Public PolicyRuminations

Whose company? Whose oversight?

The WSJ story is interesting. Some WSJ reader comments even more so. They defend Musk on three grounds:

  1. The news side of the WSJ is leftie and “has it in” for the Trump leaning Musk
  2. Space X is “his” company so he is entitled to borrow from it as he wills.
  3. Borrowing against your stock is perfectly legal.
  4. Musk repaid the loans.

On the first point. I have some sympathy for the view that the news side of the WSJ has become heavily slanted. I find the other claims less persuasive.

  • Space X is not “his” company. It has institutional investors who have a fiduciary responsibility to their shareholders. There is a clear question whether these insitutions have the capacity or the will to control Musk’s dealings with Space X. Full disclosure. In March I was removed from the board of a fund whose managers I believed might not have had this capacity or will — and the rest of the board was unwilling to question whether the managers did.

    Moreover, in a private company investors cannot free ride off governance enforced by SEC rules or “the market.”
  • Borrowing against your stock held in a brokerage account is indeed perfectly legal. But regulators require an arm’s length credit review process, that sets credit limits, determines which stocks are marginable etc. It was the subversion of this process that led EF Hutton to fail in 1987 when I worked there.
  • That Musk repaid is beside the point. Suppose I am an accountant and take money from company the till to bet on a hot tip. The horse wins. I repay. All good? Not really..