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  • Glenn Sonnenberg

Musings from the Bunker 6/17/20


The above sign is so powerful and moving. Thanks, Scott Schwimer, for sending it along.



We rely on people to act on our behalf all the time—from real estate agents to stock brokers to elected representatives. These relationships are critical to the functioning of our society and our economy. Generally, agents have “fiduciary duties” to the principals they represent—in essence, to act in the best interest of another party, even if it might conflict with one’s own interests. But interests of principals and agents are not necessarily aligned. Behavioral economists have noted, for instance, that real estate agents often advise clients to take a lesser price and get the deal closed quickly, rather than holding out for the best offer, since the broker stands not to profit significantly by small movements in price (a $10,000 increase in price nets the listing broker $300 in incremental proceeds, at most, while the principal would net nearly $9,500).

Let me pose two examples of the short-term self-interest of people who should exercise high duties of care having profoundly negative effects on the people whom they should be representing:



A good example of agents not acting in the best interest of principals is the securitized loan debacle that contributed to the Global Financial Crisis. Institutional investors purchased packages of various credits that, notwithstanding detailed offering materials warning of potential risks, proved to have much more embedded risk than anyone appreciated. How did these instruments become so risky? Because the folks that were “issuing” the securities were not investing on their own account. Rather, they were in the business of packaging and selling the securities (retaining only a negligible percentage of the risk). Think of it like “hot potato.” The arranger of the loans had to keep them in a pool only long enough to sell them to someone else. Their interest was short term (i.e., just get the sale), while the interest of the purchasers was more long term (i.e., the duration of the underlying loans).

Once the securities were sold, the issuers were off the hook, with no real ongoing responsibility or liability, while the principals/purchasers were left holding the bag. While this time around, these issuers are required to have a greater “stake in the game” post-closing, similar incentives nonetheless have created circumstances that pose similar economic dangers.



The inherent conflict between those looking to short term performance (“let’s just get the sale”) and long term investors (“I’m stuck with this for a long time”) plays itself out in our current legislative environment.

With our two-year election cycle, everyone is running all the time and representatives’ primary concern is more with the “sizzle” than the “steak.” Their motivation is to produce headlines, get a bunch of interviews on the Sunday morning shows, and win the next election, all while eyeing the next, bigger, electoral prize. Meanwhile, we, the people, are left holding the bag for the long term. In other words, they give us a “new shiny thing” but neglect to tell us how it will be paid for or even conduct the appropriate inquiry as to whether the program will work.

This is why we have pension funds that almost uniformly are underfunded, promising retirement payments that often exceed the public employees’ average salary, why we have a partially built and funded high speed rail in California, we have large infrastructural projects falling into decay, and we have various tax loopholes that make entire industries happy (which they reward with generous contributions to campaigns), all while the long-term economic health of the country is in peril.

So long as our elected representatives aren’t “playing the long game,” Both sides of the aisle seem content to spend and spend, mortgaging our children’s futures, without a care. I’m not sure how we ever balance the budget, much less responsibly grow our economy and care for our fellow-citizens in efficacious ways. Expressed another way, when we elect our representatives, we imbue them with vast powers to act in our best interest. They owe us the two primary duties of any fiduciary—a duty of loyalty and a duty of care. Their loyalty more often is only to their own election prospects. They owe us the obligation of thinking about the long term and not focusing on short term headlines. It’s not working out as planned…



Ken Millman recalls his Jim Palmer moment:

"I actually played Little League with Jim Palmer who name at that time was Jim Wiesen. He took on the name Palmer after his mother remarried. Faced him several times and, although I was a pretty good player, I had little success."

And from Albert Praw:

"Loved the memories with your Dad around baseball. I had several as well but remember my Dad was an immigrant from Poland and knew nothing about baseball. Because my Dad advertised his women’s clothing store in the San Pedro local paper, he got tickets and entry to the field in August 1960. We were able to take pictures with Don Drysdale, Frank Howard, and Ron Perranoski. The funny part was when my Dad saw the name Perranoski. My Dad asked him whether he was Polish and then immediately tried to engage him in a discussion… Polish!! Perranoski couldn’t stop laughing."



Thanks, Mark Schwartz, for clarifying that the Heisman was presented by the Downtown Athletic Club (not the NY Athletic Club), but the award has been administered by the Heisman Trophy Trust ever since the Downtown Athletic Club went bankrupt.

The guy pushed down by the police during a protest was in Buffalo, not D.C. Oops… The price one pays for not having an editor…

Have a great day,


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