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Philosophy of Responsibility

“A decision is responsible,” wrote Charles Frankel, “when the man or group that makes it has to answer for it to those who are directly or indirectly affected by it.”

A great example of this is Hammurabi’s Code:

If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.

That is the best risk management rule ever. If you have the upside, you have to keep the downside.

And Charlie Munger puts it another way:

An example of a really responsible system is the system the Romans used when they built an arch. The guy who created the arch stood under it as the scaffolding was removed. It’s like packing your own parachute.

At his Westlake talk, Munger says:

Another thing that is never discussed any more is my idea of one of the great philosophers of America who was Charlie Frankel. He was mugged to death in due course because, after all, he lived in Manhattan in a different time.* Before he was mugged to death, he created this philosophy of responsibility. He said the system is responsible in proportion to the degree that the people who make the decisions bear the consequences.

So to Charlie Frankel, you don’t create a loan system where all the people who make the loans promptly dump them on somebody else through lies and twaddle, and they don’t bear the responsibility when the loans are good or bad. To Frankel, that is amoral, that is an irresponsible system. That is like selling an automobile with bad brakes and you know the brakes are bad. You shouldn’t do it.

* Wikipedia claims that “both he and his wife were fatally shot during a robbery of their home in Bedford Hills, New York.”