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In theory (stress theory) the shareholders (represented by the board) put a CEO in who establishes systems to minimize the risks of mini blow ups. But if the g
by mathattack 13y ago
In theory (stress theory) the shareholders (represented by the board) put a CEO in who establishes systems to minimize the risks of mini blow ups. But if the govt doesn't have to bail out a firm, who outside it should worry? If an overly ambitious marketing Manager at Colgate wastes 200 million dollars on a stupid idea, it's not my problem as an outsider.
As a corporate insider I can encourage systems where people have the right balance between risk taking and risk aversion. (Most large companies are too risk averse. Try implementing a change initiative at one.)
- AnthonyMouse 13y ago> In theory (stress theory) the shareholders (represented by the board) put a CEO in who establishes systems to minimize the risks of mini blow ups. In theory. But if that isn't what happens in practice then what good is it? > But if the govt doesn't have to bail out a firm, who outside it should worry? You don't have to worry about the shareholders of some individual mismanaged corporation, what you have to worry about is that the principle you're trying to apply to prevent systemic risk has an established track record of being ineffective when applied to prevent internal risk, and it is not clear why you should expect any different result. Again, the trouble is that you need a solution to the underlying problem. What "systems to minimize the risks" are there that corporations could cost effectively employ but are not already in place? How do you fix the problem that in a competitive market a company that spends resources on managing risks will be at a short-term disadvantage against a company that takes blind risks, and may consequently not survive long enough to see the day when its competitor has to pay the price for its risk taking?