Leaders of Capitalism finally coming to their senses?

[Pr0d1gy]

Two comments, one for each story. Duh for the first one, and reinstating Glass-Steagall is essential to securing the future of this country.

Maximizing Shareholder Value is the dumbest idea in the world according to the guy who first trumpeted that idea, Jack Welch:
http://www.forbes.com/sites/stevede...reholder-value-the-dumbest-idea-in-the-world/

Sandy Weill says bring back Glass-Steagall:
http://www.forbes.com/sites/stevede...m-sandy-weill-says-bring-back-glass-steagall/

It's nice to see the people responsible for this economic mess we are in finally coming to their senses. This gives me a lot of hope for the future of Capitalism.

 

[JockoJohnson]

Two comments, one for each story. Duh for the first one, and reinstating Glass-Steagall is essential to securing the future of this country.

Maximizing Shareholder Value is the dumbest idea in the world according to the guy who first trumpeted that idea, Jack Welch:
http://www.forbes.com/sites/stevede...reholder-value-the-dumbest-idea-in-the-world/

Sandy Weill says bring back Glass-Steagall:
http://www.forbes.com/sites/stevede...m-sandy-weill-says-bring-back-glass-steagall/

It's nice to see the people responsible for this economic mess we are in finally coming to their senses. This gives me a lot of hope for the future of Capitalism.

Without applying more regulations for the first one, what else can be done? I think it is the dumbest idea as well to maximize shareholder value because it affects long-term goals of the company because it is bad to have a short-term loss. I am sure there are many other examples of how maximizing shareholder value affects a company adversely.

Is regulation the only option? I think we have enough of that already in this country.

 

[Pr0d1gy]

Is regulation the only option? I think we have enough of that already in this country.

Unfortunately it is when the people in power have no integrity or patriotism.

 

[JockoJohnson]

Unfortunately it is when the people in power have no integrity or patriotism.

And sadly, they don't. As much as this country doesn't need more regulation, it may be helpful here. Company's can't be run properly if they are public as most need to answer immediately to the shareholder or face backlash by huge sell-offs.

Look at how good Apple has been doing but because they didn't meet their "point spread", it is a negative.

 

[CaptainGoodnight]

Can we stop saying that Glass-Steagall (which only partly repealed) is responsible for the housing bubble.

The companies that were at the heart of the real estate lending machine were predominantly not companies that were engaged in both commercial and investment banking. The bulk of the lending was done by companies like Countrywide, Washington Mutual, Indy Mac, Fannie Mae, Freddie Mac, and the dozens of smaller specialized subprime lenders that were neither commercial banks nor investment banks.

Goldman Sachs, Bear Stearns, Lehman Brothers and Merrill Lynch, which together accounted for most of the privately issued [non-F&F] packaged loans sold as securities, were not commercial banks at all. European banks that participated, such as Barclay's, were universal banks before 1999. AIG, which enabled some of the worst securities by writing CDSs, was neither a commercial bank nor an investment bank.

The banks that failed were either thrifts/mortgage banks without investment banks (e.g., Countrywide, Washington Mutual and Indy Mac) or investment banks without commercial banks (e.g., Bear Stearns, Lehman Brothers and-nearly-Merrill Lynch). AIG was neither. F&F were neither. Some of the European banks that got bailed out had both investment banks and commercial banks, as did Citi, which also got bailed out, but in each of the cases, with the possible exception of Citi, I can find little about the combination of investment banking and commercial banking that led to the failure.

 

[Pr0d1gy]

Can we stop saying that Glass-Steagall (which only partly repealed) is responsible for the housing bubble.

The people who wanted it repealed are starting to realize it is a mistake, but I'm sure you know better than Sandy Weill, who created Citigroup and is considered a legend in the banking industry. Read the article, get educated, wake up.

 

[CaptainGoodnight]

Read the article, get educated, wake up.

Oh, thank you! I am enlightened now!

But G-S still had nothing to do with the housing bubble.

Bill Clinton has even said that the repeal of G-S, lessened the crash.

 

[Pr0d1gy]

Oh, thank you! I am enlightened now!

But G-S still had nothing to do with the housing bubble.

Bill Clinton has even said that the repeal of G-S, lessened the crash.

Did you bother reading the article?

I'm not talking about the bubble, I am talking about the future of Capitalism and keeping it alive.

 

[the DRIZZLE]

Two comments, one for each story. Duh for the first one, and reinstating Glass-Steagall is essential to securing the future of this country.

Maximizing Shareholder Value is the dumbest idea in the world according to the guy who first trumpeted that idea, Jack Welch:
http://www.forbes.com/sites/stevede...reholder-value-the-dumbest-idea-in-the-world/

Sandy Weill says bring back Glass-Steagall:
http://www.forbes.com/sites/stevede...m-sandy-weill-says-bring-back-glass-steagall/

It's nice to see the people responsible for this economic mess we are in finally coming to their senses. This gives me a lot of hope for the future of Capitalism.

The critique of maximizing shareholder value as the fundamental objective is a joke. The strike price of the executive's options are generally set before they are hired, so they only have an incentive to move the stock up. The fact that companies play some games with earnings forecasts and reporting doesn't mean that maximizing shareholder value isn't the correct objective of business or that stock based compensation is a bad idea. In the long run the market will reflect the company's actual earnings.

 

[glenn1]

For the first article, the fuller context is Jack Welch said "Shareholder value is a result, not a strategy." And the article's premise that the overall goal ought of a business ought to be "creating a customer" is also dumb; plenty of bad, money-losing companies have customers galore. Customers are the means to the true goal of profitability and sustainability.

As for the second article, reinstate Glass-Steagall if you want. The problem isn't that the IB's are subsidiaries of the commercial banks. Rather its because the partners no longer have any appreciable amount of their own capital at risk; they're only playing with clients' money and not their own. Force them to have skin in the game and their behavior will change drastically.

 

[Pr0d1gy]

For point 1, I agree with a lot of what you said but creating a customer is the primary goal of any business. If it weren't there would not be the gigantic advertising business we have today. Obviously, after that you want to increase profitability but when you do it at the cost of sustainability....which is where we are at now...you ruin the entire system.

For point 2, I do want to. If these guys are playing with clients' money and have no risk they can stay away from the retail banks. There is no reason to let casino banking (oops I meant investment) touch retail banking, that is simply playing with the worst kind of fire.

 

[werepossum]

Can we stop saying that Glass-Steagall (which only partly repealed) is responsible for the housing bubble.

The companies that were at the heart of the real estate lending machine were predominantly not companies that were engaged in both commercial and investment banking. The bulk of the lending was done by companies like Countrywide, Washington Mutual, Indy Mac, Fannie Mae, Freddie Mac, and the dozens of smaller specialized subprime lenders that were neither commercial banks nor investment banks.

Goldman Sachs, Bear Stearns, Lehman Brothers and Merrill Lynch, which together accounted for most of the privately issued [non-F&F] packaged loans sold as securities, were not commercial banks at all. European banks that participated, such as Barclay's, were universal banks before 1999. AIG, which enabled some of the worst securities by writing CDSs, was neither a commercial bank nor an investment bank.

The banks that failed were either thrifts/mortgage banks without investment banks (e.g., Countrywide, Washington Mutual and Indy Mac) or investment banks without commercial banks (e.g., Bear Stearns, Lehman Brothers and-nearly-Merrill Lynch). AIG was neither. F&F were neither. Some of the European banks that got bailed out had both investment banks and commercial banks, as did Citi, which also got bailed out, but in each of the cases, with the possible exception of Citi, I can find little about the combination of investment banking and commercial banking that led to the failure.

True, the repeal of Glass-Steagall's tattered remains had nothing to do with the housing bubble itself. But it had everything to do with the economic crash by allowing ALL banks to invest in mortgage-based securities. Once the GSE's removal of all sensible standards in writing mortgages allowed the market to become wildly profitable there was enormous pressure to get into this lucrative market, which only inflated the prices more and more rapidly. Even those banks not directly invested in mortgage-based securities tended to be invested in other companies that were. It makes little difference that a particular bank never invested in mortgage-based securities if that bank is also heavily invested in AIG, the GSEs, Countrywide, etc.

Put it this way, we can weather the crash of almost half our financial institutions a lot better than we can weather the crash of almost all our financial institutions - which is why Glass-Steagall was enacted. Glass-Steagall needs to be reinstated before the next fad sweeps the industry.

Pr0d1gy, good articles. I really didn't expect to agree with the first at all as along with spreading risk, maximizing shareholder profit has been the main purpose of corporations since their inception, but I found myself in total agreement as the author made the difference between maximizing real value (measured by return AND the strength of the corporation) and maximizing stock prices - which leads to such inanities as higher stock prices any time a company has a sizable layoff. When a company can lay off workers and effectively print money as a result, you know the system is screwed up.

 

[soulcougher73]

Is regulation the only option? I think we have enough of that already in this country.

Pretty much yes. Some regulations are good and some are bad. This happens to be good regulations that need to be put back in place. You cant expect people who chase the all mighty dollar to police themselves.

The stock market sucks and i wish it would go away.

 

[the DRIZZLE]

Pr0d1gy, good articles. I really didn't expect to agree with the first at all as along with spreading risk, maximizing shareholder profit has been the main purpose of corporations since their inception, but I found myself in total agreement as the author made the difference between maximizing real value (measured by return AND the strength of the corporation) and maximizing stock prices - which leads to such inanities as higher stock prices any time a company has a sizable layoff. When a company can lay off workers and effectively print money as a result, you know the system is screwed up.

If there is a problem here, it's that the executive's contracts aren't structured properly. If the contracts are rewarding executives for week to week stock performance, it is a corporate governance and compensation design problem. It has nothing to do with setting maximizing shareholder value as the objective of a corporation.

 

[glenn1]

For point 1, I agree with a lot of what you said but creating a customer is the primary goal of any business. If it weren't there would not be the gigantic advertising business we have today. Obviously, after that you want to increase profitability but when you do it at the cost of sustainability....which is where we are at now...you ruin the entire system.

For point 2, I do want to. If these guys are playing with clients' money and have no risk they can stay away from the retail banks. There is no reason to let casino banking (oops I meant investment) touch retail banking, that is simply playing with the worst kind of fire.

Simply acquiring customers without regards to profitability was the business model during the dot com era, and we know how that ended. Again, if your customers aren't providing profitable sales (or the sales don't have a legitimate business reason that supports future profitability) then creating a customer is pointless. There's a reason why "I'm losing money on each sale, but will make it up on volume!" is such an old joke.