This is still on my mind.
There is a coupling between marking illiquid securities and rewarding people for trading them; in both cases, you need to have a reserve for the uncertainty of your judgement.
Brad Delong remarks in his blog that
“What we need in the longer term are:
Global rules to make outsized compensation incentive-compatible; the Princes of Midtown Manhattan and Canary Wharf need to know that their fortunes will be lost if their institution blows up within a decade of their handing over operational control—only such can you make them truly long the fortunes of their firms and of the global economy rather than simply long volatility.. “
This is the way good partnerships used to be run. “Greedy, but longterm greedy” in the words attributed to Gus Levy.