An interesting post in The Atlantic on how to fix the banking system by Pascal-Emmanuel Gobry. He argues that one of the basic reasons for the financial crisis was the principal-agent problem: many of the people involved knew that what they were doing was going to lead to a blow-up, but their incentives were such that continuing as long as possible made financial sense. No argument here.
His proposed solution is to re-introduce the partnership model in financial firms, removing the public shareholder financing of their activities in order to insure that those with skin in the game have a direct mechanism to rein in excesses in risk of their firm; that this necessarily restricts the size of firms (and hence increases their number) is regarded as a feature, not a bug. Having considered this at length, I think I'm sympathetic. It will of course increase costs to some extent (loss of economies of scale) but it will be very interesting to see the degree to which this happens. I have a sneaking suspicion that there's a lot of "the customer will pay what we ask" going on currently.
He does assume that available credit will reduce massively, which seems like a fair assumption: less risky behaviour means less attractive returns means less money available. But perhaps this is merely a consequence of investors realising that they will bear their risks alone:
I think it was The Epicurean Dealmaker who said on Twitter that the mandatory disclosure/warnings for anyone who signs a financial document should be a slap in the face and the phrase "CAVEAT EMPTOR!" shouted into their face drill instructor-style.You can just imagine it, with apologies to R. Lee Ermry:
Are you quitting on me? Well, are you? Then quit, you slimy fucking walrus-looking piece of shit! Get the fuck off of my SIV! Get the fuck down off of my investment ve-hi-cle! NOW! MOVE IT! Or I'm going to rip your balls off, so you cannot contaminate the rest of the S+P 500! I will motivate you, Mr. Smyth-Jones, IF IT SHORT-DICKS EVERY CANNIBAL ON THE CONGO!