It was the investment banks becoming Corporations that was a root cause.

Reader comment on: Howard Marks on Regulation

Submitted by Lyle (United States), Mar 3, 2011 21:45

In the old days and in the hedge funds the employees have their entire net worth on the line when trading. As has been stated that tends to concentrate the mind. However the investment banks went to a corporate model where they started playing with other peoples money instead of their own. It's of course easier to lose someone else's money than your own. The trading operation should be returned to a full partnership model with unlimited liability. In the case of hedge funds the folks have significant investments in the fund, and can loose it all if they don't do things right. Of course there are still screw ups see Long Term Capital Management for an example.

But in general if you have a lot of skin in the game (more than just deferred comp, but your entire net worth) you pay better attention to what your co-workers are doing.

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