The Great Change: Turning Cathy into a Lawyer

I'm not sure that I understand your point. To my knowledge, no one has accused United of manipulated or otherwise defrauding the market. It isn't a tyco, worldcom, or enron. Its just a business with a business plan that didn't work in an industry full of companies with business plans that don't work.

While I can certainly see some sort of return to regulation of airlines in order to protect the interests of the traveling public, I don't see any reason why there should be special regulation of airlines to protect their owners (shareholders). Even a quick look at the history of airline stocks will show that airlines are risky investments. Virtually every major airline has gone into backruptsy at some point and wiped out all value for its shareholders.

Note that I don't defend the airline's use of BK Law-- which is probably abbusive from a policy perspective. But I don't think that BK Law is what is making investments in airlines a bad deal.

Mark

I'm not accusing United of doing anything wrong. I'm saying the whole stock market system (and related bodies of law) is screwed up since it's impossible for lay people to navigate it sufficiently to protect their interests.

So you think that the government should somehow protect people from choosing to invest in relatively risky stocks even when the company has made all proper disclosures?

Would that take the form of the government preventing indididuals from investing in stocks unless they can prove some level of sophistication, or would that take the form of government interfering in disclosed and purposeful (ie non-fraudulant/non-abusive) business trasactions that might cause a company to go into bk and loose stock value. Or, are you arguing for even more disclosure, even though essentially no one really reads the detailed annual reports and SEC filings that are already made?

Mark

See the comment above the last for what I'm saying. You are reading much more into this than is there.

Yes... But it seems to me that the only way to make the market a "safer" place for laymen to navigate is to either:

1) keep laymen out of the market or some part of it
2) regulate business further in order to cause less risk to underlie securities or
3) increase disclosure (which I don't think can work well with respect to an inherently complicated system)...

If there is some other option, please do tell...

Mark

I'm not talking about how to make it "safer." Re-read the last paragraph again. Anything I could say to clarify my point would only be repeating what I've already said.

You say:

"Should we regulate companies? Nah, just let the market decide. The market the market the market... This rhetoric works as long as people cling to the myth that the market is made up of ordinary citizen investors, as if we can all equally vote with our investment dollars"

This seems to imply either (i) that we need to futher regulate the markets in order to make them more accessable to the average joe or (ii) that we need to further regulate businesses because the market can't possibly regulate businesses if it is not more democratic (ie more accessable to the average joe).

Either way, you seem to be arguing that more regulation is necessary. And my question is, "what kind of regulation?" and "what problem are you trying to solve.

I don't think that folks who talk about the market being an effective regulator of businesses (ie item ii above) believe it to be so because it is democratic. Instead, they believe that the market leads to economic efficiency because the sophisticated entities that own the vast majority of stock make economically good decisions). Therefore, they would not agree that your experience with the UAL stock was a problem (though they might argue against folks like you and I directly owning stock, since we don't really have the time or inclinitation to educate ourselves about the market to the extent the pros have). The market did decide properly, they would say-- just buying UAL was, in hindsight, a bad choice.

As for the first posible proposition (that the market itself needs to be reformed in order to allow the participation of more average joes) I don't see how that can be done without imposing one of the three types of changes I mentioned in my last post.

If you can't identify a proposed solution, then it is difficult to understand what you are suggesting.

Mark

I don't mean regulation of the market. I mean regulation of companies. Corporate behavior, if you will.

But my main point is that we need to let go of the myth that things will be fine if we just let stockholders take care of controlling corporate behavior. I don't think that's true, and part of that view is based on the fact that stock ownership is not nearly as egalitarian as political citizenship.

So that means that you are arguing that united should have been better regulated in order to prevent its semi-failure...

I don't quite know what kind of regulation would work there. UAL didn't fail because of illegal conduct on its part, or because of unethical conduct or greedy conduct or anything similar.

It failed, if I understand the situation, largely because the air transport business is so cutthroat, has a surplus of capacity (seats) as an industry, and has several new airlines (SWA, JetBlue, etc) that aren't tied into old businss methods and arn't saddled with some fixed costs (labor costs, extra planes, etc).

In other words, United (and probably the other legacy carriers)seems doomed to fail, unless it keeps getting proped up by bail outs and bk provisions. Regulation can't force it into a new business plan, and certainly can't eliminate its debt and costs. I suppose that regulation could require every carrier to charge a higher fare (ie reregulation of fares), but that wouldn't necessarily work and would certainly increase consumer costs, at least in the short run. I assume that you aren't reccomending that the industry be regulated in order to protect investors at the cost of consumers, so what kind of regulation do you suggest?

And I don't know why a stock market consisting of more widespread ownership would make a difference here. Would adding additional unsophisticated investors (or giving more power to outside investors who are sophisticated) make a difference here? I doubt it...

The thing is, I think the market is probably working when UAL fails... The problem here isn't the market, its the company. And in a free market, companies should fail...

Mark

You are still missing the point. I am not talking about United. At all. It was just an example to bring up the point that the stock market is a hostile place for a lay person, and the related, greater point that we should not think it sufficient for companies' behavior to be regulated solely by the oversight of their shareholders.

I guess what I'm saying is that I don't really see a relationship between the two points (that stock market isn't egalitarian and that stock market doesn't reglate for socital good, but for maximizing profits)... I think that even a more egalitarian stock market would still encourage businesses that maximize their profits, rather than social good in the abstract. I have no objection to the idea that sometimes there needs to be a governmental intervention to cause a social good to prevail when the profit motive would cause some socially bad actions. However, I don't think that this has to do with whether the stock market is egalitarian or not (so long as there is sufficient accurate disclosure to the market and there is no fraud by companies). Furthermore, I don't think that anyone argues that the market causes socially good actions-- what they argue is that the market encourages the maximization of profit, and that maximizing profit is the best way to cause a societal good to increase in net.

Mark