Bankslaughter 59 comments
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Paul Collier is worried about the skewed incentives built in to any bonus system: The upside of taking risk — a big bonus — is much bigger than the downside if the risk blows up:
The inherent problem facing shareholders is that incentive payments cannot go negative. However much damage a manager inflicts, wiping out both shareholders and depositors, the consequences cannot be remotely commensurate.
Collier has a solution: a new crime, called bankslaughter.
With bankslaughter, when the bank blows up – even if it is a decade later – a criminal investigation traces back to determine whether crucial decisions were reckless. If a reasonable banker faced with the information available at the time would not have taken those risks, the person responsible is dragged off the golf course and jailed.
Once bankslaughter was on the books, bonuses would be less dangerous. Managers would have to weigh the balance between risk and return and take defensible decisions. I doubt hyper-caution would be a problem: the overly cautious would not get bonuses. Surely we can rely on our bankers to exhibit the necessary degree of greed.
Is it reasonable to hold professionals criminally liable if they take reckless risks with other people’s money? I don’t see why not. Especially if they work at a leveraged and systemically-important institution. After all, people can be jailed for insider trading, which is far more of a victimless crime than bankslaughter.
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This article has 59 comments:
Market-makers buy my stocks and the FDIC covers my bank accounts. Am I being 'risky' believing that there is a market for my equities or that my money is secure? Should I be thrown in prison?
Have a few executions (preferably public) and you can probably cut down on the incidence rate quite a bit.
On Jul 07 02:21 PM J. Crighton wrote:
> Personally I just think we should make "white collar" crimes eligible
> for the death penalty. I'm being serious by the way. When just one
> or a few individuals decided to run amock then damage to society
> can be substantial (think Madoff and company).
>
> Have a few executions (preferably public) and you can probably cut
> down on the incidence rate quite a bit.
unethical or better, criminal, individual gains $1M ( a life's work) through illegal or clearly unethical actions (e.g., even originating many liar loans, etc.) society has a moral right to help them into the next life. I would definitely pay to view of course.
American business would fold up and shut down if we created a society in which executives lives were placed in the hands of a bloodthirsty mob made up of individuals who enjoy watching executions.
What a bunch of losers. leave the USA and go to the less developed parts of the world where people like you actually do set societies' norms.
Or, we could just decriminalize dueling. The shareholders can hold a proxy vote to pick their representative, and he gets to blow a hole in the creep with an ivory handled revolver, Aaron Burr v. Alexander Hamilton style....
We criminalize recklessness in law.
We criminalize recklessness in engineering.
The reason for all of the above is that people who practice those professions must be trustworthy and competent, otherwise people's lives will be severely impacted.
Why shouldn't we criminalize recklessness in finance? Is not the same criteria true?
1) the government itself condones the recklessness (elimination of Glass-Steagal Act, promotion of "increased homeownership", the appointment of only Goldman Sucks-qualified Eggheads to Treasury and the Fed, etc.);
2) medicine, law, and engineering are unavoidable and unconsentable, at least for the majority of the time. Finance is a choice, and the investor's consent is required.
Every Madoff victim should kick themselves twice before they kick him once...
And Treason, for the Enablers in Congress, still IS a capital offense.
On Jul 09 03:09 PM D_Virginia wrote:
> We criminalize recklessness in medicine.
> We criminalize recklessness in law.
> We criminalize recklessness in engineering.
>
> The reason for all of the above is that people who practice those
> professions must be trustworthy and competent, otherwise people's
> lives will be severely impacted.
>
> Why shouldn't we criminalize recklessness in finance? Is not the
> same criteria true?
1) Return to Glass-Steagall (separation of commercial from investment banks)
2) Constitutional Amendment on a balanced budget (can't spend what the US government doesn't have)
3) End Central Banking model (yank political cover to spend money we don't have)
4) No investing in stock market while running for office, while in office and four years afterward including family members (ends legislating into thy own pocket)
5) No lobbying of any kind (do I need to explain?)
6) Two term limits for House of Reps (this worked for the Roman Empire when they became totally corrupted, besides Founders lived at a time when people lived to 60 on average, not 85 like today).
7) Issue greenbacks that are anchored to silver, nickel, steel or whatever metal is in abundance and is traded globally as a commodity.
8) Private citizens watchdog groups to review financial innovation and the power to warn the public, the watchdogs are nominated by the people by State.
9) General elections and max donations to politicians by company or individual $100 and only if US citizen (fixes broken electoral process and pay to play system)
10) No executive exemptions from the law for politicians, no exceptions.
There is ample evidence of direct fraud by politicians and banksters. These should be prosecuted. New regulation not required outside of the above 1-10 list. The list seems like 'wish' list but I will say that the US will do such when we are 5 feet from the bottom of the cliff (we have fallen 10 feet and the bottom is still 40 more feet down).
> Finance is a choice, and the investor's consent is required.
No, it's no different.
You choose to see medical advice/treatment, or not. But you'd better if you expect to stay healthy. Or do you prescribe your own medicine and perform your own surgery?
You choose to have legal representation, or not. But you'd better if you expect to win the case. Or do you write your own wills, etc, and argue your own cases?
You choose to take the elevator, or not. But you'd better if you ever expect to get your couch up to your 15th floor apartment. Or do you build your own elevators?
You choose to invest, or not. But you'd better if you ever expect to retire, or put your kids through college, etc. Or do you run your own 401Ks and mutual funds?
These things are all fundamental parts of our society, and we've created professions that most people /have/ to rely on in order to effectively function.
In all subjects except finance, people to provide poor service to their clients are at minimum banned from the profession, and oftentimes fined or jailed.
What makes financial professionals any different?
Shareholders and FDIC have enough power to remove bad managers. You think it's unfair that bad managers sometimes kill businesses, so what, life is unfair.
On Jul 07 02:21 PM J. Crighton wrote:
> Personally I just think we should make "white collar" crimes eligible for the death penalty. I'm being serious by the way...
Personally I think the death penalty is too easy. I'd prefer to see white collar crimes punishable by a lifetime of menial employment-with no health benefits and never exceeding the minimum wage by more than a dollar an hour.
You can't tell me that most of what these folks did flies in the face of everything a good banker is taught. Don't loan money to people with no income and no jobs, don't sell shit to people you know is poison. these people own our government, and their crimes go unpunished. this is why it is time for a bit of popular anger and demonstration that there are actual limits to how badly you can treat the people who elect you.
While we sit here and debate what is right and wrong these people get away with crimes. We all know in our hearts there is something wrong in a system that allows people to make billions making others destitute or homeless. There is something wrong in a system that lets a manager become a billionare when those when invested with him are left paupers. The idea that there isn't something wrong flies in the face of common sense.
I can think of no better example than Mr. Pandit. His hedge fund blows up, cost his company a fortune and then he becomes the head of citi. Which of course is also a major failure Despite what he says he is one of the highers paid folks on wall street. Wall street has games the system into something perverse. they pretend they make money for shareholders and investors, yet in fact it is an industry designed to separate their clients from their money and give it to themselves regardless of outcome. It isn't abut he best and brightest (although I am sure they are smart) the test is really do you have a soul. I can assure you those with a soul who have a problem with an objectionable practice that makes money for the firm do not stay there long, and do not become partners.
On Jul 09 03:47 PM D_Virginia wrote:
> On Jul 09 03:26 PM Whippet wrote:
Hoiw many of you suckers' suckers voted for Bush twice?
How many of you people from an alternate universe would vote for Palin?
I bet a lot of these people took part in the attempted destruction of their country by voting for corrupt and incompetent government and now they are clogging messageboards complaining about what they created and like the freaking MOB they are, calling for executions of convenient scapegoats.
How many of you hypocrites have walked away from your financial obligations because you were incapable of even understanding if you could afford the things you were lining up to buy?
"America has become a socialist nation of morally corrupt leadership skinning off the prized fur of our nations economic wealth and leaving a rotting husk for the rest of the 300 M citizens. There will be Nuremburg style trials by the time this is all over a few years from now. America will recover, I am a big believer. But all of the talk of is this a recession or not based on manipulated GDP and labor reports is really just a waste of time. I want to know what Washington, specifically Congress is going to do about this economy. A veto pen of Obama or McCain is a side show. I will vote Ron Paul.'
Apr 15 2008 18:59 pm"
seekingalpha.com/user/...
We have not seen the worst yet and calls for bankers heads on a platter are already surfacing. Fact is, outright fraud is there between too-big-to-fail executives and politico's. Start there using existing laws to prosecute, reenact Glass-Steagall and stop the bailouts.
On Jul 09 03:02 PM notblind wrote:
> I cant fault Salmons article, but it did flush out some medieval
> psychopaths.
>
> American business would fold up and shut down if we created a society
> in which executives lives were placed in the hands of a bloodthirsty
> mob made up of individuals who enjoy watching executions.
>
> What a bunch of losers. leave the USA and go to the less developed
> parts of the world where people like you actually do set societies'
> norms.
However is is not a serious alternative. We do need to reinstitute Glass Steagall.
The other point is that Executive compensation is a problem at all companies, not just banks. The problem is that boards are not independant and stockholders get the shaft.
Most stockholders have -0- return for the past decade while the managements in some cases have billions. Good stable businesses that have grown are of no more value today than 10 years ago. Why?
Part of the why is that as a stockholder I am paying a management to pay themselves first. I think they intended to leave me crumbs. However they didnt leave their compensation to chance.
No, I'm not saying all bankers are off the hook. Some were criminals and they should be punished accordingly. But would you also want the death penalty for doctors who prescribe you medicine that worked reasonably well for the last 50 years, but then all of a sudden started killing people off left and right?
You can see this change in the political mood by looking at the CIA today. In October 2001, the legislature would have let the CIA do absolutely anything it took in the war on terror. Now they're being second guessed from the sidelines.
Hey best way to rob a bank is to own one.
On Jul 09 03:33 PM Jason Rines (iThinkBig) wrote:
> How about this:
>
> 1) Return to Glass-Steagall (separation of commercial from investment
> banks)
> 2) Constitutional Amendment on a balanced budget (can't spend what
> the US government doesn't have)
> 3) End Central Banking model (yank political cover to spend money
> we don't have)
> 4) No investing in stock market while running for office, while in
> office and four years afterward including family members (ends legislating
> into thy own pocket)
> 5) No lobbying of any kind (do I need to explain?)
> 6) Two term limits for House of Reps (this worked for the Roman Empire
> when they became totally corrupted, besides Founders lived at a time
> when people lived to 60 on average, not 85 like today).
> 7) Issue greenbacks that are anchored to silver, nickel, steel or
> whatever metal is in abundance and is traded globally as a commodity.
>
> 8) Private citizens watchdog groups to review financial innovation
> and the power to warn the public, the watchdogs are nominated by
> the people by State.
> 9) General elections and max donations to politicians by company
> or individual $100 and only if US citizen (fixes broken electoral
> process and pay to play system)
> 10) No executive exemptions from the law for politicians, no exceptions.
>
>
> There is ample evidence of direct fraud by politicians and banksters.
> These should be prosecuted. New regulation not required outside of
> the above 1-10 list. The list seems like 'wish' list but I will say
> that the US will do such when we are 5 feet from the bottom of the
> cliff (we have fallen 10 feet and the bottom is still 40 more feet
> down).
On Jul 07 02:19 PM Poor Texan wrote:
> Just what we need. More opportunities for lawyers to shake down companies.
On Jul 09 05:21 PM klarsolo wrote:
> I know all you guys want somebody to hang for what happened. However,
> a nationwide house price decline of such epic proportions in such
> a short time period was unprecedented. Many of these toxic products
> were build on a data history of several decades. Had the history
> been reasonably stable going forward, we wouldn't have had any of
> these issues. So does this make every banker criminally liable just
> because he dared to rely on a 50 year return statistic?
>
> No, I'm not saying all bankers are off the hook. Some were criminals
> and they should be punished accordingly. But would you also want
> the death penalty for doctors who prescribe you medicine that worked
> reasonably well for the last 50 years, but then all of a sudden started
> killing people off left and right?
The issue being overlooked here is that the government at the moment wants the banks to engage in reckless loans --- or purchases of failing banks (as Ken Lewis of Bank of America did in purchasing Merrill Lynch). And further, while Mr. Lewis has been sued by his shareholders and will spend the next 5-7 years in litigation on the dime of Bank of America's shareholders, the government officials who forced Mr. Lewis to close the purchase, if sued, would no doubt claim sovereign immunity. If bank officers and directors must face the music, isn't it much more important that central bankers and other government officials face the music for their mistakes and not be allowed to hide behind sovereign immunity?
I thought so.
On Jul 09 05:48 PM Ulysses Benjamin Dover wrote:
> Ummm, you have no idea what you are talking about, butt you are funny
> in a pathetic sort of way. Listen up, when the first CDS were conjured
> up for real estate they deliberately left out the possibility that
> real estate could drop in price. Why? Because the models did not
> work when real estate went down in price. So, they left it out and
> played dumb while they took their mil, errr excuse me, billions.
> Wake up, save a citizen.
On Jul 07 03:25 PM Larry House wrote:
> Is what some banks have done all that different (in consequence)
> from what Madoff did?
I am disgusted by the whole mess with FI's, bit this whole line of reasoning is silly.
The shareholders wanted the reckless decisions. They wanted earnings growth. Everyone is crying now, before the crisis if a bank missed earnings estimates by a couple cents because they did something crazy like not booking millions of dollars of garbage credit card balance transfers or not playing with sub-prime mortgages then they got pummeled in the market. If they continued to not keep up with the most insane bank out there everyone would start asking if they needed new management.
We did not provide incentives for responsible management and no one wanted regulation - quite frankly investors did not want to know what was really on the balance sheets. Everyone wanted returns, even if they were fro massive unrecognized liabilities in SIVs and the such.
You want responsible management? We need reasonable regulations requiring banks to stay well capitalized and to create value. We need professional boards of directors who have a real understanding of finance and risk. We need investors who are not chasing next quarter's revenue number.
Most people laughed at Roubini, Taleb and their ilk 3 years ago - now - after the damage was done, we want justice? Every investor in Citi, B of A, AIG, etc... should be wiped out. They got what they asked for.
On Jul 09 03:02 PM notblind wrote:
> I cant fault Salmons article, but it did flush out some medieval
> psychopaths.
>
> American business would fold up and shut down if we created a society
> in which executives lives were placed in the hands of a bloodthirsty
> mob made up of individuals who enjoy watching executions.
>
> What a bunch of losers. leave the USA and go to the less developed
> parts of the world where people like you actually do set societies'
> norms.
Sorry, this is a horrible idea.
How would you like to make business decisions knowing that you could be charged with a crime based on future standards and knowledge that are unknowns at the time you make the decision?
I see no problem with some kind of criminal banking (or any other business) malpractice. But, it needs to be something where people know the rules at the time they're making decisions. Not based on some future, unknown standard of practice.
You talked about a policy of "No FDIC, No Bank-Slaughter".
Sounds like a track from Bob Marley's lesser-known finance reggae album: "Green Shoots - Smoke 'Em Before De' Gone"
Let's back up a minute here.
One of the primary reasons which keeps up from withdrawing all of our money in a panic is a system that features a security buffer that protects the consumer from isolated/limited institutional failure: meet the rationale behind the FDIC.
That, in effect, is what keeps banks from calling in their loans prematurely and refusing household and firm credit borrowing. It also puts "on-edge" banks into increasing jeopardy by refusing them the short-term loan packages which they need to cover expenses which appear overnight, requests which they need to process by the subsequent business day, and reserve requirements which need to be met.
WIthout these, word of mouth will be as damning as the front-page editorials in metro-area daily newspapers, playing into a negative-feedback loop that will affect other banks and lending institutions as well should no authority exist to set (or, in this case, reset) public expectations.
I don't think I could abide by a system where my money is either better off in short-term government securities or in precious metals because my bank has no safety net and the government refuses to provide one.
The dueling part, though, I'm on board with.
On Jul 09 04:21 PM john12345 wrote:
> The real issue here is risk, and that is rarely discussed with any
> common sense currently. In the future, with more effort and focus
> on enterprise risk, there may be better analysis of the risk that
> institutions undertake. Otherwise, I predict another financial crisis
> within 10 years after the current one is fixed. That's just what
> bankers do -- can you add to this list: So American bonds, Russian
> bonds, Long Term Capital Mgt, Internet crash, Subprime, Derivatives.
> I predict the financial experts will come up with a new product in
> the future that breaks the banks or financial system again. Tighter
> regulation and supervision, higher capital ratios, and better risk
> analysis is the only hope for preventing a fiasco in the future.
On Jul 09 06:16 PM stopwhining wrote:
> There should be criminal statutes against "gross financial negligence."
On Jul 07 09:40 PM Swashbuckler wrote:
> Agreed J. Crighton--You make white collar crimes capital offenses
> (enforceable), and you'll see a lot less corruption in business and
> politics.
Shall we accept the bankrupting of America and the indebtedness of our children as a price we must pay for having filthy rich bankers who are sometimes willing to lend us money usually at very high rates of interest.
In America, in normal times, if you buy a $250,000 house, you pay $400,000 for the house. I'd say the bankers are making more off a reasonable mortgage than they should. Let's not deify the moneylenders; they have enough advantages as it is.
On Jul 09 03:09 PM D_Virginia wrote:
> We criminalize recklessness in medicine.
> We criminalize recklessness in law.
> We criminalize recklessness in engineering.
>
> The reason for all of the above is that people who practice those
> professions must be trustworthy and competent, otherwise people's
> lives will be severely impacted.
>
> Why shouldn't we criminalize recklessness in finance? Is not the
> same criteria true?
On Jul 09 03:50 PM Alex Filonov wrote:
> If mismanagement is a crime, we wouldn't have enough prisons! And
> why only banks? What about insurers, like AIG? Or industrials, like
> GM and Chrysler?
>
> Shareholders and FDIC have enough power to remove bad managers. You
> think it's unfair that bad managers sometimes kill businesses, so
> what, life is unfair.
On Jul 10 08:45 AM Michael Clark wrote:
> Mismanagement for personal gain SHOULD be against the law and should
> be punishable by a very painful loss of freedom and assets. When
> crooks at the top steal millions or billions of dollars out of workers'
> pension plans so they can live like kings...is that just UNFAIR or
> should it be CRIMINAL? Mismanagement for personal gain is FRAUD,
> not just unfair. We can live with unfair; we can't live with FRAUD
> and EMBEZZLEMENT.
This would tend to encourage building the firm on sound footings and discourage the outrageous use of leverage.
Letting the market decide which managers should be allowed to lead is a much more efficient method. If you run a business miserably and need bailout funds, then you don't get to run anymore businesses - it should be that simple. There are banks that were actually responsibly run over the past decade, and the leaders of these banks should be allowed to take over and manage the resources and institutions that the reckless bankers have been overseeing.
On Jul 09 05:53 PM John Whelchel wrote:
> The criminal approach will not have the desired effect as juries
> will be reluctant to convict, except where recklessness is very clear.
> It would be better to avoid any court arguments over whether conduct
> was "reckless". Instead, if a bank goes bankrupt, or receives any
> federal bailout money, the top five officers and all the directors
> should be fired, barred from working at any other publicly traded
> company, and all their severance, pensions, and contingent compensation
> should be revoked or terminated, all in a civil action which could
> be brought by any shareholder. The real possibilty of massive loss
> of compensation will have the desired effect.
>
*Nobody would really want public executions.*
We just want equal accountability for both the line worker and the EVP of Operations.
On Jul 09 03:02 PM notblind wrote:
> ... American business would fold up and shut down if we created a society in which executives lives were placed in the hands of a bloodthirsty mob made up of individuals who enjoy watching executions....
>
Is China Faking Economic Recovery?
www.dnaindia.com/money...
On Jul 10 10:53 AM 31October wrote:
> My buddy went to China to check out their factory's costing problems.
> It turned out that some executives were either incompetent or corrupt.
> They were lined up and executed on the front lawn... China is the
> fastest-growing economy on earth, so accountability must work to
> some degree.
>
> *Nobody would really want public executions.*
>
> We just want equal accountability for both the line worker and the
> EVP of Operations.
>
> On Jul 09 03:02 PM notblind wrote:
On Jul 10 10:25 AM yellowhoard wrote:
> Perhaps financial industry executives should be forced to take compensation
> in stock and be restricted from selling the lions share of the stock
> for five years after leaving the firm.
>
> This would tend to encourage building the firm on sound footings
> and discourage the outrageous use of leverage.