PROPHETS OF INSTABILITY.

PROPHETS; FINANCIAL leverage; CAPITALISM; SHAREHOLDER activism; BUSINESS enterprises; FINANCIAL economics

When a firm like General Motors re¬quired a chunk of outside capital (which was rare), a GM executive or two - relatively low-level ones - would meet with a Morgan Stanley partner, who would then convene the other partners and decide how to raise it: stocks or bonds? There was no competition; "no other banking firm", Lemann explains, "could try to become the underwriter of that issue because the SEC could review only one firm's request at a time." He introduces us to the anti-Berle: Mi¬chael Jensen, the kind of University of Chicago - trained economist who insists that markets are the only fair way to ap¬portion value in a society because they are the only institutions that are rational. Jensen's most influential statement of this idea was a 1976 paper, "Theory of the Firm.". [Extracted from the article]

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