FEBRUARY 4, 2009

This should drive one crazy Wells Fargo defends, then cancels Vegas junket. No, not that they scheduled the "junket", but that they felt pressured to cancel it. What right or expertise does the Federal Government have in the sales and marketing practices of a private institution?  Oh, I forgot, that is so yesterday. One argument, which is ludicrous, is that the Government owns preferred stock, therefore they have the right to determine the business practices of the company. Why?  Based on what company by-laws or Federal law? This is exactly the kind of junk which helps contribute to the financial illiquidity we have today. Who in their right mind would want to run a bank today---unless one is a Bureaucrat with a Post Office mentality? Banks are being demonized to the detriment of all.

This is scapegoating, or the practice of finding someone to blame when your own policies fail. Despite the popularity of believing so, banks did not purposely, or even recklessly, lose money in order to pay themselves large bonuses.  Lehman Brothers senior people, for example, received 80% of their pay in stock which did not vest at all for five years. That means all their pay in stock from 2003-2008 ended up being worth zero.  Where is their motivation to willfully destroy value for their own benefit? As usual, there is a tendency to conflate a variety of issues. We look at "intent" and then judge the "result" as good or bad based on intent. So when Oil Companies make money, that is bad because they are greedy and predatory. When banks lose money, that is bad because they are greedy and reckless.

The intent of all business is to make money for shareholders. Employees are hired and paid to do so. Many people dislike that fact, or at least want to limit what that amount should be, for shareholders and employees. These types of people used to be called "communists". When the result ends up being bad, these types blame the intent---"trying to make money"--- as the cause. They do this as a function of their presumed distaste for making money (itself a phony hypocritical stance). But when they like the intent, for example, "universal health care for free", and an equally bad result happens as banks losing money (rationed health care, for example) intent is not seen as the cause. In neither case is "intent" the cause of the outcome, nor should it be an area of focus in a free market economy. Thomas Sowell has referred to this "phenomenon" of judging outcomes by their intent as The Vision of the Anointed.

We should be looking for ways to make the financial system more functional again, not engage in orgies of blame over "big bonuses" or "junkets". While I agree with those who say the financial industry needs to shrink, we do not need Government trying to make it shrink---or expand.

(posted at 9:02 am by Mike Rulle)