Jump to content
House Price Crash Forum
eric pebble

Bankers Shouldn't Be Trusted With Anyone's Money But Their Own.

Recommended Posts

Bankers shouldn't be trusted with anyone's money but their own.

Alex Brummer - who's been consistently good on the Massive Fraud of the so-called "financiers" over the years.

Read more: http://www.dailymail.co.uk/debate/article-2037994/Kweku-Adoboli-Bankers-shouldnt-trusted-anyones-money-own.html#ixzz1YF4RFmZZ

They should trust us with their money instead eh Pebbs!! ;)

Share this post


Link to post
Share on other sites

They should trust us with their money instead eh Pebbs!! ;)

Personally I think the best fix, in addition to a complete separation of investment banking from retail rather than some pointless attempt at ring-fencing, is to force them to become unlimited liability partnerships again. There's nothing that concentrates the mind of a partner in such a firm as the thought of losing his or her own money should someone else in the organisation f*ck up.

Share this post


Link to post
Share on other sites
Personally I think the best fix, in addition to a complete separation of investment banking from retail rather than some pointless attempt at ring-fencing, is to force them to become unlimited liability partnerships again. There's nothing that concentrates the mind of a partner in such a firm as the thought of losing his or her own money should someone else in the organisation f*ck up.

Limited liability is the original moral hazard- and the one 'free market' distortion even the most rabid free market apologists seem happy to accept.

Share this post


Link to post
Share on other sites

Personally I think the best fix, in addition to a complete separation of investment banking from retail rather than some pointless attempt at ring-fencing, is to force them to become unlimited liability partnerships again. There's nothing that concentrates the mind of a partner in such a firm as the thought of losing his or her own money should someone else in the organisation f*ck up.

It motivates you to leave as soon as you have something to lose. The poor inexperienced people who replace you will be motivated to bet the bank on red, and retire if it works out. Besides, that sort of regulation could probably be avoided by outsourcing everything except a figurehead chosen so he would want to spend slightly more money than he earned.

Don't you think that everyone at UBS who will no longer get a bonus (if they keep their jobs at all) would not have stopped that trader if they could? Well, perhaps not when the loss was already a billion, and it sort of made sense to let him double up, but they certainly would have been motivated to do that when the loss was still in single millions.

I really wish there was a magic solution that just worked ...

Share this post


Link to post
Share on other sites

It motivates you to leave as soon as you have something to lose. The poor inexperienced people who replace you will be motivated to bet the bank on red, and retire if it works out. Besides, that sort of regulation could probably be avoided by outsourcing everything except a figurehead chosen so he would want to spend slightly more money than he earned.

Don't you think that everyone at UBS who will no longer get a bonus (if they keep their jobs at all) would not have stopped that trader if they could? Well, perhaps not when the loss was already a billion, and it sort of made sense to let him double up, but they certainly would have been motivated to do that when the loss was still in single millions.

I really wish there was a magic solution that just worked ...

Unlimited liability partnerships are not a panacea that's for sure, but name me a major investment bank with that corporate structure that blew up?

Share this post


Link to post
Share on other sites

Personally I think the best fix, in addition to a complete separation of investment banking from retail rather than some pointless attempt at ring-fencing, is to force them to become unlimited liability partnerships again. There's nothing that concentrates the mind of a partner in such a firm as the thought of losing his or her own money should someone else in the organisation f*ck up.

Agreed.

I have mentioned this very same point in previous posts. In the pre 1990s era employees of firms such as Goldman Sachs did not get to share in the mega profits from market trading until they had bought a share in the partnership with their own cash. This is why partners famously worked relatively poor but retired rich (ie they only got to cash in fully when they sold out their share of the partnership). People with real skin in the game are strangely much more careful in assessing financial risk. Ironically this view is also shared by many old hands who worked in the City and Wall Street prior to the advent of the modern corporate structure.

BTW I actually would take this idea further and restrict limited liability in all areas of the economy to start up enterprises below a certain size. This would get the concept back to its original purpose of protecting individuals involved in attempts to create new wealth rather than as a cop out to protect slack management of established enterprises.

Edited by stormymonday_2011

Share this post


Link to post
Share on other sites

Unlimited liability partnerships are not a panacea that's for sure, but name me a major investment bank with that corporate structure that blew up?

I cannot. Were there many that i) had that structure, and ii) did so during periods of extreme economic turmoil?

The really worrying thing is that post Enron/Worldcom/Parmalat even auditors have put in place ways of isolating parts of their business from one another, thus limiting the potential liability.

What I really want is a law that makes rating agencies invest in poo they rate at a discount determined by whatever rating they gave to said poo. So about zero above treasuries for AAA poo. Then perhaps I would think of a way of forcing them to rate the auditors ...

Share this post


Link to post
Share on other sites

Limited liability is the original moral hazard- and the one 'free market' distortion even the most rabid free market apologists seem happy to accept.

Interesting - there is some merit to having limited liability, but maybe only for a limited time - or only for people who own their own businesses?

Maybe you could capo their liability at all the wages/compensation that they had ever taken out of the company?

Share this post


Link to post
Share on other sites

I cannot. Were there many that i) had that structure, and ii) did so during periods of extreme economic turmoil?

Prior to the 80s, pretty much all of them were structured that way. Goldmans was the last big one to convert to a limited company in 1999. I can only think of one that failed whilst a partnership and that was Barings back in 1890 (they were a limited company by the time they failed again in 1995). I'm sure there must have been some others along the way but all the big ones (Bears, Lehmans, Goldmans, JP, Rothschilds etc) made it through a century or more with that structure so have to be considered well stress-tested.

Share this post


Link to post
Share on other sites
Interesting - there is some merit to having limited liability, but maybe only for a limited time - or only for people who own their own businesses?

Maybe you could capo their liability at all the wages/compensation that they had ever taken out of the company?

I can see the advantage to it in terms of genuine entrepreneurs at the start up stage- but for large corporates and investment banks the moral hazard is that shareholders clearly don't have enough skin in the game- maybe if they stood to lose more than just their stock value they might be a little more concerned with the way these outfits were run and the incentive structures of the people running them.

Share this post


Link to post
Share on other sites

Personally I think the best fix, in addition to a complete separation of investment banking from retail rather than some pointless attempt at ring-fencing, is to force them to become unlimited liability partnerships again. There's nothing that concentrates the mind of a partner in such a firm as the thought of losing his or her own money should someone else in the organisation f*ck up.

I'd like to see the central bankers ensuring zero tolerance, if you turn up begging for money you won't be leaving his office again. I think that would focus minds a little more.

Share this post


Link to post
Share on other sites

Nicholas Shaxson's book Treasure Islands details the effects that the corporate worlds rush to convert on mass to LLPs has had, and the cunning way that they force countries to allow this dangerous structure to become legal. The ratings companies are another area where the recklessness that this structure promotes has become evermore obvious.

A blunt move globally would be to ban LLPs and that would help prevent corporate recklessness immediately, however its not likely as the corporate hold of the political classes by the short and curlies. :angry:

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.