The Grand Illusion
I’ve often said that disasters of any sort are seldom caused by a single factor, but this observation is seldom heeded or even recognized. The disasters caused by the “snowmageddon” that struck the various California mountain areas weren’t just because of the unprecedented amount of snow, but by the fact that more and more people built houses, roads, and businesses in places where heavy snow would in fact cause such problems. Hurricanes create greater damage overall than ever before because more people want to live where hurricanes are more likely to strike, and that’s compounded by government and insurance policies that allow rebuilding in such hazardous locales.
The two most recent bank failures represent another aspect of the same problem. Because banks impact so many people, bank failures can create economic disasters unless government steps in. But when people know that government will step in, there’s far less pressure to manage well and more of an incentive to take greater risks, which creates the need for more bailouts or more regulation, if not both – that is, if we don’t want to crater the economy.
A compounding factor – also almost totally ignored by politicians and policy-makers – is that current corporate law effectively insulates bank and corporate managers from personal repercussions. Often they even collect bonuses and high salaries after various kinds of disasters, to which they contributed or even caused by practices designed to maximize profits and bonuses, rather than better or safer operations, and almost never can those who implemented bad policies and procedures be held personally responsible.
The string of railcar derailments on the Norfolk Southern Railway system follows the company’s efforts to stop stronger safety measures from being implemented, and the attempts at minimal compensation for victims of the hazardous chemical spill in Ohio.
And, of course, the current media climate glorifies the idea of getting “more.” No one ever seems to be praised for acting carefully or responsibly.
But the risks and costs of all that “getting more” are downplayed and ignored, and those who claim they want more responsibility placed on individuals and companies, rather than more regulation, don’t want to bear the costs and deaths of less regulation.
You can’t have it both ways.
“A compounding factor – also almost totally ignored by politicians and policy-makers – is that current corporate law effectively insulates bank and corporate managers from personal repercussions.” This has always puzzled me; how failing companies reward their ineffective CEOs. I understand that it happens because of the legal contracts that the companies allow in order to get the “great” CEO.
“You can’t have it both ways.” So it does appear that some can have their cake and eat it.
In “The DAWN of EVERYTHING, A NEW HISTORY of HUMANITY” David Graeber, seems to do exactly that; ignoring the multi-factorial causation of change even when there is obvious population increase and decrease of resources affecting the human environment.
But then if one admits the complexity of an event it becomes difficult to assign blame: which is easier to do than to correct mistakes.
People are hailed as heroes in the face of disasters. People don’t get praise for disasters that don’t happen.
so true at every level of business.
Too little regulation is a problem; so is too much or the wrong regulation. And beyond a slight degree (that which would could happen simply by taking a longer-term view), woke-ness is incompatible with financial responsibility.
And it will only get worse. Already there’s stealth lobbying, for seemingly worthwhile purposes but really for competitive advantage; and now there’s mechanical assistance in the corrupt entanglement between business and politics:
https://www.schneier.com/blog/archives/2023/03/how-ai-could-write-our-laws.html
Thank you for pointing this out. We really cannot underestimate the role of “wokeness” in these crises that LEM mentioned. First, there were never bank runs or financial panics when the industry was run by straight white men. Likewise, the failure of Lake Tahoe municipalities to manage the unprecedented snowfall this winter was largely in part due to their focus on how Black Lives Matter whereas snow is white and needs to be paid attention to also. Thank you for coming to my TED talk.
Sarcasm is unbecoming.
It’s not the color of the people responsible (either way), it’s the support of causes that have NOTHING to do with sound operation of a bank nor even with equal opportunity – maybe with equal outcome, which only makes sense with equal qualifications.
The first duty of a business is NOT one vision (or another, not like they’re all compatible!) of a better society or planet, but to its investors; to carry that out it has some duty to its customers (unless it’s got captive customers like at a roadside rest area; even then, their contract may not be renewed with too many complaints). Obeying the law is also good practice. But ALL other causes are not business…or at best, are advertising. If the owner wants to have a separate non-profit pursuing some cause, that’s fine.
The darn borg collectivism submit-to-the-agenda mindset does not befit free people. Take your own risks, pay your own losses, collect your own winnings, pay in advance for your burial plot because we’ll all die anyway, best to do it without being a public burden.
That should NOT be revolutionary or even reactionary.
Mr. Hamilton, I applaud the use of sarcasm, but I see that it didn’t divert you from your single-minded fantasy.
Businesses exist to make profits, yes. But just because dollars are easily counted, it doesn’t mean that dollars are the only measure of success.
Sadly for you, what you call darn borg collectivism mindset is known by the rest of the world as democracy.
It’s kind of funny, you are in love with this fantasy of individual government. The only way that this could ever happen is through democracy. That darn borg collective would have to collectively decide that it’s a good idea.
Don’t hold your breath.
At what point is subordinating the individual to the collective too much? Clearly we don’t want people to exercise the freedom to murder or assault or directly steal or vandalize or fail to perform on contracts; and quite a few other criminal or civil offenses are variations on those.
But all sorts of wished for social, environmental, or other collective goods whose costs and sacrifices are imposed (not to mention unlikely to produce the claimed results, but only power for those who impose them, why I resent the left more but both parties some), shouldn’t they require a huge supermajority to consent to? If government shouldn’t take positions on religion, then why should it fund (with OUR money) some purported virtues (but not others)? Leave the doing of good deeds to private hands, by which I mean private charity whether individual or group, rather than businesses; although some might choose to make that a part of their business, which is fine, but only if it doesn’t interfere with their obligations to investors, depositors, ability to continue as a functioning business, etc.
Government should secure borders, enforce laws (a smaller set than we have now!) and defeat enemies that refuse negotiation. That’s pretty much it; NOWHERE in the Constitution does the federal government have the power to feed the hungry, house the homeless, cure the sick, compensate for the fallout of injustices begun before anyone now living, etc. That’s why they cheat and do it through the states. Not saying you couldn’t have some socialist state like California try to do all that, but it hasn’t actually worked so well for them, so why repeat a failure? Collectivism carried beyond basics is contrary to human nature (unofficial saying in the former USSR: they pretend to pay us, and we pretend to work), and insofar as it would require magic free stuff that is contrary to economics and physics to work (and if that existed, it would weaken people); so why promote something that will only cause our collapse and being overrun by our adversaries?
A functioning society needs a productive majority. With an aging population, that probably means at a minimum cutting or deferring benefits. And no, we don’t need ten million more unskilled illegals to fix the aging population problem.
Kudos sir, well said.
Please please tell me you’re just corrupt and supporting the bad stuff vs actually believing that “Woke” is anything more than a Right Wing talking point buzz word.
It’s something Fox, OAN and other nonsense use to distract away from their attempted genocide on transgender people and control over women and the poor or uneducated.
Fact is there is a growing class elite of the superrich. They are more and more making up, or unmaking, the rules.
And the bureaucrats of government institutions and corporate middle management simply allow them to do as they please in a vain hope of being ask to join them.
While this had been going on before Jack Welch was the king of this. With those focus on quarterly returns CEOs essentially sell of the intangible assets of a company. When those assets are gone the company fails. It GE a while but it did. Welch’s protoges just about all destroyed the companies they went to. JC Penny etc.
Being a CEO is difficult and many boards are stuck with hiring the least bad candidate. Not many people are capable of running these large companies. Many are narcissts and good at fooling people as well. While there is no simple fix as there are multiple causes, fixing the tax code so that outsourcing is no longer so profitable and stop making stock grants and options so advantageous especially in terms of pumping and dumping.
Don’t most places that offer options to (some) employees require that if exercised, they be held for some minimum time before selling?
There are a lot of details that could make a difference. If those who want power weren’t at least a bit narcissists they’d be masochists; in the long run, power seldom accomplishes even for the holder what it costs – unless a lot of Presidents have been using gray hair color. But career history (not just a resume) should speak for itself. Vetting candidates properly is difficult, but should be capable of being improved, if there aren’t pressures influencing the outcome (which there probably are).
Ah, I see your mistake. You seem to think that upper management is held to the same restrictions as the minions below.
In reality when you have enough money and power, the rules no longer apply. CEOs are supposed to hold options, and are not supposed to trade inside information, but when they do it it’s simply leveraging assets and socialising with one’s peers.
And the nerfing of the federal regulatory apparatus makes that considerably easier, hence the constant cries from the wealthy for smaller government. Get the oversight small enough and you no longer even need to pretend the laws apply to you.
Power corrupts, and real power networks for CYA.
Nevertheless, there have been a few CEO perp walks (google that, I just did to make sure it wasn’t my imagination) over the years. I wouldn’t mind more so long as that was based on compelling evidence and clearly neither politically motivated nor schadenfreude/theater.
The public companies I’ve worked at (granted, all in tech) don’t have mandatory holding periods for exercised options. They do have vesting periods, but once vested, the option can exercised and sold as the new owner sees fit, so long as it is within the company’s insider trading rules.
Most insider trading rules at decent companies say that C-level employees (and the BoD) must use a rule 10b5-1 trading plan. Once implemented, you aren’t allowed to trade in the stock outside of the plan, and everything is effectively scripted. This is supposed to prevent trading on insider information, but there there are ways around that if you are a powerful employee, such as the CEO, by scheduling public announcements / press releases for Tuesdays while your scheduled sales are set for Thursdays.
Additionally, higher level employees are able to negotiate more advantageous stock and option terms as well. As an example, when a fintech I know of went public, several of the higher level employees had their grants amended (with approval from the Board) to have a full vesting clause on death, effectively a massive life insurance policy benefiting the person’s estate. Those that didn’t report directly to the CEO got no such benefit.
There isn’t such a thing as a little bit of a narcissist. They are like a succubus. Everyone is happy until they are drained dry. These kind of leaders convert all the non-tangible assets of a company into cash and then walk off with a good percentage of it. The company is then left as a husk by the side of the road. At best it is just a shell of its former self. Too often it dies and destroys all the shareholder value which was the rational for converting all the non-tangible assets to cash in the first place.
As an example say the product development lifecycle at a firm is 10 years. A CEO can come in and get rid of most of the development people which cuts costs and improves profits. Then after 8 years they leave and cash out in year 9. In year 10 there are no new products and the company is in trouble but the CEO who caused this is long gone and can blame their successors for any problems.
Being President of the US does age a person. But they are rarely in the top .1% of the country. They have a great deal of power. But when Zuckerberg has a bad day 10,000 people lose their jobs. And unless those jobs are replaced fairly quickly a lot of people who rely on that spending lose their jobs as well. Musk doesn’t look like he is suffering from his disasters but there are a lot less people working at Twitter and elsewhere because of him. While POTUS can do a lot of things especially in terms of military actions that would cause wide spread disruption, most of the government changes have much less effect at least until it is deregulation that lines the pockets of the .1%.
All human endeavors’ are attended by risk even when one believes there is no risk involved. One could theorize that all events in the universe are caused by action attended by risk, resulting in consequences which add or subtract from the whole.
Humans love both: “more” and “risk”. Hence we play games to undergo the thrill of taking a risk (of losing, even our lives); gamble when we know that the probability of winning is always less than 50%; and when “more” is associated with the prospect of “power” (over others) then circumstances can make humans do anything to achieve such a goal.
Risk and “wanting more” seem to require episodic painful losses: what we may label “corrections” during our existence.
What we humans should focus on is reaching our individual and communal goals with the probability of risk reduced to a minimum. If we are chosen/elected or otherwise entrusted with other people’s property the reduction of risk should be paramount. (or, as with investments, the owner of the property assigns the level of risk: the greater the desire for “more” the greater the accepted “risk”; thus no blame assignable to others).