Comments on: The Prisoners Dilemma: John Thain vs Ken Lewis http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 23:17:23 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: New Jersey CFO » Regulators are supposed to tell you to obey the law http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165828 New Jersey CFO » Regulators are supposed to tell you to obey the law Tue, 28 Apr 2009 12:28:12 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165828 [...] Read the rest of this entry » [...] [...] Read the rest of this entry » [...]

]]> By: Mark E Hoffer http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165722 Mark E Hoffer Tue, 28 Apr 2009 01:08:26 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165722 http://serendip.brynmawr.edu/playground/pd.html http://pespmc1.vub.ac.be/PRISDIL.html Cooperation is usually analysed in game theory by means of a non-zero-sum game called the "Prisoner's Dilemma" (Axelrod, 1984). The two players in the game can choose between two moves, either "cooperate" or "defect". The idea is that each player gains when both cooperate, but if only one of them cooperates, the other one, who defects, will gain more. If both defect, both lose (or gain very little) but not as much as the "cheated" cooperator whose cooperation is not returned. The whole game situation and its different outcomes can be summarized by table 1, where hypothetical "points" are given as an example of how the differences in result might be quantified. http://serendip.brynmawr.edu/playground/pd.html
http://pespmc1.vub.ac.be/PRISDIL.html
Cooperation is usually analysed in game theory by means of a non-zero-sum game called the “Prisoner’s Dilemma” (Axelrod, 1984). The two players in the game can choose between two moves, either “cooperate” or “defect”. The idea is that each player gains when both cooperate, but if only one of them cooperates, the other one, who defects, will gain more. If both defect, both lose (or gain very little) but not as much as the “cheated” cooperator whose cooperation is not returned. The whole game situation and its different outcomes can be summarized by table 1, where hypothetical “points” are given as an example of how the differences in result might be quantified.

]]> By: Mark E Hoffer http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165717 Mark E Hoffer Tue, 28 Apr 2009 01:00:31 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165717 kaleberg, is this: http://books.google.com/books?id=KbxhFrNr4IAC&pg=PP1&dq=Berle+%26+Means,+The+Modern+Corporation+and+Private+Property. it? kaleberg,

is this: http://books.google.com/books?id=KbxhFrNr4IAC&pg=PP1&dq=Berle+%26+Means,+The+Modern+Corporation+and+Private+Property.

it?

]]> By: jasonch http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165715 jasonch Tue, 28 Apr 2009 00:59:19 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165715 Barry - Great post! I really love the way that you've taken the facts of these case and presented them in the context of the prisoner's dilemma. Brilliant. I was familiar with the conversations between Lewis and Paulson/Bernanke. Thain's comments, even if not under oath, add a whole new dimension. Barry – Great post! I really love the way that you’ve taken the facts of these case and presented them in the context of the prisoner’s dilemma. Brilliant.

I was familiar with the conversations between Lewis and Paulson/Bernanke. Thain’s comments, even if not under oath, add a whole new dimension.

]]> By: kaleberg http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165659 kaleberg Mon, 27 Apr 2009 22:05:08 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165659 Transor Z mentions "their fiduciary duties to the shareholders". Under U.S. law, corporate officers and board members have no fiduciary duty to the shareholders. That's none, zilch, nada. They have a fiduciary duty to the corporation. That's it. Back in the 18th & 19th centuries, a corporation was a contract between the state, the corporate founders and the shareholders, so the government had a lot more influence on corporate behavior. Starting in the 1830s, the state started dropping from the equation, but at no time did anyone have a fiduciary duty to the owners of the company. (For more on this, read the classic, Berle & Means, The Modern Corporation and Private Property. It was written in the early 30s, but it is still a great read and still quite relevant.) Transor Z mentions “their fiduciary duties to the shareholders”. Under U.S. law, corporate officers and board members have no fiduciary duty to the shareholders. That’s none, zilch, nada. They have a fiduciary duty to the corporation. That’s it.

Back in the 18th & 19th centuries, a corporation was a contract between the state, the corporate founders and the shareholders, so the government had a lot more influence on corporate behavior. Starting in the 1830s, the state started dropping from the equation, but at no time did anyone have a fiduciary duty to the owners of the company.

(For more on this, read the classic, Berle & Means, The Modern Corporation and Private Property. It was written in the early 30s, but it is still a great read and still quite relevant.)

]]> By: greg http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165626 greg Mon, 27 Apr 2009 20:40:31 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165626 Why would anybody take a meeting with a politician, without recording it, secretly if need be? Why would anybody take a meeting with a politician, without recording it, secretly if need be?

]]> By: Moss http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165602 Moss Mon, 27 Apr 2009 19:47:38 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165602 Have Dick Cheney water board them both at get to the truth. Too bad that quote by Macey has been sullied by the banksters. It may look good in a text book but in the real world that is not what happened. Their first obligation was to themselves and other managers in the form of compensation maximization. They trashed the institutions and shareholders. Have Dick Cheney water board them both at get to the truth.

Too bad that quote by Macey has been sullied by the banksters. It may look good in a text book but in the real world that is not what happened.

Their first obligation was to themselves and other managers in the form of compensation maximization. They trashed the institutions and shareholders.

]]> By: TripleB http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165571 TripleB Mon, 27 Apr 2009 18:55:20 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165571 Cue the 60 Minutes interview that Lewis gave last year to Leslie Stahl. http://www.cbsnews.com/stories/2008/10/19/60minutes/main4531244.shtml ================================================== It was Saturday morning, September 13. John Thain, the CEO of Merrill Lynch, was on the line. Lehman was on its death bed; Merrill Lynch was said to be next. "You always wanted Merrill Lynch," Stahl said. "We've always thought that was the best thing for us," Lewis said. "You were drooling for Merrill Lynch," she said. "We have always felt it was." Deals of this magnitude take months of due diligence and vetting. This deal was thrown together over a weekend, with Bank of America spending $50 billion to buy one of Wall Street’s emblematic companies. But now B of A is exposed to Merrill Lynch’s poisonous investments and continuing losses. The question is: Did Ken Lewis pay too much? "Some think that we should've waited till Monday and see if they would've gone bankrupt," he said. "Some think we would’ve gotten it for, you know, dirt cheap. But my point is, you would have a tarnished brand. You would’ve had chaos. You would’ve had a court ruling over all the sale of assets. And it was worth it to us to pay a more market price so that we could not have that happen." Cue the 60 Minutes interview that Lewis gave last year to Leslie Stahl.

http://www.cbsnews.com/stories/2008/10/19/60minutes/main4531244.shtml
==================================================
It was Saturday morning, September 13. John Thain, the CEO of Merrill Lynch, was on the line. Lehman was on its death bed; Merrill Lynch was said to be next.

“You always wanted Merrill Lynch,” Stahl said.

“We’ve always thought that was the best thing for us,” Lewis said.

“You were drooling for Merrill Lynch,” she said.

“We have always felt it was.”

Deals of this magnitude take months of due diligence and vetting. This deal was thrown together over a weekend, with Bank of America spending $50 billion to buy one of Wall Street’s emblematic companies.

But now B of A is exposed to Merrill Lynch’s poisonous investments and continuing losses.

The question is: Did Ken Lewis pay too much?

“Some think that we should’ve waited till Monday and see if they would’ve gone bankrupt,” he said. “Some think we would’ve gotten it for, you know, dirt cheap. But my point is, you would have a tarnished brand. You would’ve had chaos. You would’ve had a court ruling over all the sale of assets. And it was worth it to us to pay a more market price so that we could not have that happen.”

]]> By: jz http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165539 jz Mon, 27 Apr 2009 18:04:14 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165539 Barry, it did cross my mind that Lewis was lying but what he said he said under oath. And given all the fear we saw in the markets when Lehman failed, what Lewis claimed Paulson and Bernanke said sounded credible to me. FWIW, Paulson and Bernanke have not actually rushed out and called Lewis a liar. I can't remember but I think PR folks for Paulson or Bernanke quoted one of these guys stating "my words were my own" whatever that meant. As far as the bonuses go, my money is on Thain telling the truth. Golden parachutes of the type that ML had built for the BofA takeover used to be business as usual. When ML turned out to be a bigger turd than anyone at BofA or inside the fed imagined, then and only then did outrage turn on Mr. Thain. My guess is that Thain turns out to be your typical greedy, unethical Wall Street scumbag but not a criminal. Barry, it did cross my mind that Lewis was lying but what he said he said under oath. And given all the fear we saw in the markets when Lehman failed, what Lewis claimed Paulson and Bernanke said sounded credible to me. FWIW, Paulson and Bernanke have not actually rushed out and called Lewis a liar. I can’t remember but I think PR folks for Paulson or Bernanke quoted one of these guys stating “my words were my own” whatever that meant.

As far as the bonuses go, my money is on Thain telling the truth. Golden parachutes of the type that ML had built for the BofA takeover used to be business as usual. When ML turned out to be a bigger turd than anyone at BofA or inside the fed imagined, then and only then did outrage turn on Mr. Thain. My guess is that Thain turns out to be your typical greedy, unethical Wall Street scumbag but not a criminal.

]]> By: TheReformedBroker http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/comment-page-1/#comment-165532 TheReformedBroker Mon, 27 Apr 2009 17:57:38 +0000 http://www.ritholtz.com/blog/?p=24694#comment-165532 how much does Ken Lewis love Swine Flu today? how much does Ken Lewis love Swine Flu today?

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