Posts Tagged ‘Generation Zero’
October 8th, 2010 at 4:58 pm
Restoring the Partnership Model to Wall Street Risk Taking

For all the ink spilled trying to divine the cause of the present financial crisis the most stirring theory is that culture – not capitalism – failed America.  It’s a theory that lies at the heart of the Citizens United documentary “Generation Zero” and is discussed in eye-popping detail by William Cohan in today’s New York Times.

Asserting the commonsensical notion that people do what they are rewarded to do, Cohan (a former denizen of Wall Street) claims that when firms morphed from partnerships to corporations they simultaneously shifted the risk of loss from executives to stockholders.  That simple change in legal form privatized profits while socializing losses.

Here’s Cohan’s solution:

To my mind, its central feature should be that each of the top 100 executives at Wall Street’s remaining “systemically important” firms be personally liable for the risks they take. Not just their unexercised stock options or restricted stock, but every asset they have in their possession: from their cars to their fancy homes to their bulging bank accounts.

Pretty harsh, right? Maybe, but Wall Street deserves no sympathy. Had this security, or something like it, been in place at every Wall Street firm five years ago, there would have been no mortgage bubble, no financial crisis, no deep and unsettling economic recession with nearly 10 percent unemployment, no need for the Troubled Asset Relief Program, and no need for Dodd-Frank or Basel III.

Why? Because human beings do what they are rewarded to do — especially on Wall Street — and if they are rewarded for taking prudent and sensible risks, that’s exactly what they will do.