From Buffett’s characteristically frank Chairman’s letter in the 2009 Berskshire Hathaway annual report (p.18):
In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control. If he’s incapable of handling that job, he should look for other employment. And if he fails at it – with the government thereupon required to step in with funds or guarantees – the financial consequences for him and his board should be severe.
It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascoes of the last two years. To say these owners have been “bailed-out” is to make a mockery of the term.
The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.
Pity he was so effusive about what a great manager Lloyd Blankfein is last week.
But of course the powers that be will do very little about this. They are too implicated in this mess, they have too little understanding of what has happened over the last couple of years (other than in the technical sense), and they know that if they just wait it will start to look better.
More generally, we are all implicated in this mess. As I have observed elsewhere, the financial villains and incompetents were not the real cause of the collapse. far from being the enemies of our current economic system, they and their bubble-generating, monopoly-creating strategies, methods and objectives are its apotheosis. This kind of crisis is a perfectly natural conclusion of its routine self-development over a decade or so. And that, of course, places the real solutions even further beyond our present politicians’ grasp: not only do they not understand how profound the problems really are, but they are neither willing nor able to exercise the kind of political control that needed to fix the problem for good.