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Throwing Executive Salaries to the Mob

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3 Responses

  1. A.J. Sutter says:

    1. Apropos of “[T]his sort of talk is just mathematically ignorant. The securitized debt market is $13 trillion and the credit derivatives market is $64 trillion. A couple of hundred million dollars is chump change. Still it is important to realize that there are a lot of people out there who think like this, and they vote”: To say that it’s mathematically ignorant may be misplaced. It’s ignorant of the magnitude of the financial industry. And why should most people, or even most voters, be aware of that if they aren’t working in that industry or a student of it?

    The fact that voters are ignorant of the staggering sums involved in the dervatives market, for example, is less alarming to me than the occasional polls of Harvard graduating classes revealing a dearth of grads who can correctly explain what causes the four seasons (q.v., e.g., http://www.learner.org/resources/series28.html). You and many of the rest of us who frequent this blog have some professional interest in this field, but I’m not surprised that corporate finance is a bit arcane and counterintuitive even to reasonably educated people outside our profession.

    2. Apropos of “The ultimate problem here is not one of fraud and wrongdoing, but rather of bubbles — inflated asset prices and inflated expectations:” I’m not sure this is so “ultimate”. It might be that the ultimate problem is the US infatuation with debt to finance growth and everything else. Certainly some in Europe hold that view, and quite reasonably so I think. See, e.g., http://hebdo.nouvelobs.com/hebdo/parution/p2290/dossier/a384253-mort_à_crédit_.html .

    The debt obsession is something that runs deep in our business culture, even to the point of MBAs being taught that they’re dumb, or betraying their shareholders, if their companies are “underleveraged.” The developments of the last week or two seem like a good opportunity for some soul-searching about such attitudes.

  2. There is a tendency for people to moralize what they do not understand. Assigning causation to evil doers is a mental shortcut that may make some sort of cognitive sense in face of complexity.

    Hanlon’s Razor: “Never attribute to malice that which can be adequately explained by stupidity.”

    The decision makers here weren’t evil, just stupid. They made stupid assumptions that, in hindsight, are even more glaringly stupid. But that doesn’t mean that there isn’t a benefit to punishing their stupidity.

  3. Miriam Cherry says:

    “The securitized debt market is $13 trillion and the credit derivatives market is $64 trillion. A couple of hundred million dollars is chump change. Still it is important to realize that there are a lot of people out there who think like this, and they vote.”

    I wouldn’t be so dismissive of those who adopt this argument.

    I agree that it’s bubble related but why not chase down these hundreds of millions of dollars? Maybe “chump change” compared to the magnitude of this debt but worthwhile if it reduces costs for taxpayers even slightly.

    There’s no conceivable reason (other than an odd notion of freedom of contract) that execs of failed companies should walk from this debacle in the money (I say odd notion because everything else related crisis has gone topsy turvey on contract, not to mention re-written the rules both ideological and political).