Sunday, 17 May 2009

Looking after taxpayer's best interests and the tragedy of the commons.

Tyler Durden at Zero Hedge has, as often is the case, a useful article about how those working at the Treasury are negotiating financial arrangements which are not at all advantageous to the US taxpayer. A specific example is cited about the under-pricing of warrants in a deal between the Treasury and Old National Bancorp, but the details are less important than the general issue. Durden cites the following criticism which comes from an academic who has issued a study on how the warrants were significantly under-priced

U.S. Treasury officials' incentives are not as well aligned with the interests of taxpayers as bank managers' incentives are aligned with the interests of their shareholders.
The general point to be made in this regard, and it goes to the heart of the fallibility of having the public sector so immersed in dealing with the financial crisis, is that this type of mis-alignment of interests is a variation on the Tragedy of the Commons issue.

Treasury officials should be negotiating to get better deals for the US taxpayer and are ultimately accountable to everyone (apart from those who use Swiss bank accounts). However the paradox or tragic irony is - and this is yet another example of the Looking Glass world we are entering - that when something (including accountability) belongs to everyone, it essentially belongs to no-one.

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