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How liable are shareholders in America’s financial crisis?

August 5, 2009

Here’s what’s going on with the bank that keeps my money in California, who got hit with a US$33 million fine yesterday.

“The SEC alleged that Bank of America told investors that the bonuses would not be paid without its consent. In fact, Bank of America had secretly authorized $5.8 billion in bonuses to be paid by Merrill Lynch, the SEC said.”

Source

Uhh… did B 0f A lie to the investors?

Or did it withhold an inconvenient fact?

I’ve posed this question before when the whole issue of private jets first blew up. How responsible are investors in allowing the culture of atrocious extravagance to flourish in Wall Street and by extension, all the deception that goes along with doling them out in these times?

It may sound preposterous as the shareholders don’t run the bank but they do appoint the board. The board appoints the CEO and the CEO approves the private jets, the risky ventures and the obscene bonuses. If the company lived up to its promise of transparency and governance, then every stakeholder should be privy to what went on.

As the chips fell, the shareholders had every opportunity to say enough is enough and pull the plug in time to save themselves from a complete collapse.

So why didn’t they?

Or are shareholders not bothered with the moral imperatives of their investments as long as they get their profits? If so, would that mean that investors are every bit as guilty for causing this fnancial mess as these reckless banks are, as banks are but investment vehicles for investors to make money?

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2 Comments leave one →
  1. August 9, 2009 9:39 am

    For certain investors, they’ll be happy to keep quiet as long as you offer them some ‘rewards’. They just don’t want to care so much since some of them are not there for long-term basis.

    In other words, they played a bigger role in the financial crisis than we imagined. As far as these lavish CEOs are concerned, their silence is consent.

  2. August 10, 2009 1:44 pm

    Irresponsible CEOs + greedy shareholders + stupid government ==> financial crisis.

    Repeat that to create the snowball effect. 😀

    Part of the American problem is its lack of financial oversight by the govt and sometimes its just pure carelessness. The Madoff scandal for instance was brought to the SEC a long time ago but people were asleep at the wheel. But the moment you push for strict safeguards, everyone cries socialism or Marxism. Its a really weird system.

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