March 20, 2009

with minimal comment

Hilzoy is right. As usual.

A couple of years ago, it would have been hyperbole to suggest that we would all be better off if the senior executives at all our major financial firms were people picked entirely at random out of the phone book. Now, it's arguably true. People picked at random would, admittedly, be likely not to have been to business school. They might not know a lot about futures or derivatives or put options. But so what? At least they might have been more likely to know that they were clueless, and a few of them might have had the common sense to ask questions like: will housing prices really go up indefinitely?

In any case, what's the worst they could have done? Bankrupted their companies with ludicrously risky gambles that fell apart once markets went south? Destroyed trillions of dollars in value? Brought the world financial system to the brink of collapse? Left taxpayers across the globe on the hook for trillions of dollars? Bankrupted entire countries?

Oh, right.

"Getting it" means understanding that the entire story that some people on Wall Street have told themselves about why they got such obscene levels of compensation is false. As a group, they were not uniquely talented. They did not make a lot more money for their company than they earned, at least not in the long run. Their salaries were not fair compensation for the value they produced. It would not have been worse if they had been replaced by people chosen at random.

And really? We would probably still be better off, because at least people picked at random out of a phone book wouldn't have highly negotiated contracts allowing them to loot their companies - which are not in bankruptcy today only because we, the people who pay taxes, gave them billions of dollars - via bonuses, insider trades, etc. I read something a while ago, maybe the article I linked to about how hard it is to live on half a million in Manhattan, in which a banker argued that if he creates $30 million in value for a company, he should get a chunk of that. Which I'm all for, as long as he shares the risk when things go badly. If you are responsible for the good times, you've got to take responsibility for the bad times; and no one arguing on Wall Street's side in the media has given the slightest indication that they realize that. (This is also why I find James Kwak's argument that we should blame Greenspan so compelling.)

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