Links for 2009-09-14

  • Lehman’s Last Contribution to Society: A Lesson on Social Insurance – Economix Blog – NYTimes.com – “With limited liability, the corporation’s shareholders are liable only up to their equity stake in the company. They can lose at most the value of their investment in the corporation’s stock. Beyond that, someone else in society — often the taxpayer — bears the financial risk for damages attributable to the corporation. One wonders how many business executives and members of chambers of commerce around the country realize that the limited liability of shareholders is social insurance”;
  • Economic Donkeys « The Baseline Scenario – “President Merkel and Minister Lagarde need to look no further than Lehman for a model of how to introduce a good policy to align incentives. The top management and many employees in the company were largely compensated in shares of the company which vested over many years, so when Lehman Brothers went down, it brought crashing down the lives and finances of its 20,000 employees. Dick Fuld, the highly compensated head of Lehman, lost many million dollars – and presumably a large part of his total wealth. (…) The real problem with our financial system is that our economic and political system work together to encourage excessive risk, and this risk in turn leads to cycles of prosperity and collapse”;