tag:blogger.com,1999:blog-3634628224045926034.post4716321437271312169..comments2023-08-29T01:27:13.772-07:00Comments on Magpie's Asymmetric Warfare: Who Creates Wealth? (IV)Magpiehttp://www.blogger.com/profile/07528637318288802178noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-3634628224045926034.post-34516478368091610622012-10-27T15:39:14.415-07:002012-10-27T15:39:14.415-07:00Unfortunately, I am still a little confused with y...Unfortunately, I am still a little confused with your line of thought (particularly the first paragraph).<br /><br />Perhaps by answering these questions we can shed some light on the situation:<br /><br />(1) "Who decides what a 'good decision' is?" <br />(2) "What a "good outcome" is?"<br /><br />Answer: Clearly, the owners are the ones who decide what a good decision and a good outcome are. Managers and directors, as said in the text, are obliged by law to promote the shareholders' financial interest; further, that is their job, and they are paid for that.<br /><br />Therefore, it's not up to me to define what a good decision is. Or a good outcome. More generally, this apply to third parties.<br /><br />To the extent managers and directors got the banks they managed broke, they failed their employers' mandate. The conclusion seems inescapable, to me.<br /><br />----------<br /><br />(3) "Could it be that the financial elite who reward top management for what you view as bad decisions and/or bad outcomes see those decisions and outcomes as good, not bad?"<br /><br />Answer: Taking into account the previous answer, I'd say that what I might think is utterly irrelevant. And, although I can't presume to speak for the financial elites, I'd say for them, the situation is clear, too.<br /><br />Perhaps what you are aiming at is that, although the banks were to all purposes broke, they were bailed out, so the owners did not suffer.<br /><br />If that's your point, then you are right that the owners didn't suffer by their managers' action, but neither do the owners owe them any thanks: if someone or something is to be thanked it would be the Government. <br /><br />Or, to put this another way, imagine the Government, instead of issuing a rescue with no strings attached (as it actually happened), had attached strings, as many people were demanding?<br /><br />----------<br /><br />I tend to agree with the rest of your comment, but its connection with the first paragraph is not clear, to me.Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-76135216316272473052012-10-26T18:59:00.565-07:002012-10-26T18:59:00.565-07:00Who decides what a "good decision" is? ...Who decides what a "good decision" is? What a "good outcome" is? Could it be that the financial elite who reward top management for what you view as bad decisions and/or bad outcomes see those decisions and outcomes as good, not bad? If you start with the assumption that top management is actually being rewarded for outcomes and decisions you consider bad, first assume that those outcomes and decisions are actually good ones, then try to understand how one needs to define "good decisions" and "good outcomes" to make that assumption true.<br /><br />Here is the bottom line. All trading on the secondary equity markets is pure speculation, a form of gambling. <br /><br />The original investors in a company that goes public (through IPO) are provided outsized rewards not because of their thrift but because they own a firm that has proven to be worthy of speculation. Once a firm becomes publicly traded, it becomes something of a perpetual motion machine, every day generating transaction fees whenever shares are traded. Whether the share price goes up or down, exchanges and brokers make fixed fees on each share traded.<br /><br />The management and directors of a publicly traded company are rewarded for keeping the speculation going. Tao Jonesinghttps://www.blogger.com/profile/10041034009270339963noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-24163722876744912022012-10-26T06:57:18.453-07:002012-10-26T06:57:18.453-07:00Hi Tao,
"You need to define 'good decisi...Hi Tao,<br /><br />"You need to define 'good decisions' and 'good outcomes.' Unfortunately, it is easy to do so in a manner that justifies the rewards of which you speak, if you try."<br /><br />I am afraid I don't understand.Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-2448590098126789842012-10-25T23:41:58.393-07:002012-10-25T23:41:58.393-07:00"If this were so, then rewards should be prop..."If this were so, then rewards should be proportional to the decision's importance to the firm. Good decisions, leading to good outcomes, must be highly rewarded. Bad decisions, leading to poor outcomes, must not."<br /><br />You need to define "good decisions" and "good outcomes." Unfortunately, it is easy to do so in a manner that justifies the rewards of which you speak, if you try.Tao Jonesinghttps://www.blogger.com/profile/10041034009270339963noreply@blogger.com