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How to Beat Wall Street at Its Own Game
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| Contributor | RP |
| Last Edited | RP Dec 08, 2009 10:33pm |
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| Category | Commentary |
| Author | Alain Sherter |
| News Date | Tuesday, December 8, 2009 04:00:00 AM UTC0:0 |
| Description | Two University of Minnesota law professors have a neat — and commonsensical — way to treat Wall Street for its gambling addiction: Make bankers personally liable for losses.
In a farsighted new paper, Claire Hill and Richard Painter propose that bankers earning over $3 million per year be required to work under a joint venture or partnership arrangement with their firm. That means if the bank loses money, they lose money.
The best part of Hill’s and Painter’s solution is that it’s been tried before. For, oh, the better part of a century. As they recount, until the 1980s most investment banks were general partnerships. Partners shared not only in the upside, but also the downside. If the bank croaked, their wealth died with it.
Things started to change in the 1970s. The New York Stock Exchange began allowing brokerage firms to have a public float. Companies argued that in order to raise outside capital, shareholders needed protection from unlimited liability. Over the next couple decades, investment banks ditched their partnerships to become LLCs. The last holdout, Goldman, finally converted in 1999. |
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