Steven Davidoff offered up what he describes as a "polemic" on DealBook, excoriating Ace Greenberg, Jimmy Cayne, Alan Schwartz and the Bear Stearns Cos. board for getting out of town with their millions. If the comments are any indication, Davidoff has struck a vein. He's right, of course, that it's totally unfair by any measure to can administrative staff who were innocent of wrongdoing and allow those who oversaw the firm and its ultimately disastrous strategy to move on, with or without jobs at J.P. Morgan Chase & Co. We saw the same scenario at Enron, but at least some of those senior managers went to jail.
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So I'm not going to disagree. I would offer one reason, however, why ultimately no one really will move to wipe out the big guys in the event of a failure. If there's any one development that encouraged the growth of Wall Street as a liquidity machine, it's the development of the concept of limited liability and the LLC. To restrict or "limit" limited liability for key people -- board members, senior managers -- would result in a reduction in risk taking. Now, in the midst of a crisis, that might seem like a swell idea. But it's an idea, like the gold standard, that reeks of the 19th century. The fact is, no one -- most especially the folks in Congress who famously like good times -- want banks and firms to sit on their capital like a dragon in its cave and fail to spread the balm of liquidity as far as the eye can see. But you can't do that without risk and without managers willing to gamble, even if they do it foolishly.
Limited accountability makes the world go round. Even now politicians and investors are crying for the banks to lend. In a year or two, expectations, along with leverage and liquidity, will start to mount up to the skies again. You can hammer the Bear gang -- and they probably deserve it -- but if you're going to force them to absorb losses personally, how can you make anyone in a similar role play the game the entire system demands? The answer is: You can't. - Robert Teitelman
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While I recognize and support the flowing of capital, the credit crisis is a prime example of why more oversight and less insulation from risk and consequence are needed. The biggest liquidity glut in the history of civilization has been squandered on assets of dubious-to-no value. Now, those at the top receive a bailout at taxpayer expense. "Heads we win, tails you bail us out."
What kind of free market wisdom is that?
Trillions of dollars that could have been used to rebuild infrastructure, build new businesses, create new jobs and opportunities, solve the energy crisis, cure cancer, all wasted. Instead of creating lasting value, the lack of accountability has created a burst bubble. No surprise that it's everyday folks (e.g., the people who conveniently enlist to fight our wars and defend our country) who will suffer the most from this.
The goal should be that capital is directed toward genuinely beneficial activities and uses. PLENTY of opportunities for those who facilitate this process to get rich in the process. What we have had instead is capital directed to unproductive, dead-end uses, and those who stood to gain and who were responsible simply shift the burden onto others. More wealth destruction and upheval will inevitably result, all of it needless.
Or maybe the purpose of the system we've had is to allow some people to line their pockets, consequences be damned. Bad idea.