Even after separation, investment banks will continue to use funds from retail banks, pension funds and insurance companies for their speculative activities. The speculators will continue to shelter behind limited liability and dump losses on to innocent bystanders. Unless the benefit of limited liability is removed from investment banks, their losses and reckless risks will inevitably be transferred to other sectors.
Hmm. Not convinced. Goldman was a partnership until recently and no one\’s said that Goldman has only become a problem recently. But let\’s see what his case is:
For any possibility of containing the crisis, speculative banking needs to have unlimited liability. Thus, if the bets go bad, bankers will personally need to bear the negative consequences.
Ah, no, he doesn\’t understand it, does he.
Limited liability protects the owners of the business, not the people in the business.
You could, in theory at least, have a firm where the shareholders had unlimited liability. Although we more normally think of this arrangement as a partnership: the way accounting and law forms are organised.
But it\’s still the owners of such organisations that have the unlimited liability. Not the people working in them (to the extent the two do not overlap).
And, like other bets, derivatives don\’t always pay off – as the cases of Nick Leeson at Barings and more recently Jérôme Kerviel at Société Générale exemplify.
Wouldn\’t have made the slightest difference to either of those two.
The above reforms will help to reduce speculative activity and quarantine the negative effects of reckless gambling. They will also remind neoliberals that the freedom to speculate needs to be accompanied by responsibilities.
And he\’s very slightly missed the point of all these derivatives: which is to transfer risk from operators to speculators. The whole point of the system is to allow speculators to gambol: that\’s what it\’s fucking for!