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"There is this accountability issue... there is a real sense of growing frustration at BP and generally that we've lived through this kind of accountability free era. And whether it is politically motivated or not it seems to me that sort of the staple of justice that people are held accountable for wrongdoing, particularly when wrongdoing is done on the scale that we are talking about here."
-Chris Hayes
So, any guesses on the size of the loss reserve BP is going to put aside to cover the cost of this spill? Going to keep the accountants busy for years trying to hide that number in the balance sheet. BP will also probably hire a legion of lobbyist to get Congress to pick up part of the tab.
In the following clip, Chris Matthews comes dangerously close to realizing the government (aka, tax payers) roll as insurer of last resort.
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Just in case you were wondering how bad the Marcellus Shale thing could work out, consider the whole BP/Gulf of Mexico/Oil Spill Armageddon that we are now witnessing.
This oil spill, or at least the risk of its occurrence, was foreseeable. Over enough time, it was not a matter of if. It was a matter of when.
Everyone knew that the costs of an oil spill triggered by an offshore platform would be catastrophic. Yet, we allowed it to happen.
Just started reading Bruce Mann's "Republic of Debtors." And by just started, I mean I'm only to chapter two where he gets into a Nietzschean discussion of the transformation of social mores regarding debt as evidenced by religious leaders who went from looking at "credit as a means of charity rather than a commodity," to using religious texts to impose a stigma on defaulting borrowers - a world view that still predominates to this day.
But the part that stuck with me, or at least I've been thinking about all day, is the relationship between liquidity and insolvency evidenced by Philadelphia's own Robert Morris.
He's making the rounds and I just got around to watching his Charlie Rose interview on Hulu.
"I was wrong. I thought I was writing about the end of an era and what I was writing about was the beginning of an era. It really was the start of what we are, what I think we have arrived at now. There were changes that took place on Wall Street then that we're seeing the milan (?) consequences of now like firms ceasing to be partnerships and becoming public corporations. No Wall Street firm that was a partnership would have ended up owning $50B of CDOS backed by subprime mortgages. They took risks on Wall Street that they would have never taken with their own money."
What's the difference between partnerships and corporations?
Limited Liability.
By many so-called "smart people" on Wall Street, Michael Lewis is lionized. His book "Liar's Poker" was typically their pre-pubescent introduction to the dark world they now inhabit.
So, I wonder just how their world-view will be affected when they get word of what Michael Lewis has to say about their day jobs.
Pimping his new book "The Great Short" on 60 Minutes, Michael Lewis had the following to say about the banker's business model:
"It's a very elegant form of theft."
My jaw dropped when I heard those words. Truth is so rarely spoken.
As originally envisioned, this blog was supposed to be about promoting the local Philadelphia economy. Not a new idea. And by now, one that risks becoming somewhat hackneyed before it has even had a chance to create systemic change.
Typically, when folks think about buying local, they think about farmers and beer. But in essence, the benefits of buying locally apply equally to your local farmer as they do to your local lawyer.
In response to the whole "Too Big To Fail" wackiness, some have advocated that depositors return their money to local banks run by local businessmen as a method of avoiding the craziness that results from selling securitized mortgages to sovereign wealth funds. But that meme seems to have never caught on.
While not written with the tenets of localism in mind, an interesting article addressing pension funds appears in today's NYTimes. The specific issue raised is the recent trend of public pensions of seeking increased returns by investing in international markets. As evidenced by the article's headline - "Public Pension Funds Are Adding Risk to Raise Returns" - the author concerns herself with the increased risks implicated by such a strategy and not the strategy's effects on local economies.
It's interesting in that it provides a convenient foil for my thoughts on the public pension issue.
Today, in Paul Krugman's NYTimes Op-Ed, he discusses the structural similarities between the Irish and U.S. financial crisis.
Describing the effect of compensation in destabilizing our financial system, Krugman writes:
Third, key players had an incentive to take big risks, because it was heads they win, tails someone else loses. In Ireland this moral hazard was largely personal: “Rogue-bank heads retired with their large fortunes intact.” There was a lot of this in the United States, too: as Harvard’s Lucian Bebchuk and others have pointed out, top executives at failed U.S. financial companies received billions in “performance related” pay before their firms went belly-up.
My personal interest in the nexus between Limited Liability and "Moral Hazard" has recently led me to contemplate how limited liability legitimizes corporate management's over-sized compensation even where such payouts have the effect of leaving a corporation under capitalized vis-a-vis long-term risks.
In his op-ed, Krugman makes no mention of limited liability. No surprise as I'm the first to admit I'm pretty out there on this issue. Rather, he is discussing the fact that our current system of corporate management creates incentives for corporate management to create short-term profits without regard to the risks of long-term losses, however large they may be, such short-term profits create.
This disconnect between short-term and long-term interests was created when ownership and management was separated.
And that separation of management and ownership was made possible by limited liability.
As lawyers like to say, limited liability was the but for cause of this divergence of interests.
Been reading David Skeel's "Debt's Dominion." Like Kate Hopkin's in "99 Drams," his wanton use of "in order" causes me to grind my teeth. For my taste, he also spends a little too much time dabbling in the academic ins and outs of public choice theory. But when it actually gets into describing the history of bankruptcy laws, it's an interesting read.
While developing the history of Bankruptcy laws, he also happens to provide some interesting insights into the development corporations into "natural persons," a subject of my continuing interest.
A few choice quotes as well as my commentary appear after the jump.
So, been thinking about the nature of liquidity traps which led me to contemplate the following:
What's the fastest way to turn one dollar into one million dollars?
