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I read things like this and by fixing LIBOR they're treating a symptom rather than addressing the cause. My belief--and many seem to disagree with me on this w

by cletus 14y ago

I read things like this and by fixing LIBOR they're treating a symptom rather than addressing the cause. My belief--and many seem to disagree with me on this whenever I've brought it up before--is that we erred in allowing investment banks to incorporate. IMHO investment banks need to act like law firms: as partnerships with unlimited liability. Currently there is no incentive to not pervert the system and manage risk because: - no one is going to jail for criminal acts committed in these financial crises (eg loan documentation fraud and illegal foreclosings in the subprime fallout); - there is no financial incentive to act responsibly because if you go bankrupt this year last year's bonus is already banked; - central banks have been perverted into being welfare for investment bankers as a so-called "lender of last resort". Ostensibly they are ensuring the function of the financial system. In practice they are giving investment banks an unhealthy appetite for risk. Banks and funds need to be allowed to fail; and - governments are complicit in this.

photon137 14y ago
I agree with every single point you've made except for the third (ie about central banks). Central banks need to act as the "lender of last resort" - however, what needs to be fixed is the transmission mechanism - so that the emergency loans reach the economy when it needs it and not be used up by intermediary banks trying to shore up their capital reserves when they've blown them up playing roulette. But I think, if points 1 & 2 are addressed well enough, the transmission mechanism would work better and the banks would become what they ought to be - conduits for monetary policy and price discovery. Point 4 - the reason Wall Street bankers get 10-100x the salary of a top-notch achiever in any other sector is because the government has created regulations which allow banks to have an oligopoly in this sector and pay its minions disproportionately high salaries - what saddens me is the same government which wants its best students to go into STEM ends up encouraging them to go into a non-productive profession.
- JumpCrisscross 14y ago
  Central bank as lenders of last reserve barricade against liquidity panics. They need to funnel capital directly into banks' reserves. They don't guard against insolvency (Treasury) nor "funnel money to the real economy" (Congress). One of the best bank rescues of all time, Sweden's, involved pumping capital into banks' equity. Bankers earn less than traders and PE guys. For the same reason that Google has to pay exorbitantly for an engineer because he can walk out into a startup a bank has to keep pay competitive with hedge funds et al. Create/buy parity is maintained. For measure on "non-productive professions" look at how hard emerging economies are working to build domestic fixed income and equity markets. P.S. Anticipating a line of argument, no, the militant high-frequency guys aren't taking home even close to the lion's share of compensation.
  - photon137 14y ago
    Central banks do funnel money into the real economy via their monetary policy (Congress can only provide fiscal stimulus). And lack of liquidity to the extent that it prevents current liabilities to be serviced causes insolvency - something which a Central Bank does guard against. By "bankers", I meant to include the markets guys along with the IBD/M&A/ECM/DCM people. PE people come from the higher echelons of the latter category - which isn't too poorly paid. PE/HF people get the rewards for the risk they take, that's their business - this isn't true for bank-based traders who rely on cheap funding enabled by implicit guarantees from the taxpayer and non-transparent bid-ask spreads and collateral funding rates due to them always having more info than their clients about the market they trade in because, at the end of the day, they are the source for the bid-ask spread and they are the source for the collateral - there's no other conduit - in my book, it's called an oligopoly. They are not reaping returns commensurate to the value they actually provide. Also, a top-notch Google/MS engineer isn't nearly as highly paid as a top HF/bank-prop(yes, the species still exists) trader unless they have equity upshot. As for emerging markets - they aren't trying too hard. It's the western world which wants them to do that so that they can tap into returns more easily which isn't that easy to do with just off-shore/non-deliverable instruments. Emerging economies such as China and India often rely on capital controls for their competitiveness and continued ability to import commodities. Their domestic corporate funding still relies on bank loans. Granted, having more capital markets leads to more transparent pricing and probably cheaper funding - but saying cheap funding is more valuable than the contribution of engineers and doctors and others who translate that funding into real, physical growth is naive, at best.
    - JumpCrisscross 14y ago
      Sorry, I was speaking of central banks within their capacity as lenders of last resort. Monetary policy works through multiple financial intermediaries, not just the banks. I agree that federally insured banks shouldn't have prop desks - but that probably means they won't be making markets, either. The emerging markets are very ambitiously trying to develop capital markets. Singapore issues domestic debt explicitly for the purpose of nurturing a domestic bond market. Shenzen has dangled, in front of me and colleagues, heroic sums to build an equities market making operation. What is your source for saying EMs aren't pursuing a more sophisticated financial system?
- arohner 14y ago
  > Central banks need to act as the "lender of last resort" Central banks act as lender of last resort because fractional reserve banking is broken by design. It's essentially very similar to a race condition in software. Bank runs are a very bad situation that happens only under "hypothetical", or "very rare" situations. The central bank is trying to patch things after the fact. Imagine trying to resolve a race condition that corrupts memory by undoing the corruption after the fact. Insanity. Rather than put a bandaid over the race condition, eliminate the race. The race happens because customers put a large pile of money into the bank, and don't specify when they need it back. The bank assumes the customer will leave it in the bank for a certain amount of time. Then if customers get spooked because of something they hear on the news, they'll want to take all their money out. The result? Only 10% of it is liquid, and the rest is tied up in loans that won't be repaid for years. If the next customer wants to take their cash out, the bank is forced to sell short the loans it issued (which could be entirely legitimate and profitable). The bank now faces bankruptcy. In this situation, the bank run is rational, because the first N customers will get 100% of their money out, but the N+1th might only get 90% of their cash back. It's worth pointing out this flaw is present, and exploitable in any fractional reserve bank at any time, regardless of how good its finances are. All you need is enough customers taking their money out at the same time. The solution is really very simple. Require the customer to specify when they'll need their money back, and the bank is not allowed to loan out that money for shorter periods of time than the customer specified. i.e. if I have an account at a bank, I'd say "I will always need access to $1000 in cash at any time of the day. Then I'll save $5000 for a vacation in six months, and won't need to touch the rest for 10 years." The bank then matches up the money you stored with available loans. i.e. your $5k in vacation money can only be loaned to other clients at terms of six months or shorter, so you and the bank have a clear understanding of when the money is available. What this means is bank runs are not rational (nor possible, because you have a contractual obligation about when you get your money back). No central bank nor lender of last resort is necessary now.
  - JumpCrisscross 14y ago
    Actually the solution is simpler: deposit insurance. Strikingly, economists thought about these things before Hacker News. Restricting banks to time deposits pushes the liquidity problem onto the depositors (you need to break your time deposit for an emergency? Nope, can't do it). It is also similar to how post-war financial repression created the Eurodollar savings markets that produced much of the mess in the 1980s. P.S. shadow banks try to do this by raising money wholesale at fixed maturities. Problem is nobody wants to lend to a bank unsecured for long tenors. Hence, one constricts the yield curve to the short, volatile end.
rayiner 14y ago
I agree with you. The partnership structure forces law firms to be run very conservatively, and prevents them from scaling to huge sizes, which has the advantage of limiting the amount of consolidation in the industry. I think for professions like banking, law, and accounting, these are good incentives. I think it would also help to take more seriously the ethical responsibilities of bankers as fiduciaries' for peoples' money. A law firm cannot represent both sides of a merger, because that would involve a conflict of interest. So why can Goldman take positions where they stand to profit enormously if their clients lose money?
- twoodfin 14y ago
  So why can Goldman take positions where they stand to profit enormously if their clients lose money? Because Goldman's clients are grown-ups and allowed to have their own beliefs about the future of the market, as well as their own risk tolerance. Goldman wasn't obligated to put up a shingle reading "We are losing our appetite for CDOs, and so can't take your money if you think they're still a great investment."
  - forensic 14y ago
    >Goldman wasn't obligated to put up a shingle reading "We are losing our appetite for CDOs, and so can't take your money if you think they're still a great investment." This is the problem. They should be obligated. Being a professional carries ethical constraints. If your clients aren't getting your best advice you aren't a professional, you are a salesman. It's not okay for salesmen to pose as professionals.
    - lsc 14y ago
      >This is the problem. They should be obligated. Being a professional carries ethical constraints. If your clients aren't getting your best advice you aren't a professional, you are a salesman. It's not okay for salesmen to pose as professionals. Now, modern usage of 'professional' aside,(I killed a long screed about how the only people putting effort into being seen as professionals anymore are salespeople, thus the word is losing it's previously positive connotations.) This idea that "professionals are trustworthy" comes from the outmoded idea that the upper classes are somehow more honest and trustworthy than the 'working man' - that because the lawyer has more education than the plumber, and probably comes from a higher-class background, he has a feeling of "Noblesse oblige" - and you can therefore trust the lawyer while you can not trust the plumber.
deleted 14y ago
[deleted]
- rayiner 14y ago
  The LLP shield is a lot thinner than the Corporation shield. It basically protects you from liability that is wholly the result of another partner's independent actions. You retain unlimited liability for your own conduct, actions involving fraud, actions of employees in your supervision. On top of that there is a layer of fiduciary duties not to mention an ethical regulatory system that can give you the professional death penalty (disbarment) for conduct that many businesspeople wouldn't even think twice about (self-dealing, representing two sides of a transaction, etc).
mixmax 14y ago
Switzerland actually has a very interesting banking law: The directors and the board are personally liable if a bank goes bankrupt. Not a lot of Swiss banks go bankrupt..
- JumpCrisscross 14y ago
  Our banks are private partnerships with unlimited liability for directors - this tends to increase the give-a-shit factor for reviewing assets and loans but also limits scale. Thus, we also have the incorporated UBS and Credit Suisse who, in proper fashion, proceed to blow up perennially.
  - j-g-faustus 14y ago
    Is "limits scale" a bug or a feature? I expect that a lot of the success of the capitalist model stems from the fact that most actors in this model are not too big to fail. (See "internet": To make a resistent system, minimize the impact of any single node going down.) The idea of a "market" is based on something like a bazaar, where no individual actor matters. When any single actor is large enough to matter on their own, you are leaving the the market model behind. There are terms like "monopoly" and "oligopoly" for that. When the issue is "we can't let these actors fail, they are so big that it would destroy the market", it sounds like the solution should be a simple size limitation. Where's the problem with that?
    - msellout 14y ago
      There are some efficiencies that come with scale. For example, it's preferable to have very large utility companies with heavy regulation. I tend to agree that scale is unnecessary for investment banking. If an entity needs capital in bulk it can go public.
      - deleted 14y ago
        [deleted]
      - seabee 14y ago
asg 14y ago
So long as the primary leverage in an investment bank's business was people (skills, relationships), they were happy being partnerships. In the 80's as investment banks discovered the joy of trading profits, they realised they could then leverage capital (pun intended). That therefore led to their finding more capital, in one of three ways, all which started to happen in the next 10-15 years : merging with commercial banks (which in turn allowed commercial banks to earn larger returns on their capital ... much better than lending to the neighbourhood convenience store); going public; and pressuring regulators to allow higher debt/capital ratios. So, as with everything, a simple matter of incentives.
Rastafarian 14y ago
Really? "we erred" ? The most powerful people in the world asked for your permission?
seanp2k2 14y ago
This is a great idea, and I'd love to see some of these crooks who are literally ruining countries get locked up in prison. I bet the economy would recover REAL quick if we started throwing hedge fund managers in prison.
- cstavish 14y ago
  I agree that some of the crooks should be prosecuted and sent to prison (of course the Department of Justice has bigger fish to fry, like adulterer John Edwards), but that would have little or no effect on short-term economic recovery.
MikeCapone 14y ago
Warren Buffett and Charlie Munger think along similar lines, though I don't think they mentioned incorporation. But for the system to work, those playing with these huge sums definitely need to be on the hook for the downside, not just the upside. I mean, shareholders of AIG or BAC or whatever got pretty wiped out, but a lot of bankers, as you said, get compensated more with cash bonuses than stock, and these don't get the downside.
crasshopper 14y ago
Regarding this part of your statement: there is no financial incentive to act responsibly because if you go bankrupt this year last year's bonus is already banked; it should be noted that many bankers are terrible at saving; they simply scale up their spending rather than building a cushion for themselves. A large fraction of last year's bonus may already be gone or spoken for.
- pdeuchler 14y ago
  Source?
  - crasshopper 14y ago
    I'm sorry, I do not have quantitative data on the savings rates of finance professionals. This is just based on my personal observations.
sigkill 14y ago
>is that we erred in allowing investment banks to incorporate Pardon my ignorance, but was there such a time in the past when investment banks weren't limited liability?
- Thrymr 14y ago
  They used to be limited liability partnerships, but now are public corporations. For example, Goldman Sachs went public in 1999. Liability in a partnerships isn't unlimited as the GP suggests, but there is a higher level of personal responsibility.
  - sigkill 14y ago
    I understand that as a partner in an LLC/WLL that even in a "limited liability" the liability is quite present. :-) I'm too young to remember private banks as llc/wll though. This reminds me of an anecdote told by my dad. He had bankers calling him quite often asking to "invest" his money instead of letting it sit in the account. For the first few times, as courtesy he'd politely decline. But when they really started getting to him, he coolly said something like this, "If you or anyone in your chain can PERSONALLY guarantee that you will NOT lose my money in the current scenario I will pull out every single cent I have and gladly hand it over to you". Needless to say, he stopped getting the calls.

by cletus 14y ago

photon137 14y ago

I agree with every single point you've made except for the third (ie about central banks). Central banks need to act as the "lender of last resort" - however, what needs to be fixed is the transmission mechanism - so that the emergency loans reach the economy when it needs it and not be used up by intermediary banks trying to shore up their capital reserves when they've blown them up playing roulette. But I think, if points 1 & 2 are addressed well enough, the transmission mechanism would work better and the banks would become what they ought to be - conduits for monetary policy and price discovery. Point 4 - the reason Wall Street bankers get 10-100x the salary of a top-notch achiever in any other sector is because the government has created regulations which allow banks to have an oligopoly in this sector and pay its minions disproportionately high salaries - what saddens me is the same government which wants its best students to go into STEM ends up encouraging them to go into a non-productive profession.

JumpCrisscross 14y ago
Central bank as lenders of last reserve barricade against liquidity panics. They need to funnel capital directly into banks' reserves. They don't guard against insolvency (Treasury) nor "funnel money to the real economy" (Congress). One of the best bank rescues of all time, Sweden's, involved pumping capital into banks' equity. Bankers earn less than traders and PE guys. For the same reason that Google has to pay exorbitantly for an engineer because he can walk out into a startup a bank has to keep pay competitive with hedge funds et al. Create/buy parity is maintained. For measure on "non-productive professions" look at how hard emerging economies are working to build domestic fixed income and equity markets. P.S. Anticipating a line of argument, no, the militant high-frequency guys aren't taking home even close to the lion's share of compensation.
- photon137 14y ago
  Central banks do funnel money into the real economy via their monetary policy (Congress can only provide fiscal stimulus). And lack of liquidity to the extent that it prevents current liabilities to be serviced causes insolvency - something which a Central Bank does guard against. By "bankers", I meant to include the markets guys along with the IBD/M&A/ECM/DCM people. PE people come from the higher echelons of the latter category - which isn't too poorly paid. PE/HF people get the rewards for the risk they take, that's their business - this isn't true for bank-based traders who rely on cheap funding enabled by implicit guarantees from the taxpayer and non-transparent bid-ask spreads and collateral funding rates due to them always having more info than their clients about the market they trade in because, at the end of the day, they are the source for the bid-ask spread and they are the source for the collateral - there's no other conduit - in my book, it's called an oligopoly. They are not reaping returns commensurate to the value they actually provide. Also, a top-notch Google/MS engineer isn't nearly as highly paid as a top HF/bank-prop(yes, the species still exists) trader unless they have equity upshot. As for emerging markets - they aren't trying too hard. It's the western world which wants them to do that so that they can tap into returns more easily which isn't that easy to do with just off-shore/non-deliverable instruments. Emerging economies such as China and India often rely on capital controls for their competitiveness and continued ability to import commodities. Their domestic corporate funding still relies on bank loans. Granted, having more capital markets leads to more transparent pricing and probably cheaper funding - but saying cheap funding is more valuable than the contribution of engineers and doctors and others who translate that funding into real, physical growth is naive, at best.
  - JumpCrisscross 14y ago
    Sorry, I was speaking of central banks within their capacity as lenders of last resort. Monetary policy works through multiple financial intermediaries, not just the banks. I agree that federally insured banks shouldn't have prop desks - but that probably means they won't be making markets, either. The emerging markets are very ambitiously trying to develop capital markets. Singapore issues domestic debt explicitly for the purpose of nurturing a domestic bond market. Shenzen has dangled, in front of me and colleagues, heroic sums to build an equities market making operation. What is your source for saying EMs aren't pursuing a more sophisticated financial system?
arohner 14y ago
> Central banks need to act as the "lender of last resort" Central banks act as lender of last resort because fractional reserve banking is broken by design. It's essentially very similar to a race condition in software. Bank runs are a very bad situation that happens only under "hypothetical", or "very rare" situations. The central bank is trying to patch things after the fact. Imagine trying to resolve a race condition that corrupts memory by undoing the corruption after the fact. Insanity. Rather than put a bandaid over the race condition, eliminate the race. The race happens because customers put a large pile of money into the bank, and don't specify when they need it back. The bank assumes the customer will leave it in the bank for a certain amount of time. Then if customers get spooked because of something they hear on the news, they'll want to take all their money out. The result? Only 10% of it is liquid, and the rest is tied up in loans that won't be repaid for years. If the next customer wants to take their cash out, the bank is forced to sell short the loans it issued (which could be entirely legitimate and profitable). The bank now faces bankruptcy. In this situation, the bank run is rational, because the first N customers will get 100% of their money out, but the N+1th might only get 90% of their cash back. It's worth pointing out this flaw is present, and exploitable in any fractional reserve bank at any time, regardless of how good its finances are. All you need is enough customers taking their money out at the same time. The solution is really very simple. Require the customer to specify when they'll need their money back, and the bank is not allowed to loan out that money for shorter periods of time than the customer specified. i.e. if I have an account at a bank, I'd say "I will always need access to $1000 in cash at any time of the day. Then I'll save $5000 for a vacation in six months, and won't need to touch the rest for 10 years." The bank then matches up the money you stored with available loans. i.e. your $5k in vacation money can only be loaned to other clients at terms of six months or shorter, so you and the bank have a clear understanding of when the money is available. What this means is bank runs are not rational (nor possible, because you have a contractual obligation about when you get your money back). No central bank nor lender of last resort is necessary now.
- JumpCrisscross 14y ago
  Actually the solution is simpler: deposit insurance. Strikingly, economists thought about these things before Hacker News. Restricting banks to time deposits pushes the liquidity problem onto the depositors (you need to break your time deposit for an emergency? Nope, can't do it). It is also similar to how post-war financial repression created the Eurodollar savings markets that produced much of the mess in the 1980s. P.S. shadow banks try to do this by raising money wholesale at fixed maturities. Problem is nobody wants to lend to a bank unsecured for long tenors. Hence, one constricts the yield curve to the short, volatile end.

rayiner 14y ago

I agree with you. The partnership structure forces law firms to be run very conservatively, and prevents them from scaling to huge sizes, which has the advantage of limiting the amount of consolidation in the industry. I think for professions like banking, law, and accounting, these are good incentives. I think it would also help to take more seriously the ethical responsibilities of bankers as fiduciaries' for peoples' money. A law firm cannot represent both sides of a merger, because that would involve a conflict of interest. So why can Goldman take positions where they stand to profit enormously if their clients lose money?

twoodfin 14y ago
So why can Goldman take positions where they stand to profit enormously if their clients lose money? Because Goldman's clients are grown-ups and allowed to have their own beliefs about the future of the market, as well as their own risk tolerance. Goldman wasn't obligated to put up a shingle reading "We are losing our appetite for CDOs, and so can't take your money if you think they're still a great investment."
- forensic 14y ago
  >Goldman wasn't obligated to put up a shingle reading "We are losing our appetite for CDOs, and so can't take your money if you think they're still a great investment." This is the problem. They should be obligated. Being a professional carries ethical constraints. If your clients aren't getting your best advice you aren't a professional, you are a salesman. It's not okay for salesmen to pose as professionals.
  - lsc 14y ago
    >This is the problem. They should be obligated. Being a professional carries ethical constraints. If your clients aren't getting your best advice you aren't a professional, you are a salesman. It's not okay for salesmen to pose as professionals. Now, modern usage of 'professional' aside,(I killed a long screed about how the only people putting effort into being seen as professionals anymore are salespeople, thus the word is losing it's previously positive connotations.) This idea that "professionals are trustworthy" comes from the outmoded idea that the upper classes are somehow more honest and trustworthy than the 'working man' - that because the lawyer has more education than the plumber, and probably comes from a higher-class background, he has a feeling of "Noblesse oblige" - and you can therefore trust the lawyer while you can not trust the plumber.

deleted 14y ago

[deleted]

rayiner 14y ago
The LLP shield is a lot thinner than the Corporation shield. It basically protects you from liability that is wholly the result of another partner's independent actions. You retain unlimited liability for your own conduct, actions involving fraud, actions of employees in your supervision. On top of that there is a layer of fiduciary duties not to mention an ethical regulatory system that can give you the professional death penalty (disbarment) for conduct that many businesspeople wouldn't even think twice about (self-dealing, representing two sides of a transaction, etc).

mixmax 14y ago

Switzerland actually has a very interesting banking law: The directors and the board are personally liable if a bank goes bankrupt. Not a lot of Swiss banks go bankrupt..

JumpCrisscross 14y ago
Our banks are private partnerships with unlimited liability for directors - this tends to increase the give-a-shit factor for reviewing assets and loans but also limits scale. Thus, we also have the incorporated UBS and Credit Suisse who, in proper fashion, proceed to blow up perennially.
- j-g-faustus 14y ago
  Is "limits scale" a bug or a feature? I expect that a lot of the success of the capitalist model stems from the fact that most actors in this model are not too big to fail. (See "internet": To make a resistent system, minimize the impact of any single node going down.) The idea of a "market" is based on something like a bazaar, where no individual actor matters. When any single actor is large enough to matter on their own, you are leaving the the market model behind. There are terms like "monopoly" and "oligopoly" for that. When the issue is "we can't let these actors fail, they are so big that it would destroy the market", it sounds like the solution should be a simple size limitation. Where's the problem with that?
  - msellout 14y ago
    There are some efficiencies that come with scale. For example, it's preferable to have very large utility companies with heavy regulation. I tend to agree that scale is unnecessary for investment banking. If an entity needs capital in bulk it can go public.
    - deleted 14y ago
      [deleted]
    - seabee 14y ago

asg 14y ago

So long as the primary leverage in an investment bank's business was people (skills, relationships), they were happy being partnerships. In the 80's as investment banks discovered the joy of trading profits, they realised they could then leverage capital (pun intended). That therefore led to their finding more capital, in one of three ways, all which started to happen in the next 10-15 years : merging with commercial banks (which in turn allowed commercial banks to earn larger returns on their capital ... much better than lending to the neighbourhood convenience store); going public; and pressuring regulators to allow higher debt/capital ratios. So, as with everything, a simple matter of incentives.

Rastafarian 14y ago

Really? "we erred" ? The most powerful people in the world asked for your permission?

seanp2k2 14y ago

This is a great idea, and I'd love to see some of these crooks who are literally ruining countries get locked up in prison. I bet the economy would recover REAL quick if we started throwing hedge fund managers in prison.

cstavish 14y ago
I agree that some of the crooks should be prosecuted and sent to prison (of course the Department of Justice has bigger fish to fry, like adulterer John Edwards), but that would have little or no effect on short-term economic recovery.

MikeCapone 14y ago

Warren Buffett and Charlie Munger think along similar lines, though I don't think they mentioned incorporation. But for the system to work, those playing with these huge sums definitely need to be on the hook for the downside, not just the upside. I mean, shareholders of AIG or BAC or whatever got pretty wiped out, but a lot of bankers, as you said, get compensated more with cash bonuses than stock, and these don't get the downside.

crasshopper 14y ago

Regarding this part of your statement: there is no financial incentive to act responsibly because if you go bankrupt this year last year's bonus is already banked; it should be noted that many bankers are terrible at saving; they simply scale up their spending rather than building a cushion for themselves. A large fraction of last year's bonus may already be gone or spoken for.

pdeuchler 14y ago
Source?
- crasshopper 14y ago
  I'm sorry, I do not have quantitative data on the savings rates of finance professionals. This is just based on my personal observations.

sigkill 14y ago

>is that we erred in allowing investment banks to incorporate Pardon my ignorance, but was there such a time in the past when investment banks weren't limited liability?

Thrymr 14y ago
They used to be limited liability partnerships, but now are public corporations. For example, Goldman Sachs went public in 1999. Liability in a partnerships isn't unlimited as the GP suggests, but there is a higher level of personal responsibility.
- sigkill 14y ago
  I understand that as a partner in an LLC/WLL that even in a "limited liability" the liability is quite present. :-) I'm too young to remember private banks as llc/wll though. This reminds me of an anecdote told by my dad. He had bankers calling him quite often asking to "invest" his money instead of letting it sit in the account. For the first few times, as courtesy he'd politely decline. But when they really started getting to him, he coolly said something like this, "If you or anyone in your chain can PERSONALLY guarantee that you will NOT lose my money in the current scenario I will pull out every single cent I have and gladly hand it over to you". Needless to say, he stopped getting the calls.