...WE HAVE NO INTEREST." Or something like that attributed to the legendary (he really was/is) head of Lazard Freres, Andre Meyer. Anyway, after two years of huffing and puffing, the Senate Permanent Subcommittee on Investigations, led by the legendary Carl Levin (in his mind only) unanimously concluded that Goldman Sachs, Deutsche Bank and a bunch of deadbeat and busted banks were composed of not very nice people, who used bad language, committed acts catagorized as "conflicts of interest," (some might call it hedging) took advantage of people not as smart as they were, were obsessed with profit-making and perhaps,--in some cases- MIGHT have done things that were illegal. What am I missing? I though we had all figured this out some time ago but I guess I was wrong.
Look, this is not a defense. These are not nice people that run these firms. They are ego and profit driven, rip-your-heart-out kind of people. Forget about how much money they give to charity or on how many opera board they sit. That is simply another ego-stroke. They are not nice people. And so has it been throughout the ages. So what made this event the disaster that it was? Well, for one thing it was global. One may ask what in hell some jerk in Iceland was doing buying CMO's from towns he never heard of and you would be right to ask, but that is not the point. Was more money involved? Sure, but not proportionally. Technology? It just made things go to hell quicker. The products? Well, they weren't tulips but...no. What was different?
Some guys in Congress almost got it right when they were talking about having "skin in the game," but it was the wrong kind of skin. The model for financial institutions has changed over the years. Today, vitually every important international financial shop is publically owned. It is not a good model because the types of individuals described above do not have their own capital at risk (at least not for very long) as those in the great finance houses on the past. It was then the PARTNERS money at stake all the time and when it's YOUR money at risk rather than that of the shareholders, you act a lot differently. Oh, I know the guys described above will go on and on about "their duty to the shareholder." Crap. They can't help themselves. It's in their DNA. It's not that they are crooks or want to fail; they just can't help themselves. But the partnership model? Ah, there has never been a better one to insure against undo risk.
Now we can't turn Citibank back into a partnership but we can create a partnership mentality on the part of the senior staff of any institution. I have suggested in past blogs that in the event of failure, selected senior management lose EVERYTHING based upon a contractual obligation entered into upon the assumption of the position. And quess what? There is in the Dodd/Frank fiasco language allowing claw-backs of remuniration based upon certaing findings being met...problem is no one know how to define them. Stupidity as usual. But if the management were treated as Partners by contract, all of this goes away. It's the best business model ever created for a financial organization. Partnership and unlimited liability...by contract. Back to the future.
Tomorrow, has Euroland agreed to work together? We shall explore.
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