Thursday, March 4, 2010

Identity. Crisis.

John Oliver (from the Daily Show) interviews b-school students about the MBA Ethics Oath. SO funny!

Feb. 25th's FT had an article by George Akerlof and Rachel Kranton about Identity Economics. Akerlof and Kranton argue that people are not simply motivated by huge bonuses.  Rather, they are motivated when their personal goals are aligned with those of the organization for which they work.  In identity economics, performance pay demonstrates bad faith (employers don't believe that employees will do a good job unless there are obscene monetary incentives...)
Our current financial system gives employees an incentive to manipulate the system rather than to live up to their responsibilities.

Another concern is regulatory capture.  The Warwick Commission has proposed host country rules as opposed to home country rules to preclude regulatory capture (b/c host country rules tend to enhance the link between a financial system and national welfare objectives.  But what about arbitrage?)  Host country rules can also better empower national regulators.  Len Seabrooke and Eleni Tsingou (on Warwick Commission) suggested that we empower the Financial Stability Board as the key coordinator to allow countries to share information on products.  They think that the FSB is a better choice than the IMF or World Bank which lack legitimacy as institutions trusted by developing countries.

Simon Johnson is more pessimistic.  He says, "hoping that we can constrain banks through some form of international governmental cooperation is a complete illusion.  The IMF and the WTO have no mandate on this issue.  The Financial Stability Board is a paper tiger – really just a talking shop between regulators (and the same goes for the Bank for International Settlements more generally)."

The Institute of International Finance says that all of these uncertainties about regulatory reform are slowing economic recovery.  Boo.

Currently reading: The Wages of Failure (working paper by Lucian A. Bebchuk, Alma Cohen, and Holger Spamann)

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