Category Archives: Corporate governance

Mark Ames: Failing Up With Citigroup’s Dick Parsons

Last month, shareholders finally rebelled against Citigroup, the worst of the Too Big To Fail bailout disasters, by filing a lawsuit against outgoing chairman Dick Parsons and handful of executives for stuffing their pockets while running the bank into the ground.

Anyone familiar with Dick Parsons’ past could have told you his term as Citigroup’s chairman would end like this: Shareholder lawsuits, executive pay scandals, and corporate failure on a colossal scale.


On the Continuing Oxymoron of Ethics at Harvard

There is so much crookedeness among our elites that it’s hard to know, absent more systematic study, whether Harvard is playing a leading role in this decline.

However, the glaring gap between Harvard president Drew Faust’s talk on ethics and her recent actions has stuck with me and I’ve concluded it merits discussion.


Bank of America Prepares Emergency Plans at Fed Behest, May Need to Amputate on Geographic Basis

As we’ve said repeatedly, despite bank executives braying about the need to be bigger to compete or to gain efficiencies, the evidence runs completely the other way. Every study on bank efficiency in the US has found that once banks hit a certain size level (the most commonly found one seems to be ~$5 billion in assets) banks exhibit a slightly positive cost curve, which means they are more, not less, costly to run. Any economies of scale are probably offset by diseconomies of scope.

So why do bank executives sell and act on a patently phony story? Aside from the fact that doing deals is much more fun than managing a business, the BIG reason is CEO pay is highly correlated with the size of the bank, measured in total assets.

So no one should cry at the prospect that Bank of America might have to shrink to if it continues to be in financial and litigation hot water.


What if We Focus on Boosting Employment Rather Than Growth?

Although it is remarkably difficult to come up with decent data, from what I can tell, the Japanese bubble was considerably bigger relative to the size of its economy than the US debt binge was. Yet even though the Japanese aftermath has been remarkably protracted, and arguably worsened by a slow and cautious initial response, visitors to Japan find the country wearing its malaise remarkably well.

One of the reasons may be the Japanese preoccupation with employment. Entrepreneurs are revered not for making money but for creating jobs. Japanese companies went to great lengths to keep workers, cutting senior pay to preserve manning. That was done largely for cultural reasons, since companies are seen as being like families.

But was this preoccupation also good economic policy, and might it have played a more direct role in buffering the worse effects of the bubble aftermath?


Is Management Getting Worse?

To some readers, the answer to the headline may seem obvious: Yes, American management is clearly worse than it was, say, thirty or fifty years ago, because short-termism is endemic among public companies, and short-termism leads to all sorts of bad outcomes, like underinvestment and accounting gaming.

But that analysis is simplistic. Short-termism simply shows that management has adopted good for them, bad for pretty much everyone else (save maybe their bankster allies) goals and are pursuing them aggressively.

A comment by John Kay of the Financial Times has the effect of raising much more fundamental questions about the caliber of top managers.


“Summer” Rerun: Why Big Capital Markets Players Are Unmanageable

This post first appeared on July 8, 2009

John Kay comes perilously close to nailing a key issue in his current Financial Times comment, “Our banks are beyond the control of mere mortal” in that he very clearly articulates the problem very well but then draws the wrong conclusion:


JP Morgan Hit by Ripple Effects of Rakoff Decisions Nixing SEC No Admission Settlements

The wisdom of Judge Rakoff’s tough and controversial decisions taking issue with the decades-long SEC practice of entering into settlements in which companies admit to no wrongdoing is becoming apparent. This is the essence of Rakoff’s beef, as represented in his latest ruling on this topic:


Corzine’s Know-Nothing MF Global Defense

Jon Corzine’s evasive testimony before the Senate Agriculture Committee was scripted so as to lay foundations for his defense against customer and possibly shareholder suits and reduce the already very low odds of an indictment.

Although I’ll touch on other interesting elements shortly, the key item from his presentation was one that the New York Times’ Dealbook noted:


Hubris Watch: US Bank CEO Sniffs About Breaking Rules When His Bank Has Huge Trustee Liability

One of the benefits of the Occupy movement is that it is flushing out some particularly egregious behavior among the top 1%.

A writer for the Minneapolis CityPages managed to worm his way into a presentation to the annual meeting of the Minnesota Chamber of Commerce by US Bank’s CEO, Richard Davis. Even though Occupy Minnesota was protesting outside, Davis chose to ignore them. His speech made clear that the business community does not care about long-term self interest, let alone social responsibility. Housing and the foreclosure crisis were absent from the 2012 legislative priorities. But tax reform, which is code for shifting even more of the cost of government on to the small fry? Yeah, that’s a big deal.

Davis’ apparent lone comment on the public ire against the banks was dismissive:


“Why Pay for Performance Should Get the Sack”

Yves here. Before reacting reflexively to the thesis of the article, consider this corroborating view from the former chairman of Goldman, John Whitehead, back in 2007:

“I’m appalled at the salaries,” the retired co-chairman of the securities industry’s most profitable firm said in an interview this week. At Goldman, which paid Chairman and Chief Executive Officer Lloyd Blankfein $54 million last year, compensation levels are “shocking,” Whitehead said. “They’re the leaders in this outrageous increase.”

Whitehead went even further, recommending the unthinkable, that Goldman cut pay:

Whitehead, who left the firm in 1984 and now chairs its charitable foundation, said Goldman should be courageous enough to curb bonuses, even if the effort to return a sense of restraint to Wall Street costs it some valued employees. No securities firm can match the pay available in a good year at the top hedge funds.

“I would take the chance of losing a lot of them and let them see what happens when the hedge fund bubble, as I see it, ends,” Whitehead, 85, said….

By Bruno S. Frey, Professor of Economics at the University of Zurich and Margit Osterloh, Professor (em.) for Business Administration and Management of Technology and Innovation, University of Zürich; and Professor, Warwick Business School. Cross posted from VoxEU


Jim Chanos on China’s Contingent Liabilities

Edward here. The overall gist of Jim Chanos’ comments on Bloomberg the other day were that China has off-balance sheet contingent liabilities due to its implicit commitment to state-owned enterprises which are knee-deep in land and property speculation. This speculative excess will lead to credit writedowns. Chanos repeated his contention from CNBC last week that […]


Matt Stoller: Happy Lehman Brothers Bankruptcy Day

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) or follow him on Twitter at @matthewstoller. Cross posted from New Deal 2.0

Lehman’s bankruptcy happened three years ago today. It should be quite clear at this point that another Lehman is going to happen again. Policymakers didn’t deal with the crisis of 2008-2009; they turned it into a much longer crisis with far greater lasting damage.


Anne Sibert: The damaged ECB legitimacy

Yves here. This post may strike readers as a tad wonky, but the role and governance of central banks has become a subject of debate in the US, and I expect it to move more into the spotlight in the EU as the crisis continues. And as you read the post, the ECB had been trying to avoid scrutiny for good reason. It manages to make the oft-criticized Fed look good.

Anne Siebert is the wife of former central banker, now Citigroup chief economist Willem Buiter, who was a very outspoken and vocal critic of the Fed during the crisis, particularly of its “quasi fiscal role,” meaning the way it subsidized banks in ways that involved taking real balance sheet risk outside Congressional budgetary processes. Buiter argued this might well be a violation of the Constitution.

He and Siebert have written and done advisory work together, often for central banks. They were called in by Iceland shortly before its crisis erupted, and apparently told the central bank it was toast. Her experience makes Siebert a commentator who cannot easily be ignored.

By Anne Siebert, Professor and Head of the School of Economics, Mathematics and Statistics at Birkbeck College, London and a member of the a member of the Monetary Policy Committee of the Central Bank of Iceland. Cross posted from VoxEU

The European Central Bank was once known for its obsessive focus on price stability. Since the global economic crisis, however, its role has extended to preventing the insolvency of banks and sovereign countries. This column argues that such a move has badly harmed the institution’s legitimacy – something that will damage both its policy effectiveness and confidence in the governing bodies of the EU as a whole.