Let Them Fail
I guess the lesson that we’ve learned from this is that if I lose a few thousand dollars I have to declare bankruptcy.
If I really screw up and cause my company to lose a few million then I go to jail and my loved ones are sold for medical experiments.
But if I show my brilliance by managing to lose billions; well, then magically I become “to important to fail” and I get bailed out by the US Taxpayer.
What a steaming crock of shit. Let these companies fail. If they’ve violated laws put them in jail. Publish accounts of every payoff they’ve given to Congressmen, every junket paid for. Let “We the People” really see what we’re paying for.
Update: I see Ed is happy about this too.
Biz | tree hugging sister | 
September 17, 2008 7:42 am
Subscribe
I admit that what I know about economics would not quite fill a thimble, but I’m inclined to feel the same way. ESPECIALLY since *I’ve* been fiscally responsible, only bought stuff when I had the cash on-hand to do it, put money away (which is now evaporating as stocks plummet) for some retirement (which I may now never get to have).
And yet, when companies behave the opposite of that way, I get the privilege of bailing them out with my hard-earned tax dollars.
As you said: steaming crock. And I’d like to see them do just what you suggest in your last paragraph.
And any congresscritter who accepted gifts, junkets, “speaking engagements” on behalf of these companies – they are immediately banned from their seat, and they lose every penny of their pension.
What really sticks in my craw is that the people in charge of these fiascos have been living quite well, with fancy cars and big houses and plenty of money to spare. They can sit around and do nothing for the rest of their lives and never go hungry.
And yet, when they get fired, if they even get fired, they will get huge bonuses at best, or simply allowed to go their way at worst.
Yet, the honest people that rely on these insurance policies, investments, or paychecks will be the ones to suffer. I’m not saying that no one should suffer, but I would like to see the CEO’s and officers of corporations have more at stake.
The trend in business law has been to shield officers of companies from personal liability and reward them even if they fail. And people wonder why there are so many spectacular failures.
They never should have bailed out the savings and loan associations in the early 90’s. That pretty much declared open season on this sort of thing. With that example firmly in mind, there was no incentive for Bear Stearns, Lehman, AIG, Fannie and Freddie etc. to do anything other than what they have done.
The other day on the radio I heard somebody complain about the free market and deregulation as being to blame for this. “Gee, the Dow goes from 14,000 to 8,000, good idea guys,” the DJ sniffed. Not to dispute someone so erudite after his many years playing New York City’s best classic rock – but the Dow has actually gone from 4,000 to 11,000 since Reagan’s time; and all these government tinkerings are the opposite of free market. We’re not in trouble because of the free market but because of interference with that market.
“We’re not in trouble because of the free market but because of interference with that market.”
And because of limited liability partnerships and other protections of corporate officers for the consequences of their actions.
We apparently haven’t really learned the lesson of Enron.
Agreed, Skyler. Ideally they ought to pay the price (no pun intended) by being permanently unemployable after running their companies into the ground, but instead they keep getting jobs. (Call it the Isaiah Thomas rule.) They sit on each others’ boards of directors and vote themselves outrageous compensation, buyout, and retirement packages, usually by raiding the funds they are supposed to be managing for others.
Silly me, I thought that theft and fraud were already sort of illegal; I guess when the amounts are large enough people stop counting, sort of like with the national debt.
Actually, the whole “too big to fail” concept was invented by Al Hamilton, Thomas Jefferson’s Secretary of the Treasury, who dubbed it the “National Debt” and proceeded to make a handsome profit off of it for many years.
Actually, mojo, Hamilton was Washington’s Treasury Secretary and only until 1795; he and Jefferson intensely despised each other. And even had they gotten along, Hamilton’s death at the hands of Aaron Burr in their duel in 1804 sort of puts a rather short limit on his ‘many years’ of handsome profit-making.
That being said, Hamilton was in favor of the National Debt, correctly foreseeing that if the country were to grow it needed to vigorously invest in its future.
I disagree with your ideal, diptera. Ideally they should be liable for all their personal property. By common law, that is what corporations are, but over the past century or two this has statutorily evolved into protecting more and more the people who own companies.
If someone wants to have a company and rely on public trust to amass capital, there should be some price involved if that capital is squandered.
There is a public policy reason for shielding major stakeholders from liability because it discourages risk. But it seems to me that we could use a bit of risk discouragement nowadays.
“Ideally they should be liable for all their personal property.”
You are including the shareholders who voted in that board that selected those corporate officers in that statement, right Skyler?
And another thing, part of the rise in shielding Directors is a direct result of more frivolous lawsuits from people who can’t seem to grasp that there are no guarantees that any particular business will make money.
Passive shareholders are typically exempt in any regard, though this was not always the case. Shareholders that actively manage a company should be liable personally.
We still have frivolous lawsuits. But if the case is truly frivolous, it should be dismissed as a matter of law prior to going to a jury.
If the issue is a judgment call about whether managers of a company have acted in good faith to protect shareholders and debtors, well, that might be a good spur in the side of corporate management to not get into a position where that is an issue.
There are good reasons for shielding personal property, but there are also good reasons not to.
I apologize if I’m reading you wrong here Skyler, but that strikes me as a pretty flippant comment.
Quite a few lawsuits that are dismissed still cost the defendants plenty of money before that happens. And “not getting into a position where that is an issue” is easier said than done at the board or CEO level. One executive’s prudent risk can easily become, in the eye of a disgruntled investor armed with hindsight and a sharp attorney, mismanagement or bad faith. It’s one thing to be shown the door for a mistake and quite another to risk total financial ruin(absent fraud or other criminal behavior).
Executives who fail to accomplish what they were hired for should not be rewarded by any means. But if people are going to make impoverishment a real risk then they shouldn’t be surprised when they can’t hire top shelf executives to try to make serious money for them. They are in the wrong game. They should probably stick with t-bills and municipal bonds and be happy with those kinds of returns.
Dave, you have some reasonable points, but I’m not at all being flippant.
1. Frivolous suits already happen. That they have little to no basis in the law or have little chance of succeeding is the nature of their being frivolous. This can’t change that much.
2. I find it really hard to believe that the people who are chosen to run these companies are really all that exotic and talented. If they were then they wouldn’t have to resort to such gimmickry and high risk. I think the risk-free element to their jobs, especially with the golden parachutes, only encourages them to make dangerous and short-sighted decisions with other people’s money. If their own money were on the line as well, then they would be a lot more responsible.
3. I’m not saying that all economic downturns should result in impoverishment, but when a company is forced to file for bankruptcy or get a government bailout, I think that the leaders of these fiascos should not be allowed to keep millions of dollars and live lives of luxury. I can hire a monkey to run a company into bankruptcy. I don’t think that monkey should have a private jet and a ski chalet.
mojo, Mr. B – to be most specific of all, Hamilton didn’t necessarily favor a national debt, but he favored strong national credit, especially for an infant country needing access to European markets. To that end, he said that a national debt would not be a hindrance. He also put forward plans that would have retired that debt over time (as per the excellent biography of him that I just finished); since those plans involved some new taxes, his political enemies scotched them.
They also accused him several times of engineering personal profit off of his position as Treasury Secretary, but investigations proved otherwise. I remember that Tallyrand in particular was shocked that such a man should not have been the richest in the colonies with his government connections; and he died in debt. His friends had to take up a collection to ensure that his family was not turned out of their home.
Ironically, the man on the ten-dollar bill had precious few of them to his own name most of the time.