Saturday, November 29, 2008

Nobody, "Nobody", and the Financial Crisis

Responding to Robert Rubin's self-serving claim that "nobody was prepared for" the collapse of Citigroup, Matt Yglesias makes a very salient point about these huge firms and the extremely well-paid people who run them:

Presumably the reason the top executives at a giant financial services firm get paid such extravagant salaries is that it’s their job to be prepared for the stuff that “nobody” is prepared for. If the idea is just that you make money while the market goes up, and then when the market goes down the government steps in to rescue you, probably a lot of people could do the job. And if a lot of people could do the job, there’s no need for compensation packages to run into the tens of millions of dollars. But if there is a need for compensation packages that run into the tens of millions of dollars, then people have a responsibility to prove themselves to be super-genius titans of capitalism who can navigate the shoals of the global economy flawlessly.
Likewise, "nobody" can catch a piece of inflated pig leather while running at Olympics sprinter speed, chased by men just as fast who are also strong enough to bench-press multiples of their body weight. A rare few can, such as Randy Moss and Terrell Owens, and they are paid millions for it. "Nobody" can write as well as Philip Roth or Cormac McCarthy, "nobody" can act as well as Sean Penn or Meryl Streep, "nobody" can play cello like Yo Yo Ma, and so on. There's "nobody" and then there's nobody.

If it's true that nobody -- as in, not even the best-trained, most experienced, most knowledgeable human beings on the planet -- can manage the complexities inherent in these firms in such a way as to anticipate and avoid calamities of the sort we're experiencing, it must be a strong argument for fundamentally re-thinking the rules by which these firms come to exist in the form in which they now do.

And it certainly means people like Robert Rubin are getting paid to do work they manifestly have not been doing and apparently cannot have been doing.

Firms that are too big to fail are, or should be, firms that are too big to exist. Likewise, firms that are too complex to manage should be firms that nobody -- the actual, literal version of nobody -- should have to worry about.

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