First, it's worth noting that SOME of the assembly line workers from GM and Chrysler who've lost their jobs MUST have been dedicated and efficient -- as must some of the thousands of teachers laid off by California. Don't governments have an obligation to equity?
Second, isn't this the same problem Berle and Means identified? Dividing management from ownership creates all sorts of agency issues -- as an obscure scholar named Coase recognized.
This is a MECHANISM DESIGN problem: government should restructure incentives and reporting requirements. Many have suggested that DEFERRED COMPENSATION based on long-run outcomes may bridge the agency problem -- require payment in warrants vesting in a number of years, for example.
Finally, the evil has been the REGULATION FAILURE of the SEC, Fed, and others. Part of the fault has been allowing employees of "captive" regulators to join [or rejoin] those they've regulated immediately. Largely, however, the "free market" advocates are to blame: they forget Adam Smith's condemnation of unlimited greed.
How quickly we forget Smith's condemnation of vested interests' ability to exploit ordinary citizens and their shirking of duties to the Common Weal [as emphasized in The Theory of Moral Sentiments, whose last edition he released AFTER his last edition of Wealth of Nations].
Smith emphasized that societies without a social contract were not sustainable. His condemnation of the rich and powerful is reminiscent of Shleifer's "Grabbing Hand".
Ironically, it seems that Gardner and Means were right. And, had Joseph Kennedy been running the SEC [and CFTC] after 2001, we might never have faced the disaster that continues to threaten economic stability and American market dominance.
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