Friday, August 12, 2011

Corporations Can Serve as Made-to-order Scapegoats the Rich and Irresponsible

Corporations can do one thing that people can't do: disappear (without actual pain or death) taking with them the responsibilities for decisions that the people running the corporations made. They can go bankrupt turning thousands of pensions into smoke without the actual decision makers suffering a loss in credit rating. Or they can threaten to dissolve, making pensions go up in smoke, and then accept a counteroffer from the government to "restructure" carrying forward a limited set of its obligations -- e.g. the pension plans could be halved.

One reason for greater irresponsibility in the finance/investment sector is, I believe, the change from traders making money by investing their own money, and as an adjunct, advising others, to the modern salaried trader, making far more than the old traders did  in the form of a salary. They get commissions and bonuses commensurate to big value rises, but when it crashes, they suffer no comparable loss. When the trading corp. goes out of business, those victimized by reckless decisions have no "person" to sue to get their money back because it was handed across an unbreachable wall to the salaried traders.

One thing that obviously facilitated the rise of salaried mega-millionaires was drastic reduction in the upper tax brackets over the last 30 years. It was in the past impractical to make that sort of money in the form of salary. Maybe that made some sense. Maybe it is a "moral hazard" for a corporation to be able to throw such sums of money over a wall (to the corporation's chief decision makers) where it is forever immune to claims for "mere malpractice" -- only proof of criminality by the salary receivers can provide a remedy.

The simplest type of corporation is an LLC (Limited Liability Corporation) because limitation of liability is the one universal feature of corporations.

NOTE: "Scapegoat" is used here in the traditional sense, not the modern more abstract sense:  I.e. the company that is liquidated is like the biblical scapegoat:
Throughout the year and on the Day of Atonement, the record of all the sins of the Israelites was transferred to the Tabernacle by the blood of the sacrifices. On the Day of Atonement, the tabernacle was cleansed of all the accumulated sins by the ritual described in Leviticus 16. At that time the high priest confesses the accumulated sins of the Children of Israel to the scapegoat which is then sent into the desert wilderness. The Tabernacle and the Children of Israel were thus cleansed of sin. (Source:
 Works just fine for the perpetrators, but doesn't do much for the victims.

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