Comments on: Wall St bail out means capitalism never really existed

By: gary

gary — Thu, 01 Jan 1970 10:00:00 +0000

Am in agreement with Tim, to the extent that blaming short sellers (and I have only just learned what short selling actually is!) seems much like blaming real estate agents for the cost of housing. Neither the short seller nor the agent determines the market price. And as to the rest, well yes - privatising the profits and socialising the losses (not my words but I don’t know where to attribute the quote) is something the bastards continue to get away with. It seems to happen under any system of political/social/economic organisation and will continue to occur while ever there are people who are bastards.

By: Tim

Tim — Thu, 01 Jan 1970 10:00:00 +0000

This US Fed bailout which is reverberating around our world is all about giving time for bankers (esp. investment ones) to bail out before the everyone truly understands the real downside of their greed over the past decades. It (new US policy) is a reckless one because now a world recession is virtually guaranteed and the “saved bankers” will get to keep their flashy cars and houses and be able to claim “it is all about timing” accompanied with a weak smile. Don’t blame the short sellers - they are the ones that understood how bad the problems in the financial markets really were. Banning them is just buying the bankers more time - don’t be fooled. No I don’t short sell, I can’t stomach the logic of common sense versus emotion.

By: Neil

Neil — Thu, 01 Jan 1970 10:00:00 +0000

Excellent article, Joshua. One line is very telling: ‘The intervention is to keep what is happening in the financial markets away from the real economy as much as possible.’ The real economy makes and/or provides services that people need or want. The financial markets have grown into a shadow house of cards with outrageous gambling allowed to occur on all governments’ watch via short selling and hedging.

What’s galling about the US Govt bail out of the investment banks and insurers is that the likes of Lehman Bros CEO Dick Fuld will never be personally held accountable for any of this. And what really irritates is the fact that the financial media have repeatedly worshipped these ultimately irresponsible high rollers with fawning profiles over the years. Here’s a perfect example from CNN’s Fortune Magazine in 2006, http://money.cnn.com/2006/04/10/news/companies/lehmanintro_f500_fortune_041706/index.htm:

‘In many ways Fuld is precisely what you’d expect at a firm that was once defined by its internecine warfare: aggressive, confrontational, blunt. Yet despite this no-holds-barred demeanor—or perhaps because of it—Fuld has incongruously turned Lehman into one of Wall Street’s most harmonious firms. Fuld’s modus operandi has been to bind his employees’ fates together—to turn the culture from one of sibling rivalry to cooperation and teamwork. His tool: money.’

It’s doubtful whether Fuld’s fate is now binded to his employees’ fate. His massive bonuses paid over the years will make his ‘retirement’ very comfortable.

By: Ian

Ian — Thu, 01 Jan 1970 10:00:00 +0000

Joshua,
This is a great article. Moral hazard unerpins a lot of what is going on at the moment - the too big to fail issue. Is there not a way for government to bail these institutions out and exact proper penalties at the same time. e.g. make the bailout conditional on a percentage of future profits being paid back.

Another thing that puzzles me is the role of auditors and the moral hazard they face in giving clear and fair reports in the face of having to keep clients happy in order to keep the business. Arthur Andersen was broken up for this very reason. Why weren't they reporting on the onward selling of dodgy mortgage lending practice.

As an aside if i was one of the people who was sold a mortgage I had no hope of paying I would be investigating whether I had a claim, in law, against the lender.

Why aren't businesses above a certain size , or in certain sectors forced to accept allocated auditors that would change every 3-5 years from a licensed pool.

The last problem is the role of institutional investors and their lack of due diligence as shareholders. They are often in the same club as the failing businesses and face failure themselves if dodgy practice is exposed. In other words the shareholders who control big companies do not have a clear interest in good governance.

I know I am an amateur in this but would really appreciate your views on whether my point make sense and, if so, what could be done.

Regards,
Ian

By: john walker

john walker — Thu, 01 Jan 1970 10:00:00 +0000

This is such a big pile of moral hazard that it deserves a special name, how about ‘a uriah heap’ of moral hazard?
Its certainly as nasty and ugly as Dickens invented character was,,do you think that this time the real owners will ever get out of jail ?