9 August 2008
Mr. Marks' point: Had Mr. Prince done the right thing and sat out the rush of the lemmings into valueless mortgage-backed assets, he would not have lost his job in 2007 - he would have lost his job sooner!
Mr. Marks refers to this phenomenon in American financial markets as "short-termism." Targets are set and evaluated quarterly, so there are no long-term objectives - such as "gradually building value." Results must be instantaneous or they are disregarded.
Anyway, why take it from me?
Rating: five stars - must read!
Oh - by the way, Niall Ferguson says that a local (financial) squall in the United States could grow into a global tempest. Read about it here. (Linked through Finance Trends Matter - a great source for the best of the best stories each week.)Source URL: http://idontwanttobeanythingotherthanme.blogspot.com/2008/08/doesn-make-sense.html
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I think he's got it exactly right.
Example: Chuck Prince, the former CEO of Citigroup, lost his job in 2007 for following the crowd and wasting tens of billions of dollars of investors' money gaining "market share" in a worthless market ("unconventional" - read undercapitalized - or uncapitalized - mortgages).
Mr. Marks' point: Had Mr. Prince done the right thing and sat out the rush of the lemmings into valueless mortgage-backed assets, he would not have lost his job in 2007 - he would have lost his job sooner! What? Why?
For losing so-called market share to the other lemmings.
Mr. Marks refers to this phenomenon in American financial markets as "short-termism." Targets are set and evaluated quarterly, so there are no long-term objectives - such as "gradually building value." Results must be instantaneous or they are disregarded.The other problem Mr. Marks sees is the compensation of executives based on their ability to jettison research & development efforts and to pillage the pipeline of future sales in order to "maximize shareholder value" one quarter at a time - while collecting disproportionate pay and option packages - until of course, London Bridge comes falling down.
Anyway, why take it from me?
Read it Rating: five stars - must read!Oh - by the way, Niall Ferguson says that a local (financial) squall in the United States could grow into a global tempest. Read about it here. (Linked through Finance Trends Matter - a great source for the best of the best stories each week.)
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