The operative phrase repeated by counsel (off-the-record in the confines of a secure recently-swept room) time and time again must be:
P-l-a-u-s-i-b-l-e D-e-n-i-a-b-i-l-i-t-y.
If you’re shorting a stock where you’ve got primo info – be prudent and short a basket; if you know someone is going to be taken out, be sensible and buy it AND its nearest neighbors. Yes it waters-down the returns, but at least you’ve got plausible deniability. On the other hand, if you’re greedy, and instead you decide buying 1000 way way O-T-M calls in the near month is the way to play it, you get what you deserve, or deserve what you get (when in front of the magistrate for sentencing).

One can’t underestimate the importance of the appearance of justice. We (in the rich west) have been living in a charmed age, in context. The subterranean political implications of seeming economic unfairness and injustice spiraling ever-upwards without consequences are real (and increasing). This is not bolshie hyperventiliation, just a reminder that the majority of the population get out of bed in the morning for shit-shovelingly long hours, lack of any semblence of control, lame pay with barely healthcare, often (though not universally) with some remote hope and prayer in mind for them or their children to improve their lot. Rig the game, or sufficiently give that appearance through the “bonus culture”, winner-take-all outcomes, for the further benefit of the wealthy and supremely rich, low-ish marginal rates (relatively speaking) and regressive tax regimes, and it doesn’t take much to imagine NYC resembling a future Sao Paulo rather than anything we’ve seen to date similar major cities.

It would be so easy to incent people with long-term stock grants that vest over time (and that are accruals, with a claw-back if you blow the place up). It would make so much sense for HFM incentives to represent a fair deal that don;t promote asymmetric risk-taking and shooting the moon, and that vest over longer periods with clawbacks. The fairness issues are all related. I’m with Shiller on the “index the level of marginal rates to the level of overall economic inequality” as something that’s on the right track and a reasonable place to start. Skinning a few cheats in public isn’t bad either…

(oh yeah, Baruch, check your email!)