Sean King

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Knoxville, Tennessee, United States

Sunday, June 20, 2010

Barry Ritholz...

...has some thoughts on preventing unhealthy speculation:

While researching Bailout Nation, I did discover one group of Wall Street firms whose senior management took a very measured approach to managing risk. They managed to engage in risk taking and speculation in a fashion that was responsible, and avoided trouble.

The group? Wall Street partnerships.

There is a simple explanation for this: Unlike corporations, Partners have “joint and several liability.” Every partner is fully liable, up to the full amount of the relevant obligation, for the actions of every other partner. This has the effect of focusing the minds of management on exactly what the worst case scenario of their behavior can wreak.

I hadn't thought of that, but it's a great point.

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