Who Holds Corporations Responsible for Bad Behavior?

As per our prior post (Let the litigation begin!):

Have you ever wonder why investors and counter-parties never take heed from really ugly events? Its one of the things I have mused about, yet I’ve come up with no good answer.

My favorite example was Merrill Lynch’s 1994 bankrupting of Orange County — the nation’s most prosperous county. Merrill didn’t seem to be impacted too terribly by that; I guess the thinking was "Nothing a few 100 million in advertising can’t paper over."

What’s the thinking from the consumer point of view? "Yeah, those municipal dummies got screwed, but that would never happen to me!"

Or maybe its imputed to the specific individuals involved, and not thought of as part of the corporate culture, ala Arthur Anderson

~~~

I’m always concerned with that. I have seen too many finance firms where the corruption flows down from the top. Too much money can bring out the worst in some people. 

Will Bear Stearns pay a price for that, or, will this be merely an issue of a few bad individuals? Or is this so widespread that EVERYONE gets painted with the same broad brush?

I have no clue at all.

What do you think?

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  1. justin commented on Dec 20

    The “wide brush” works given that nobody ever seems to come forward blowing a whisle. There is just too much money involved, which generally goes hand and hand with bad behavior. Must be why, “it is harder for a rich man to go to heaven than a camel to be pulled through the eye of a needle.”

  2. Stuart commented on Dec 20

    IMO corporate greed and corruption at the top has evolved from cultural “anomalies” to the institutionalization of best practice.

    Just from the past several months, so many examples, anecdotal evidence illustrating a lack of corporate/personal accountability and transparency, and more importantly, a purposeful efforts to deceive. Too many to list. Although if one were to attempt to undertake such a listing, it would without doubt, be widely read with great interest.

  3. wally commented on Dec 20

    We are now in an era much like the Warren G. Harding one: no sense of responsibility at any level, government or private. It is absolutely obvious at the Federal level of government. It is rapidly becoming obvious both to Americans and to people around the world that US financial houses feel no sense whatsoever of personal responsibility for anything but their personal wealth.
    Here in Minnesota we had a major highway bridge collapse and nobody anywhere seems to feel the slightest bit of concern that maybe, somehow, it might have been their watch, their responsibility. Typical.

  4. Marcus Aurelius commented on Dec 20

    The victim of financial crime is never fully compensated.

  5. Winston Munn commented on Dec 20

    In my view the consumer simply feels impotent to impact decisions of the ruling class – a vote on American Idol has more impact than one in a national election.

  6. Eric Davis commented on Dec 20

    great to ponder, and the Futures in BS are up…
    I swear, this market just can’t comprehend how bad all this is.

    and I quote a member of fast money 5 “I don’t think this subprime thing is over yet?”

  7. Ross commented on Dec 20

    If you use the RICO statutes, you also GET THE MONEY. I guarantee that if a person knows beforehand that his or her 20 to 250 million is forfit to the government, the culture would change.
    How to make restitution to the ‘victums’ is another matter.

  8. michael schumacher commented on Dec 20

    Answer me this question:

    How do you loose billions of dollars, sell out to ANYONE who comes across your path, crank up risk until you can’t see any longer,and when you partially report the loss from those activities?? the stock goes up..

    that is power concentrated in the hands of the few (and totally wrong)

    I want a job like that where I can consistently screw up and have no consequence from it….unless I was auditioning for the next treasurey secretary opening (Macke)……Id Hillary is elected you can bet the new boss at Treasurey will be John Macke.

    Ciao
    MS

  9. Eric Davis commented on Dec 20

    MS,

    it’s opens like this that give me that PPT feeling. Where for some reason the Futures get bid up, for reasons I can’t figure out. I guess oracle earnings, and then aren’t sustained(not like things won’t turn around.

    I don’t think it’s short sellers the pull it down, I think it’s lack of interest in stock at that level.

  10. Stuart commented on Dec 20

    speaking of examples….

    noted this in my travels.

    MBIA’s got $8B of CDO-squared exposure on its books and didn’t bother to tell anyone. Forget Warburg Pincus, China or Abu Dhabi – I don’t think Jesus could save MBIA right now…

  11. michael schumacher commented on Dec 20

    It’s the futures that cause this….when you gun them relentlessly overnight ANY piece of what could be considered good news (I haven’t found much of that anywhere either today)

    That is what needs to stop…..but as the title of this original subject says…..who do you call???

    Unfortunatley there is no one and the people who are responsible for propping the market up know it. Wait until next week when volumes are paltry and the Jr. traders have money…..you saw it the day after thanksgiving too.

    I have patience and time…..the banks are running out of both.

    Ciao
    MS

  12. Schmekel commented on Dec 20

    While the “love of money is the root of all kinds of evil”, the current monetary regime is a seven headed monster with an evil unto itself.

    If we truly want to change the direction of our country then we must slay the parasitic creature from Jekyll Island first. The corruption is from the top down.

  13. scorpio commented on Dec 20

    consider SLM. the guy stood to make $200 MM if the deal went thru. since then his holdings have been wiped out in a margin call. is his new incentive to drive the stock price as low as possible, then reload? looks like it. remember this is a GSE. it makes student loans, for pete’s sake. there is no honor left in this financial system. just pure avarice.

  14. Costa commented on Dec 20

    20 million today. I do like to see all these gap ups keep failing.

  15. Mike Nomad commented on Dec 20

    Here’s one consumer’s view: Short of taking up arms against my oppressors, what am I supposed to do? The only effective tool that I’m aware of to keep the monkeys in line is revoke their charters for mis/mal/non- feasance (heh. your spellchecker suggests I meant ‘pheasant’.).

    Stockholders who push for it will get mulched, and members of Gov.’t gets so much money from Corporate Bastard Interests, there’s no way they (Gov) will kill their Golden Egg Makers(tm).

  16. Mike Nomad commented on Dec 20

    Here’s one consumer’s view: Short of taking up arms against my oppressors, what am I supposed to do? The only effective tool that I’m aware of to keep the monkeys in line is revoke their charters for mis/mal/non- feasance (heh. your spellchecker suggests I meant ‘pheasant’.).

    Stockholders who push for it will get mulched, and members of Gov.’t gets so much money from Corporate Bastard Interests, there’s no way they (Gov) will kill their Golden Egg Makers(tm).

  17. Francois commented on Dec 20

    “there is no honor left in this financial system. just pure avarice.”

    As the Arab proverb goes: “A pig with a lots of money is called His Excellency”.

  18. michael schumacher commented on Dec 20

    Costa-

    That’s Billion not million…..

    Easy mistake to make…not like we’re talking about real money now-LOL

    BSC puts more in L3…..$7 billion more….

    Anyone that believes the banks at this point deserves to go broke.

    Ciao
    MS

  19. Hank commented on Dec 20

    Transparency is the mother’s milk of free societies and capitalism yet it is the ultimate irony that in the ‘information age’ of Google and the Internet the system is more opaque on every level then it’s ever been. Whether you are talking about our new imperial executive branch or the shadow banking system of the new economy no one has a clue how much trouble we are in including the Fed.

  20. Peter Davis commented on Dec 20

    I must agree with comrade-in-last-name, Eric Davis. The futures in BS are most definitely up. I thought it was just a little interesting that Bear attributed its losses to the mistakes of one trading desk. How convenient.

    I have a friend who ran a now-defunct mortgage lender in California. He’s been in the business for years and told me months ago that it was common knowledge in the industry that Bear was holding a lot of the mortgage-backed toxic waste.

    The whole thing is, quite frankly, sickening. But I’m not surprised. I lost faith in corporate America a long time ago.

  21. Costa commented on Dec 20

    yeah i guess for a second i was thinking in reality.

    i don’t think anyone will be at fault, there will some small fines no more then a couple of million and it will take years for that to even happen.

    could u imagine if all this money the fed is dumping and the govt is spending on the war, went to other things like education, healthcare and other domestic problems we have.

  22. Kp commented on Dec 20

    The answer is…you do. We all do. Or at least, we’re supposed to. The fact is that Americans, in general have been asleep at the wheel. We have lost ourselves in meaningless material things. We work 60+ hrs a week plus for shit we don’t need so we can only look next door and feel covetous our neighbor’s(who now lives 10 feet away) newer, shinier piece of shit. Meanwhile our sense of identity and our dignity as humans and Americans dissolves into nothingness. Our children follow our examples of greedy, sedentary, ignorant, self-involved behavior and we as society shrug our shoulders and ask why when we see increasing violent acts of desperation by our children and adolescents.

    It is time for revolution, it is time for an awakening, it is time for sanity to make a come back.

    Why do people get away with shit? Because they are allowed to!

  23. michael schumacher commented on Dec 20

    Apparently all the loses (so far) are the fault of rogues inside each broker that has:

    No internal controls, has access to an infinite amount of capital, reports to seemingly no one, and are responsible for wiping out record amounts of capital with no risk management structure.

    MS said basically the same thing yesterday.

    It is astounding to me what we are spoon fed and are expected to believe. Although I shouldn’t be surprised I seemingly am with each new “spun yarn”.

    Sounds like the wild,wild,west to me…

    Ciao
    MS

  24. Ed Miller commented on Dec 20

    What about the board of directors? Do they not have responsibilities that go beyond being management shills? Isn’t part of the problem the fact that institutional investors aren’t doing their due diligence and insisting on better behavior instead of rubber-stamping anything management wants?

    Who is really responsible for forcing proper behavior? More importantly, who has the authority to make it happen and why haven’t they already done what they should have done before?

    I honestly don’t see how individual investors or any citizens in general can do anything against this.

  25. Eric Davis commented on Dec 20

    I like the litigation aspects of it, as one Juganaught corporation goes up against another with claims of Fraud.

    If it were between individual investors and Mega Corporations, we know how it would play out… .02 on the dollar.

    With the mega Giants going Toe to Toe… it’s a battle Royal between Godzilla and Mothra… But still Tokyo gets flattened.

  26. Eric Davis commented on Dec 20

    I like the litigation aspects of it, as one Juganaught corporation goes up against another with claims of Fraud.

    If it were between individual investors and Mega Corporations, we know how it would play out… .02 on the dollar.

    With the mega Giants going Toe to Toe… it’s a battle Royal between Godzilla and Mothra… But still Tokyo gets flattened.

  27. Will Lewis commented on Dec 20

    Fortunately [?] there are always a few enterprising attorneys around who would love to make a corporation responsible for their bad behavior (at a cots of 1/3 of the value of said bad behavior). Unfortunately [?] the best of those, Bill Lerach, is doing a stint in the hoosegow for conspiracy for kickbacks to his clients. As distasteful as they might be, trial attorneys are pretty much the only ones willing to spend the time and money in the hopes of a big payday from punishing bad behavior.

  28. ELS commented on Dec 20

    “My favorite example was Merrill Lynch’s 1994 bankrupting of Orange County — the nation’s most prosperous county. [para.] What’s the thinking from the consumer point of view? ‘Yeah, those municipal dummies got screwed, but that would never happen to me!'”

    Feh. What’s the thinking of Orange County? “Yeah, we got screwed, but that would never happen to us twice!”

    Except, that it is.

  29. Eric Davis commented on Dec 20

    -5.7 Phily Fed…. Damn…

  30. michael schumacher commented on Dec 20

    on a large scale Ed is correct . The call to “write your elected officials” is worthless, especially if they are trying to get elected, or in my case trying to have there son installed into his current post while on duty in Iraq. Duncan Hunter is a republicrat and only ever responds to people who “talk nice”-which in the context of the current problems I most certainly do not.

    ED-

    Phily Fed…well yet another example of reality or the truth not mattering one damn bit.

    I sort of expected BSC to continue the trend of happily selling out to whoever offered up the money but I guess they are saving that for next qtr. when they shit-can Cayne and sell out to the Russians.

    Ciao
    MS

  31. Damian commented on Dec 20

    Corporations, by definition, have no moral obligations or a need to act “good” or “correctly”. They are for their shareholders and will always, always look to maximize their profit within the bounds that the government sets. Given that our government is now bought and paid for by the corporations, we have a fundamental problem that will be very, very difficult to undo.

  32. Richard Leite commented on Dec 20

    why does everyone focus on the broker/dealers? what about the fiduciary responsibility of (yield hungry) trustees and managers of pensions and endownments that invested in the toxic-debt?

    and for what? a couple extra bps of juice?

    there is plenty of blame to go around.

    truth is, most people are lazy, look for quick fixes, and avoid responsibility and/or tough medicine. (thank you Baby Boomers)

  33. Richard Leite commented on Dec 20

    I guess my question to Barry would be: Who holds people responsible for bad decisions?

    Certainly not our current government who time and time again seems more than eager to come to the rescue, rather than let things work themselves out on their own.

    The Great Nerf Society. Alas…

  34. michael schumacher commented on Dec 20

    The best part about BSC losses??

    that S&P maintains the rating of it’s debt DESPITE losing almost $2 billion. So what would actually trigger a re-rating? Total meltdown???

    How do they manage that…….

    Ciao
    MS

  35. dgoverde commented on Dec 20

    ELS is right. The really baffling thing about Merrill Lynch and Orange County is why Orange County would hire Merrill Lynch a second time. If the initial victim of corruption and/or gross stupidity can’t refrain from making the same mistake twice, why should we expect other people to be able to learn from their example?

  36. Stuart commented on Dec 20

    ACA was de-listed before S&P finally reacted…. Nuff said about the competence of rating agencies. Also look at what the rating of Enron was a week before collapse. Rating agencies = Arthur Andersen=NAR=blah blah blah..

  37. MM commented on Dec 20

    The top executives at Wall Street Brokerages are the greediest scum of the earth. Today’s executives make Gordon Gekko look like an ethical man.

  38. dblwyo commented on Dec 20

    Well we’ll see if it’s possible to post so, agreeing in general with the prior comments, the basics are “follow the money”.
    That’s a serious observation not intended as triteness. The theory and standard model is that investors/originators/et.al. made money on the returns from sound investments. Now we had and have a situation where they made and make money on the flow of deals without regard to soundness and on the leverage built into a chain of derivatives. In other words there was and is a systematic and systemic flaw in the incentive structure were flawed deals boost volume and short-term profits and it just accelerates out of sight.
    This is both a major breakdown in regulatory oversight and institutional design BUT, before everyone beats up the Fed, why are they responsible for adult supervision of the entire inter-locked set of credit markets ?
    Ans: because those markets aren’t capable or willing themselves.
    2nd Question: would anybody have gone along with major regulatory reform even as little as a year ago. Ans: NO WAY – congress is already looking to blame anybody but the responsible parties and create much more extensive oversight of the Fed (which would be a long-term disaster of the 1rst magnitude)
    Bloomberg is running a great series of historical stories which you should read (http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=ajdL7eUHeUro) and I took my own pass at “walking back the cat” at this post: Rocks, Ponds & Perversions: http://tinyurl.com/24zuvo
    If you put this up would you mind putting it up as dblwyo, my nome de guerre ? Tried three different ways and no joy.

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