The uses of common stock companies

I like Chardonnay: everything from the better Californians, like Paul Hobbs, to the majesty of mature Montrachet. But I wouldn't serve it with everything. Chocolate wouldn't work, for instance; neither would beef stew.

It is the same with stock-holder owned corporations. They are very good at a number of things, which is why they are such an important part of the financial system. But at the end of the day, a stock company exists for the good of the stock holders. It is dangerously naive to expect them to behave in the interests of any one. So it should be no surprise that the banks are finding ways to get around government restrictions on paying dividends. (The FT coverage is here.)

The big picture is that if you want to achieve an objective that is not obviously aligned with shareholder value, then using a stock company to do it might not be efficient. That holds just as much for lending as it does for running transport infrastructure or conserving the environment. It isn't that companies can't do these things. It is just that they might not be that good at it, particularly if they can't figure out how to make a lot of money in the process. If you use a flame thrower for trimming the lawn, don't be surprised when the grass is burnt.

(The building, by the way, is Lehman in London.)