Izabella Kaminska — Fintech and banking risk; cognitive dissonance de semaine

Thank god for the stream-lined logic of Mariana Mazzucato, innovation economist at Sussex University, who was on hand on Wednesday in the fintech session to remind the evangelists how financial innovation tends to increase not diminish rent extraction from the economic system.

Must-read on financing innovation. If pressed for time, you can just skip down to the above quote and read the rest on MM.

Short-termism goes hand and hand with rent-seeking. Real innovation rather than puff is long haul, the result of strategic investment.

The Financial Times — FT Alphaville
Fintech and banking risk; cognitive dissonance de semaine
Izabella Kaminska

Yves Smith — Why the “Maximizing Shareholder Value” Theory of Corporate Governance is Bogus

Yves debunks the myth of the obligation of corporate management to maximize shareholder value. Legally, "equity is residual" and sits at the bottom of the scale of corporate obligation.

This myth lies at foundation of short-term managerialism aka managing to the quarterly report that is distorting incentives. As Yves points out, it was dreamed up by an economist with no legal expertise and no deep expertise in management science other than theoretical.

It doesn't hold water legally, and management gurus like Peter F. Drucker have denounced it as short sighted, designed to enrich corporate top management based on performance bonuses, equity compensation, and equity prices at the expense of developing long-term strategy.

Naked Capitalism
Why the “Maximizing Shareholder Value” Theory of Corporate Governance is Bogus
Yves Smith