Wall Street bankers no longer evaluate risk well, allocate capital well, or aggregate capital efficiently. They are a drag on our economy and efficient markets. According to Paul Volcker, financial innovation over the last 30 years has added only one useful element to our economy …. the ATM.
Dimon and company should just STFU. They crashed the economy, we bailed them out for their stupid greedy behavior, and now their feelings are hurt because we remind them that their wealth was based on a perfect storm that they lobbied for and manufactured. It was one which merged:
- a Ponzi scheme of unregulated derivatives;
- regulatory capture;
- Mr. Andrea Mitchell worshipping the slut Ayn Rand’s philosophy of deregulation;
- Washington/main stream media/Wall Street/Very Serious People group think;
- cops on the beat averting their eyes;
- cops taken off the beat of white collar crime to fight terrorism;
- journalists learning nothing from Enron;
- journalists intimidated because they don’t understand math;
- budget cuts in journalism;
- predatory lending;
- rampant mortgage fraud the FBI warned about in 2004;
- Moodys and S&P having perverse incentives to give triple AAA ratings to lousy securities;
- the economics profession subject to “academic capture”
…..the list goes on and on.
Dimon and his fellow travelers are lucky they aren’t in jail.
If you don’t have time to see the movie, for fun viewing, check out the trailer to Inside Job.
http://www.sonyclassics.com/insidejob/
Matt Yglesias of the Center for
American Progress Action Fund
ponders the logical endpoint of Milton Friedman’s famous
declaration that “the social responsibility of business is to
increase its profit.”
This implies that a business executive has not only the right as
a citizen of a democratic country but amoral obligation to dedicate
his energy and that of the firm he manages toward erecting
regulatory barriers to competition and to begging for bailouts and
subsidies. The Friedman view is that an entrepreneur who’s obsessed
with creating great products is not just in some loose sense a
sucker compared to the one who’s more focused on creating a
politically entrenched monopoly, but that he’s also guilty of some
kind of ethical failing.
Yglesias suggests that, in the end, Friedman’s notion that
profit is the goal is effectively a “social responsibility to
rent-seek.” I'm not so sure, for a couple of reasons.
The first—one espoused by any number of free-market business
owners—is that most folks who subscribe to a basically Friedmanite
view of the world also believe that the short- and medium-term
profits earned through rent-seeking tend to come at the expense of
a firm’s long-term profits and sustainability. Perhaps a firm
initially makes some money by lobbying for taxes and regulations
that push smaller firms out of the market. But in the long run,
those profits are the products of market distortions, and thus not
healthy for the firm, which becomes increasingly reliant on
favoritism and intervention rather than price signals over time.
That sort of rent-seeking behavior also encourages a competitive
regulatory environment, in which other firms and interested parties
(bureaucrats, special interest groups, politicians, etc.) will soon
seek to use similar tactics against your firm. Eventually those
parties will be successful. The underlying idea behind this view is
that it’s bad business to work toward making rent-seeking a greater
part of the regulatory environment.
The second thing to note is that Yglesias is at least partially
right in that many businesses
do end up accepting and embracing the notion that
rent-seeking is simply part of their business. But if you think
this is a problem, then the most effective response is to look for
ways to make rent-seeking behavior more difficult. And since one of
the basic premises when it comes to rent-seeking is that rules and
regulations will almost always be gamed in favor of one party or
another, and that more rules leads to more gaming, you don’t
accomplish this through regulation. Instead, you make rent-seeking
harder by making government smaller, and simpler, and less
powerful, and therefore 1) harder to manipulate and 2) less
enticing, thanks to the limits on its influence, to those looking
to exploit its rules. The less advantageous it is to game the
government, the fewer businesses will attempt to do it.
In 2005, Reason
hosted a debate over the meaning of corporate social
responsibility between Milton Friedman, Whole Foods' John Mackey,
and Cypress Semiconductor's T.J. Rodgers.
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