gain, yet the greater good is still served." I don't know where you live, but it can't be in the United States of America.

vannevar 15y ago
"Our system is full of folks only looking for short term gain, yet the greater good is still served." This is the hypothesis of unfettered capitalism, the proof remains elusive.
- drunkpotato 15y ago
  The free market is such a beautiful theory that no proof is required. The free market can never fail, you see, it can only be failed. Thirty years of deregulation and regulatory capture led to economic disaster because the market just wasn't free enough. That is seriously the argument some people make. I find it obnoxious and so trivially, obviously false it baffles me that people who are not rich actually make this argument.(1) I have trouble believing in a system which collapses at the slightest deviation from perfection. (1) I can, however, easily see why an ethically challenged rich person would make such a self-serving argument. No, I don't think all or most rich people are ethically challenged. Certainly some are. I hate making so many caveats and having such a defensive tone in these footnotes, but I've argued on the internet before. It went okay.

aaronbrethorst 15y ago

Let's be very clear: directors who release a toxin into the environment, if done purposely, will end up in jail. I'm pretty sure no one from Sherwin-Williams ever went to jail over dumping toxins into the Cuyahoga River (http://www.wbez.org/frontandcenter/2011-06-22/anniversary-cuyahoga-fires-igniting-environmental-movement-88161 http://www.wbez.org/frontandcenter/2011-06-22/anniversary-cu...) Corporations who do it accidentally will end up paying for damages. If they don't, that's a failure of our criminal justice system, not the way corporations are formed. Except that a) most of these cases are civil, not criminal (which, haha, is a crime in my opinion), and b) writing off tragedies of the commons as a "failure of our system" only serves to perpetuate this sort of behavior. * most directors may be very amoral sorts only caring for the bottom line. That's fine.* How is it acceptable to support or encouragement amoral behavior? That's a slippery slope. Today we're talking about whether or not it's acceptable to dump toxins, tomorrow we might be talking about whether or not it's ok for companies to foment a coup d'etat (oh wait, that's already happened, too).