Mark Cuban: The Era of Stock Market Meltdowns Has Arrived
This morning’s interesting reading is from Mark Cuban’s blog, Blog Maverick. Today he wrote an interesting rant about how stock market meltdowns are probably going to become the norm because, for the big wigs on top, risk and reward no longer go hand in hand. Here is what Cuban points out about the way things work now for big companies:
If you are the CEO of a major public company, once you qualify for your golden parachute there is absolutely no reason not to throw the Hail Mary pass, and do high risk deals every chance you get.
If you run a major hedge fund or fund of any kind, once you have put enough cash in the bank to get to your “F U Money Level” there is absolutely no reason not to throw the Hail Mary pass and make high risk investments every chance you get. …
Lets say you run Country Wide Insurance. You get the housing market plumped up, during which you sell $414mm dollars worth of stock, and then watch as it spirals out of control because you lent money to anyone with a pulse, and probably to some without. Your punishment ? A $110mm payday.
Even though some of that $110 million had to be paid back, Country Wide CEO still walked away with millions. And that’s part of the problem. Fannie and Freddie CEOs were barely punished, and they still got millions of dollars for leaving. The only people who are truly punished are the stockholders. Especially those stockholders that represent “regular folks” who have holdings in retirement accounts.
Risk is no longer a defining factor. And CEOs are no longer held truly accountable — in a meaningful way — for their decisions. As a result, it makes the entire market system more unstable. And we will, indeed, see more stock market meltdowns as long as the status quo is maintained.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
Tags: stock market, stock market news, investing blog, Mark Cuban,
economy, investments, stock market meltdowns
September 18th, 2008 at 4:05 pm
[…] On the other hand, though, the economy may not survive if this doesn’t happen. And the stock market could really crash. Right now the stock market is bouyed up on “confidence.” Just the idea that the government may take the debt and “save” the market has investors giddy with excitement. Because what it means is more personal profit as risk is socialized. […]