Any smart gambler, amateur or professional, knows that you only risk what you can afford to lose. That may be $1, $100, $500, or even a million dollars in a real estate or other major transaction. But only a fool bets the farm. Only a fool risks all.
What made so many bright minds all around the world foolishly bet the farm? One after another, that is what they did. Now we are all paying for it, some more than others. It was not just greed. It was something else.
How did this happen? I call it 'The Great Disconnect'.
When the managers of public companies do not suffer the same fate or consequences as their shareholders you have a disconnect! When politicians give lip service to understanding the pain of their constituencies but accept huge contributions from the enterprises they are supposed to regulate and oversee creating gargantuan conflicts of interest, you have a great disconnect.
When investment houses create financial instruments that are so complex that they cannot fathom the risk and the ratings agencies put candy coated frosting on them, you have a great disconnect!
I would propose that legislators not be allowed to accept any contribution creating a conflict of interest based on the committees they sit on. $700 billion reprise: Conservative bankers? Surely you jest!
I might even consider creating an independent committee of citizens selected from the willing, be placed in a position to review such matters.
It is a very simple principal to understand. Where there is conflict there is the fodder for moral and ethical compromise. Where there is a great disconnect between shareholder interests and management interests shareholders will be taken advantage of. A judge would not hear a case or rule in a case where they have a financial interest, but politicians do it every day.
The Security and Exchange Commission practically made it their goal to set the groundwork for our financial fiasco as if they worked for the banks and not the people. SEC opens the gates and the world drowns.
Most recently these issues have taken a position center stage as we have witnessed The Great Disconnect between the understanding of the bets (bankers and home buyers alike) were allowed to make and the appreciation of the extreme risk involved in these bets. In most cases bankers were allowed to bet the farm -- but it was too often someone else's farm!
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of BRK.B.
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Reader Comments (Page 1 of 1)
9-27-2008 @ 4:58PM
ken said...
I finally found out this morning what happened. It was right there in my morning paper, so clear, so concise, so overwhelmingly apparent. Cal Thomas found the truth, this entire financial fiasco was caused by Presidents Carter and Clinton. Not a single mistake was made by Reagan, Bush, or Bush. Now ain't that just the damnest thing. 2 democrats screwed up the words so badly that 3 republicans could not fix it.