That problem cannot be solved by law or policy governing behavior. The standards applied to these CEOs do not admit of the precise specification needed for clear differentiation between error in judgment, bad luck, malfeasance or dereliction of duty. Hofstadter talks about the "computability" problems addressed by Godel and such, trying to determine which problems are and aren't resolvable by computation. Governance at that level is a similar kind of problem.

The implications of this are profound. Since we can't legislate / regulate right behavior, we have to motivate it through incentive alignment. Thirty years ago these banks were partnerships -- if they failed, they wiped out most of the saved capital of their retired partners and senior employees. You can be very sure those folks were both willing and able to apply the qualitative judgments of risk unavailable to a policy driven review.

Those partnerships were converted to publicly held equity because this was less risky for those partners and allowed the companies to achieve larger scale, momentarily conveying cost advantages. But public equity holders don't, and can't, understand these entities as well as those partners did, and therefore cannot discipline management nearly so well. The real long-term costs of that dilution in risk management are now more apparent.

None of this would be any of my business if banking weren't a necessary component of modern money creation and thus inherently intertwined with the government. As such, any citizen has a stake and a voice in the stability of these institutions and their role in the creation of money. The latest regulatory revisions seek to obtain the needed stability by improving the foresight of the regulation, backstopping any failure with an implicit government guarantee on the system. Since the regulation _cannot_ be improved, we are headed for another bailout at some moment to be determined. Meanwhile we are essentially underwriting excess compensation for those managers and traders who can figure out the extraction of cash from the system before the equity again falls to zero.

There are alternatives. Each of these institutions should be a lot smaller, so the system can tolerate the collapse of any several. And they should be generally capitalized by investors who can understand their assets and liabilities, who are in a position to get the confidential information needed to the institution's specific balance sheets, and who _cannot_ hedge or diversify away enough risk to become indifferent to the institution's success. Publicly traded equity fails on all of those conditions.

The consequences of partnership equity are obvious. It rolls back the scale, and with it the momentary cost advantages, enabled by larger, dumber, indifferent public capital. Those large institutions managed with integrity (e.g., JP Morgan) will be f*ed. Capital costs will rise, in part due to induced scale and liquidity inefficiencies, but in part due to the reflection of the real risks of these institutions. But the policy problems of moral hazard and public subsidy of private speculation will be removed. We will be spared the logical contortions required to explain away the obvious immorality and idiocy of many of the people running these institutions. We will avoid the corruption of language and thought that necessarily follows from attempting the impossible task of policing an unspecifiable morality. Most important, we will remove dangerous political corrosion that follows from associating that intellectual corruption with such extraordinary potential for private gain.

tldr; "Rogues" differ from CEOs only in the ability to specify position limit violations. The inability to specify CEO position limits implies that financial stability is unavailable through regulation. Stability thus only available through alignment of management and equity incentives and knowledge. The only equity with proper incentive and knowledge would be partnership equity.

tldr(tldr;) CEOs differ from rogues only in the impossibility of specifying their "position limits", so CEOs can only be managed by equityholders as knowledgeable and focused as they are -- e.g., partners, not public equity holders.

I'm sure you don't mean that literally, according to Why People Believe Weird Things she is supposed to have run something that was rather close to a personality cult:

http://www.amazon.com/People-Believe-Weird-Things-Pseudoscie...

NB This is not an ad hominem attack on her ideas, just an observation that according to some accounts she was a rather odd individual.

But again, limitations on bank capital ownership would be an anti-Randian regulation. And the analysis hasn't occurred to prominent Randian Alan Greenspan.

No, I'm not a Rand cultist. She's important for her notice of the distortion of values and language by self-interest posing as selflessness. But it's a mistake to justify outright selfishness on the basis of those dangers.

I did notice it was downvoted! Because it suggested a limit to the efficacy of regulation? Are there similar knee-jerk downvotes to progressive opinions?

EDIT: Downvote HERE! For mentioning downvoting?

When I'm downvoted for politics, that ain't the rules, not as I understand them. And I'm gonna break'em to let people know it's happening.

If not's politics, tell me why so I can stop whatever it is I'm doing wrong. But it _always_ happens on comments expressing right-wing opinions.

Greenspan was an excellent central banker, but he repeatedly stepped out of the role to champion and provide cover for Republican political policies (primarily tax redistribution) which provided a drag on aggregate demand and made the United States much more dependent on monetary policy and debt-financing to push growth following 2001. There is an element of hypocrisy in his attitude towards social security as well.

So I feel there is a lack of critical introspection or intellectual honesty there and it is somehow related to the way the Randian viewpoint encourages romantic oversimplification instead of... well.. regression analysis and empiricism. That said, I wouldn't downvote you for the flourish and have upvoted in fact - the rest of your comment was thoughtful and worth reading.

Greenspan has admitted "shock" at banks' risk management, he expected that equity would insist on more attention. But he may have overlooked the fact that his reference history of risk management occurred under a very different ownership structure, and so implied less about current conditions than he expected. Even if my story is right, Greenspan's oversight is what we'd expect from someone focused on the power of incentives.

And we should expect Burkean conservatives to make a different set of errors, underestimating the power of incentives to drive adaptations to changes in institutions. They're different perspectives, with different blind spots.

I'm also a fan of Matt Taibbi but recognize that his hyperbole tends to distract from the message (he tends to channel the spirit of Hunter S. Thompson). Despite this, he's one of the few journalists out there who is actively taking on the greed-heads who are looting the US economy.

Yes, probably.

Don't complain about downvoting.

No, it doesn't matter how justified your complaint is. (And, absent any proof that you can read minds, you don't know why folks are downvoting.)

I suspect if you subject a random group of people to intense scrutiny, attention and deep info dives you'd find the majority of them qualify as 'odd'.

Yes, the partnerships went public to transfer risk away from the partners, to externalize it. It was the only way. How else do you maintain profits when the economy has flattened out?

Yes, it is economic cannibalism, but what's the alternative? They can't change to a steady state model, and they are too strong to just give up and fail. So, they burn the furniture.

You know, I really hope it doesn't get any worse than this. I am afraid they won't stop with just the furniture, that they will continue to burn and burn until there is nothing left, and we have a violent revolution or something. And I wonder whether there is some disruptive technology on the horizon that will change the game--a distributed source of energy perhaps? My crystal ball is very cloudy.

Of course it can. Glass Steagall prevented the kind of meltdown we just experienced for decades, until it was repealed under the Clinton administration.

You could try to regulate the money funds, but now you're trying to regulate investment banking risk, something GS never really tried in the first place.

There are no "old days" for this financial structure, the configuration of the size / public ownership / complexity / funding environment of these institutions is entirely new.

Take for example FDIC insurance, as mentioned in the article. Ostensibly, it's intended to help people with money in their bank accounts. But it also means that banks can be riskier with trades, and count on the government to cover certain losses. The same is true for agency-backed mortgages.

"In the financial press you're called a "rogue trader" if you're some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book."

I wouldn't say that the title is deceiving.

If that's not deceiving, then anybody can write an article about just about anything. Just move to the general case, throw in a lot of invective, and dance a bit. You could write stuff like this on an assembly line.

I'll put this a different way: this is an editorial piece. As such, it's a nice one. I liked it. But it's not a news article, which was what I was expecting. It just takes a news article and sticks it on top of some pre-canned outrage.

You were expecting a news article from something with a title ending in the words "My Ass"?

Any more I just ignore that kind of language -- I don't think you can tell anything from it.

What was I expecting? A logical teardown of the facts of the case, with a new conclusion the MSM had missed. Perhaps a smoking gun. I love irreverent authors who poke through stuff we already know and find new stuff. People who hack news stories. I've seen quite a few articles with profanity in the title where I came away going "wow! Very cool analysis"

This was not one of them.

Not me. I feel that they contribute to the atmosphere in a negative way. The problem is that you can't dismiss these articles out of hand, they sometimes contain valuable insight. That doesn't mean they are to be liked for their titles. I'd prefer to see that as an 'in spite of'.