Monday, March 9, 2009

why not make both positions explicit?

From Felix Salmon:

Geithner to Citi?

I'm late to Joe Hagan's profile of Vikram Pandit, and especially this intriguing passage about the decision about whom to replace Chuck Prince with as CEO of Citigroup:

Rubin immediately lobbied to have Pandit replace him, but there was unexpected resistance from a number of board members, including Alain Belda, chairman of Alcoa, and C. Michael Armstrong, the former AT&T CEO, who did not believe Pandit was ready to lead and thought Citi had overpaid to get him in the first place. Meanwhile, Citigroup founder Sandy Weill was advocating for Tim Geithner.

Weill doesn't exactly have a stellar track record when it comes to picking Citi CEOs: he ousted his able heir apparent, Jamie Dimon, and then promoted instead the hapless Prince. But with calls for Geithner's resignation from Treasury already growing loud, there might be a certain logic to Geithner moving back into the banking system from Treasury. After all, Geither is de facto running Citigroup already, while Summers is de facto in charge of US economic policy -- why not make both positions explicit?


We, and the Brits, don't do explicit, which explains why so much of our humor, even unintentional, is in the form of double entendres. Here,from Martin Wolf in the FT, is a quote from Andrew Haldane:

"No. There was a much simpler explanation according to one of those present. There
was absolutely no incentive for individuals or teams to run severe stress tests and
show these to management. First, because if there were such a severe shock, they
would very likely lose their bonus and possibly their jobs. Second, because in that
event the authorities would have to step-in anyway to save a bank and others suffering
a similar plight.
All of the other assembled bankers began subjecting their shoes to intense scrutiny.
The unspoken words had been spoken. The officials in the room were aghast. Did
banks not understand that the official sector would not underwrite banks mismanaging
their risks?
Yet history now tells us that the unnamed banker was spot-on. His was a brilliat
articulation of the internal and external incentive problem within banks. When the big
one came, his bonus went and the government duly rode to the rescue. The timeconsistency
problem, and its associated negative consequences for risk management,
was real ahead of crisis. Events since will have done nothing to lessen this problem,
as successively larger waves of institutions have been supported by the authorities."

That's how it works. It's so effective, that people deny it even when the actors admit it.

That's our system. Implicit reality, as against explicit BS.

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