Well, yes. Collective action problems in the corporate world are well known. The utility to any given investor is typically far less than the costs of waging a proxy fight (since they only get a share of the benefits, but bear all the costs-unless there are rules in place reimbursement). This gives a disproportionate amount of power to current management (especially since they can use company funds to run their campaigns).

And really, there are almost double agency problems. Most of the large shareholders are going to be institutional ones, such as mutual funds. They have even less incentive than a normal shareholder, because they're incentives won't be in perfect alignment with the funds they manage.

So in your ideal world, the government would have the power to recognize "the corporate form" (a rather major government intervention)? But it would have absolutely no power to effect internal governance rules (relatively marginal intrusions compared to the creation of corporations more generally)?

What you are describing is a different point, though. You are describing collusion in the moral sense, if not legal. There are plenty of reasonable points to be made about incestuous board members...which is where I'd prefer to start before we go creating artificial low-man/high-man salary relationships (which will only serve to disadvantage the manual labor worker as they will simply be outsourced to a contracting entity which will only serve to have a "poor man's CEO" which will serve to create the balance).

I'd be interested in hearing a solution to exorbitant wage discrepancies that don't have counter-productive societal consequences.

I agree, but no one really supports that line of thinking. Neither party is for it and most of the voters don't seem to be for it either. Government should be around in business to arrest criminals, keep people safe, prevent monopolies, and make sure the playing field is level.

Although I will admit there is an argument that the initial set of owner-managers bears a cost to setting up management-biased governance rules because it lowers the value of the company when sold. Same market forces don't necessarily work to prevent later managers from manipulating the agency problems, though.

Does this mean everyone can stop whining about unions?

My point is that the laws governing corporations, though, may be contributing to discrepancies to the extent they promote inefficient and unfair compensation systems.

I guess it depends on how you define fair.

Those who take risk and have the burden of the success/failure of a company should be entitled to distribute the successes of that company. Unfortunately, we have removed the repercussions of the failing side...and to that end, I would whole heartedly agree that something needs to be done there (or we need to stop rewarding failure).

I'll trade you no more complaints about unions in return for the removal of all* government regulation over employment.

*I'll make an exception for reasonable workplace safety regulations.

Can I start hiring 8 year olds?

Depends upon the safety ramifications.

If you're good to go on those, I'd like to ask that you start with the little bastard that had to be pepper sprayed last week, the harder the labor the better.

We have only removed the repercussions of the failing side for those companies deemed by the government to be too large to fail. There have been plenty of small companies that have failed to the detriment of all who were involved in the companies.

Sure - I certainly wouldn't argue that corporations are the be-all, end-all of positive free market forces, and the government absolutely should be heavily involved with and concerned about how corporations restrict the free market. Government action certainly can promote and facilitate the free market, all government action is not bad.

And only pay them 5 cents a week.

I only saw like 3 seconds of that kid's mother on a CNN blurb, but my immediate response to her whining about it was "then frigging parent your goddamn child you lazy POS."

I would say the optimum range is more like 6-12. From 13-24 they become entitled know-it-alls who unnecessarily bring down the morale of the 6-12 yr olds.

As a sidebar I'll mention only because I just brought up this very thing, shot an email off to one of my better radio reps & got an auto-reply "X is no longer employed at X Media Group" Checked in with the temporary replacement, four people got riffed this week, from a sales force that's already about half the size it was a few years ago. Definitely not an inept rep, but apparently one person is being brought on board to replace the four that were let go, seems likely to be a case where one person will sell all the stations in their group instead of being assigned to specific stations in the market.

Carry on, just though it was a little spooky to have mentioned this & then run into completely unexpectedly so soon.

Wouldn't we see a bigger drop in media sales with a true free market with no interference from government? With no copyright laws, anyone can broadcast and re-broadcast whatever they can get their hands on.

This is going to get ugly.

Going back to that WI Supreme Court race, the most conservative county in the state has suddenly found over 10,000 new votes which swing the race back to Prosser by a wide margin.

Agreed...that's really what I was referring to.

I would add that there is (and should be) a difference between "too big to fail" and "too big to ignore the failure". I think one can approach the latter without causing, rewarding, or encouraging future recklessness and incompetency.

They did not 'find' 10K NEW votes. They did not tabulate Brookfield into the results. I'm sure there are swings like this all the time, but because the result was close and then swung it wide it will be turned into something that it isn't

I didn't mean to imply they were illegitimate but it sure looks terrible.

It's weird how in 2011 we can't just have realtime, accurate voting tabulation. Maybe that's not possible, maybe that would make it too easy to rig an election or whatever, but - it's still weird that we have shoeboxes full of votes still coming in from around Wisconsin.

+1

Yes, its too "techy" I guess.

But we have terabytes worth of financial, credit, and personal data flowing all over the world so if you wanted to buy a car in Thailand you could run a credit check & get approved for a loan in mere minutes...as could millions of other people in that same period of time.

As someone that is generally critical of the financial services sector, I'm genuinely curious if both of you (and others) believe that the government should not have bailed out financial firms. Certainly one might argue that they could have imposed tougher terms on these companies. Certainly one might argue we should design better resolution mechanisms in the future to deter moral hazard problems. But I have a hard time believing that a counter-factual scenario where we didn't provide bailouts would not have been a disaster.

The financial system, for better or worse, is highly intertwined with the rest of the economy. The financial crisis had the power to freeze the financial system-and thus the economy. When Lehman failed, for instance, it shocked the trillion-dollar money market sector. This created problem for the many companies that relied on commercial paper for lines of credit, which they use to pay everyday expenses.

Now, I suppose as policy matter, one might argue the benefits of eliminating moral hazard outweigh the cost to the economy. Not a gamble I would have been willing to take, though.

Further, for those of you both opposed to government bailouts and government regulation, I ask you this: What is you ideal system of banking regulation moving forward? Without any regulation, banks have the potential to grow even bigger in size, making it even more difficult to credibly commit to a no-bailout policy ex-ante, because of the effects a large bank failure would have on the economy.

And I guess that also sort of goes to a philosophical question I have for those of you most opposed to government regulations: How have you drawn what the actual minimal standard is? It seems highly arbitrary and selective. As I mentioned before, recognizing corporations is a rather large intrusion into "the market". Yet I assume most people would generally accept this, while criticizing far less intruding regulations. How are you making these determinations? Weighing the policy pros-and-cons on a case-by-case? Something more philosophical?

And I'm really not provoking in jest. Genuinely curious about why people believe what they believe and, more specifically, why people draw the lines they draw.

We've gone through similar discussions about this before, but where I come down is that I dont subscribe to there being only 2 options...let the banks fail and face catastrophic financial fallout or bailout banks and let them continue to operate by dumping money into them.

Even allowing those banks to continue (with strings attached, added regulations etc.) is a problem. We could have bought up bank assets if that was the real problem and let those morons fail via government proxy...whether that be via Freddie/Fannie or via a new government entity to essentially act as "Fed Bank". Would it have been a little more chaotic in those months of lat 2008? Probably...hard to say for certain...but probably. But it would have ultimately accomplished the goal of the US standing behind its debts and obligations while not allowing the people who wrecked it to continue on. Now as time goes by...the government is less and less inclined to do anything about it & those institutions are free to continue going about their business.

As I alluded to in the previous post...one can see a business entity that's too big to ignore failure of and find an alternative that doesn't violate fundamental needs for the system.

I was referring more to the day-to-day operations of financial markets. If you allowed major banks to fail (rippling through the rest of the financial system), we risked an even greater disruption to financial markets integral to daily markets of many completely unrelated firms. If commercial paper market ceased to function, companies may literally not have had the cash on hand to pay payroll.

Further, the people you're literally bailing out are shareholders and creditors, not employees. Do you believe that monitoring by these groups would have increased dramatically in the absence of bailouts? I suggest not: the government pursued a policy of "constructive ambiguity" prior to the financial crisis, hence the decision to rescue Bear and not Lehman. Despite this risk, the market the market treated Lehman as essentially healthy until very close to the "run" on the bank that shut it down. Even for the rest of the firms that were only saved by the bailout, gambling on "too big to fail" seems like a risk, yet none of them were stopped from their activities by creditors or shareholders. If "market" monitoring didn't work then, why would it work now?

Should banks be allowed to get to a point where their failure would cause a collapse of the entire financial system? If you feel they should, you have to deal with the fact that these companies work in a different realm and can do whatever they want with no risk of failing.

I feel lie an appropriate response would have been taking over the insolvent banks, making sure they didn't destroy the economy, and then slowly sold off parts over time until they no longer existed. The smart banks thus would prosper from making smart decisions. Sort of like we did with AIG.

As I had said to lungs, they are not shoeboxes full of votes coming in. In Waukesha, the votes were applied to spreadsheets and then uploaded into a access database. I guess the clerk said that she did not save them after the input and that the spreadsheet had extra columns put into it so, it wasn't a smooth upload to the database. The initial gut check passed so, the items were released to the media. All the votes then go through a process to make sure all the final totals are caught (which needs to occur by April 15th) and this is when the error was caught. Actually there are several places that errors were corrected in the state, but most were a few hundred votes here or there.

Even in a full electronic system you would need checks and balances to occur.

I certainly agree more restrictions on the bailout would have been appropriate. My concern is that even then we probably wouldn't incentivize the "market" to police them any better.

Personally, I would try to limit the size of major banks through measures such as higher capital requirements or lower asset caps (these would need to apply to "shadow" banks, as well). This would, I hope, prevent any bank from becoming to integral to the economy and thus decrease the pressure ex-post too bail them out.

Part of my question for those that oppose market intervention generally is whether you'd be OK with regulation like that. Unless you believe the market effectively monitors those firms-which it has proved it cannot during many, many financial crises in history-it seems as though there is an inherent tension between refusing to apply regulation ex-ante to keep banks from growing big, but then not wanting to bail them when they become integral in the economy ex-post. How would do people resolve this?

Agreed, but this is why the canvasing takes place. To correct these errors. Of course, now it will just be more political posturing going on in the state by both sides.

I'm more pissed that the Wisconsin Supreme Court is being turned into a ideological battlefield. No judge should be beholden to any group.

I don't know why people would oppose regulation if a company has the ability to destroy our economy and hurt a large number of people. We don't allow nuclear power plants to work without regulations. We don't allow companies to dump toxic waste in our water.

And I'm not a big regulation guy either, but you can't let people/companies have the ability to destroy an economy.

Before I answer, I feel like I have to point out that in case, be careful not to confuse drop in sales with the cuts like the one I ran across today. Numbers are actually trending up pretty much everywhere for the past 6 months or so and based on his accounts this guy was almost certainly in the top half of their billing (no idea about the other 3 cuts, dunno who they were yet). This was actually here in Athens, so I'm pretty familiar with the overall situation & knew some of what he worked on, although I didn't know him beyond the past couple of months; i.e. it's not like we were longtime pals or anything.

Now, to your question, I don't remotely consider copyright law a matter of business law. They're a matter of protection of personal property/property rights and at no point in this discussion have you seen me suggest declaring theft a-ok because it interferes with the criminal's right to "do business".

On the other hand, we largely allow lawyers to police themselves, along with several other professions.

Are you suggesting that you trust nuclear plants less than them?

I know what you were referring to...and I think you would have seen increased short term chaos due to lack of available paper. It would have been more painful but the market would have adjusted and there would be more cautious investment as a result moving forward (to be continued below...).


Thats right...its the shareholders that were saved but those do include top exec brass in the company. Saving that stock price & ultimately regaining it has taught no lesson to anybody.

And I disagree that the market would not have learned anything from this or become more cautious. This was a meltdown that only people alive in 1929 would have understood. There was denial in the marketplace after Lehman. Nobody could believe the extent of what was happening...which is exactly why it happened. But the moral of the story could have been to monitor these types of companies (and others for sure) more closely before you invest...and the market gets that.

What the market doesnt get, is when government gets involved and what the implications and extent of that involvement is (or will become). That breeds more uncertainty and reluctance to invest until the market has had enough time (or insider knowledge) to know when the government is done. So even if the government's intention is to save the market...it has just changed the dynamic of the market...and not for the better.

Well geez...obviously we're going about it all wrong. We totally should. The invisible hand of the market will self-regulate for all our safety, right??

When it comes to something as deadly as nuclear power, I don't trust either of them. Both lawyers and energy companies are not looking out for anyone but themselves.

There is no incentive for a power company to follow all the safety procedures if it doesn't meet their bottom line.

It is business law though. It's an intangible asset. True free markets with no government intervention means no copyright, patents, trademarks, etc. You can't claim you want government out of business but then want them to regulate the world of intellectual property.

Well...this becomes a bit of a religious debate to me. I dont think we should be encouraging the ponzi scheme (my view) that is 401k in the first place...then it would truly be just investors who can afford to lose that money and not working people's retirement money. But its a way to suck in the general public to "invest themselves" (read: gamble) along with the high rollers. Only...the high rollers actually know when to fold and do it more quickly and with greater regularity than some sucker like me who just pays in and checks it every month or so.

So, in theory...I see nothing wrong with the market fluctuating, speculating, or dropping in general. But the practicality is that we're also talking about people's life savings here as well. I dont think 2 wrongs make a right but in the end...I still think the market generally makes the right adjustment after such economic fallout.

That's like saying, "how can you want government out of X but you're OK with driving on government roads." Or, "how can you be OK with government regulation in banks, but against regulation regarding consensual human sex acts?"

Why can't one be for different degrees of government roles depending on the situation? (Even within a subgroup as large as "business")

Right...its the blood from a turnip analogy. If one sees these entities for what they are, it really becomes easier to determine how to regulate them (and to what extent).

How is a 401K a ponzi scheme? It's a long term investment.

But even if we take your assumption that shareholders (and, much more importantly for banks creditors) will better monitor, we still know that banks role in the economy create many externalities when they fail. Neither investors or managers have any incentive to prevent those. These externalities are obviously greater a bank then a shoe manufacturer. This suggests banks-and other companies whose failure threaten large externalities-need additional monitoring.

Ultimately, I guess we'll have to fall back on the cliche that we will have to agree to disagree. I think the long history of financial crises suggest that the financial firms poses special risks the market is especially bad at monitoring (which leads me to believe the ideal solution is regulation preventing them from getting too big to do much harm when they inevitably fail). You disagree. In the absence any way to test our positions in the real market, both of us are making claims that's impossible to prove empirically.

I think it's hypocritical to want free markets for businesses but regulation on consumers. So if you're rallying for no government involvement in business (which Jon seems to be saying), be consistent across the board.

It's saying "keep the government out of my business" but "make sure the government comes in and protects my ideas".

Feel free to take issue with my definition of "business law" versus "property law", I use the terms only in the sense of how I define them & how they relate to what I'm trying to communicate.

The value of virtually anything can be quantified at this point, so I largely dispute the notion of truly intangible assets frankly ... so you're certainly welcome to quibble with my definitions.

I dont see it precisely as a ponzi scheme...more of an obfuscated way to add more lame ducks to market for the truly powerful & wealthy to pick off. It doesnt really happen that way because inflation usually keeps things moving. But I'll just say that I'd rather have my employer's matching amount in my hands to manage today rather than in the stock market.

You can pick your investments though in a 401K or IRA. So if you don't want to put money in the market, you can keep it in cash, a money market, even bonds. They are more about tax advantages than anything else.

I'm not disagreeing that banks should have more regulation and oversight. I'm just stating that the moral hazard of not allowing them to fail can (and probably will) lead to it happening again no matter how much regulation you put on them. Meaning...they will probably not fail in the same way next time...but if they do...they will be on their own and the government will absorb the assets & losses that it must(but no more than it must). But that isn't what the market believes now...so the market will carry on as it was.