Accountibility

On Sunday, I heard a prominent Rabbi say that the reason why we keep having boom and bust cycles in our economy is because of a lack of accountibility (read: liability), which is built into our system. The entire idea of a corporation is to shield the actual owners of the company from liability for the negative consequences and monetary losses resulting from the actions of the company.

So...what would replace corporations? Instead of stockholders buying shares, would investors trade "partnership shares" that would carry liability? I don't think most prudent individuals would want to carry liability unless they were personally involved in the operation of the business. So, capital would be raised primarily from loans, or loan-like instruments which offered some variable upside like a stock, but left the liability with the borrowers.

And what about the people who have lost lots of money recently due to their investments going sour? Why wasn't the risk of losses enough incentive to not invest in companies where one doesn't really know what is going on or how profits were really being earned?

In a recent post, I complained about the $500,000 limit on executive salaries for companies who receive 'bailout' funds from the Feds. I now see an upside to this...most companies will think long and hard and look elsewhere before taking bailout money.