Friday, October 17, 2008


Paper on governance in finance.

This is also a theory of the financial crisis. As long as the Wall Street investment banks were partnerships, the young guys who looked forward to becoming high-paid seniors disciplined the firm: they did not want it to blow up before they had their turn in the cushy chairs with the soft cushions. But once you go public, the juniors no longer care so much about the survival of the firm--and the seniors have nobody checking to make sure they are not selling lots of out-of-the-money puts and calling it alpha.

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