dagblog - Comments for "Punishment or Pushback: Financial Regulation in the Midst of Recession"

Nothing new under the sun.

Flavius — Sun, 29 May 2011 10:47:27 +0000

Nothing new under the sun. Enron like Lehman was "transferring" its losses under a sham contract which got them temporarily off their balance sheet. This wasn't fixing the problem just buying time. In that respect they were like Madoff Just hoping the horse would talk..

Some times the animal does.

A friend was the comptroller of a successful start up which was acquired by a conglomerate.They'd been cooking the books for years which the acquirer quickly found. Whatever the weaknesses of accountants they quickly find financial errors when the client wants them to find financial errors. The exec from the acquirer ( who went on to be the budget director in Washington)called my friend and the CEO in and described what he'd found .Then said: " I know this, you know it, we're the only 3 people in the world who know it and know one else will ever know". The start up CEO left of course and was hired to be CEO of a Fortune 500 company where he was a "darling" of Wall Street because of its "profitable" performance.For a while.

Took my friend with him.

There may be law- abiding companies. I just never happened to work for or with any.

Damn. Your buddy Andrew

Obey — Sun, 29 May 2011 01:13:29 +0000

In reply to I believe it's more likely

Damn. Your buddy Andrew Fastow should have had you defending him. I'm sure he'd be out of prison by now...

I believe it's more likely

Flavius — Sun, 29 May 2011 00:15:18 +0000

In reply to Reread.I'm saying a number of

I believe it's more likely that a Fortune 500 CEO has broken the law than a CFO has. Mostly the CFO's can achieve the result that's wanted without acting illegally. The secret is to read the Accounting Principles the way that Alioto reads the Constitution. i.e. you come to a conclusion first and then cobble together some words to support it.There was a good New Yorker cartoon showing a suit introducing someone to a group, saying " And Bill ,here, will be in charge of calculating our profits according to-heh ,heh - generally accepted accounting principles."

It's somewhat different for the CEO. .He's selected by the board with the understanding that he'll violate regs when he needs to- and will keep them in the dark.

Part of corporate america's intense public opposition to regulations is running interference so that when their CEO needs to act illegally he'll be pre sold ondoing so by the propoganda he himself has promulgated.

Reread.I'm saying a number of

Obey — Sat, 28 May 2011 20:05:55 +0000

In reply to Nothing will make businessmen

Reread.

I'm saying a number of different achievable measures - judicial, regulatory, tax system - together are sufficient.

90% marginal rate, wonderful idea. Just as would be a hyper-invasive SEC. But neither is sufficient, neither is necessary. And neither is going to happen.

So in a real world you do what is possible and doable and sufficient.

I know you really want to keep your fellow fortune 500 CFO's out of jail and all, cuz y'all never do anything illegal, but it's just a losing line of argument you have going here.

Nothing will make businessmen

Flavius — Sat, 28 May 2011 19:14:35 +0000

In reply to I'm not much for the style of

Nothing will make businessmen honest. Putting a few of them in jail. pour encourager les autres will leave us with exactly the same problems plus a few businessmen in jail. And under some moral heirarchy not the worst ones..

If you assume that self interest is the most powerful motivator ,the one ,and the only one, that will reliably cause superior individuals to work an 80 hour week and sacrifice crucial personal relationships, it follows that sooner or later it will cause them to break laws.When the game is worth the candle. At first perhaps rationalizing that they are only violating an unrealistic regulation undemocratically arrived at .But only at first. Then it becomes routine.

In a world in which all the most powerful players disregard the laws, imprisoning a tiny minority will cause the rest to sigh with relief the proles have got that out of their system without doing any real damage- maybe even provided an assist by removing a competitor.

BTW my idea of a marginal rate is not Clinton's 38% but Nixon's 90.

I'm not much for the style of

Obey — Sat, 28 May 2011 12:56:54 +0000

In reply to Gillian Tett in the FT a

I'm not much for the style of argument where you say solution X won't totally solve the problem, so let's not do it and just concentrate on solution Y.

We should put a few bankers in prison for what is patently fraud - the question imho is not whether they did it, nor whether it is illegal, it is as always with organized crime getting the proof the kingpins were involved. Remember how Paulson conducts all business on the phone with no paper trail or notes. That pretty much says it all. As with Capone, you nail them for the smaller side issue but give them the maximum sentence.

Beyond that, by all means we should raise the marginal tax to Clinton levels as seems the plan, regulate bonuses as in the UK and Switzerland, reintroduce a modern Glass Steagal like the Swiss are in the process of doing and hike capital buffers.

None of those is a cure-all on its own, but some combination of strong measures will do.

Gillian Tett in the FT a

Flavius — Sat, 28 May 2011 12:49:37 +0000

In reply to Punishment or Pushback: Financial Regulation in the Midst of Recession

Gillian Tett in the FT a couple of months ago.
Why have so few bankers gone to jail in the wake of the financial crisis…Why…. Bernard Madoff (is) now sitting in jail, while all those faceless people who conjured up subprime loans or dodgy .collateralized debt obligations are not?
……To be sure the financial industry is dangerously powerful; and some bankers have behaved in ways that were immoral. But whether (they) have actually broken the law is less clear cut.
If you look closely at those clever financial products that were conjured up……..a defining feature was that they were intended to exploit loopholes in the legal system. “Innovation” was thus about dancing on the edge of laws, regulations and ratings- but not breaking any rules.

If she's right , AOBTW my guess is that in most cases, she is ,then punishing bankers will be self indulgent cruelty.

But I specify "in most cases" .implying there are some guys, and gals, who simply broke the laws. So punishing them would be justified. So should we? Depending on one's particular moral code maybe yes.So be my guest; But don't imagine that any practical benefit will come from it. On the contrary , as with all other punishment the chief effect will be to somewhat degrade the punisher.

But won't it have at least some deterrent effect? Not when AIG traders could earn a $5million bonuses- at a marginal tax rate in the low 30s-.for a deal which destroyed their employer.And damn near 21st Century capitalism.

No businessman has ever been deterred from acting illegally because it would be , ...illegal. Despite the general leftish slant of Dagblog most of the contributors are far too generous in their views of business and businessmen. As I've blogged previously in 40 years in business I never worked for a ceo who was deterred by concern he was acting illegally. But until Reagan lots were by the fact that the payoff,- after tax- didn't justify taking a risk that could bankrupt their employer and leave them without a job while they still needed to provide for the rest of their lives..For example ,prior to Reagan those AIG traders would have been left with $500K after tax. Nice but not enough to retire on. Under the post Reagan tax code they were left with north of $3 Million and acted accordingly.

As long as our tax code makes it worthwhile for any businessman to take a risk which could destroy his place of employment, he will.

Ask yourself why this particullar abuse hadn't occured before . Answer:. Wasn't worth it.

Campaign to bring back the 92% marginal rate say over $500K and save your energy for other causes. The bankers , conscious of the need to scrape up Junior's tuition at St. Grarklesex, will go back to being the old fashioned bankers of yore. Mean as Scrooge and hard as steel but not so dumb as to put their own money into something like the sub prime bubble.

As do I.

miguelitoh2o — Fri, 27 May 2011 03:37:06 +0000

In reply to I just wanted to let you

As do I.

To ResistanceThank you! Very

David Coates — Fri, 27 May 2011 01:14:35 +0000

In reply to Punishment or Pushback: Financial Regulation in the Midst of Recession

To Resistance

Thank you! Very kind of you to take the time to say.

David

I just wanted to let you

Resistance — Fri, 27 May 2011 00:26:13 +0000

In reply to Punishment or Pushback: Financial Regulation in the Midst of Recession

I just wanted to let you know, I enjoy your work and the effort you put into it.