Home > Uncategorized > Corporations are the Health of the State III: how the State, by "protecting" depositors and shareholders, elevates risks and creates a NeverNever Land where the buck never stops

Corporations are the Health of the State III: how the State, by "protecting" depositors and shareholders, elevates risks and creates a NeverNever Land where the buck never stops

Just like deposit insurance means depositors don’t bother to pay attention to whether or not bankers engage in risky activities, so too does limited liability mean that shareholders have little incentive to invest in managing risk.

While it should be shareholders (along with others who have stakes of one kind or another in commerical enterprises) – not governments – that are responsible for overseeing companies or banks, the reverse is precisely the situation we find ourselves in. Why?

Could government’s efforts to “protect” us have anything to do with poor management and decisions that benefit executives and traders, but harm shareholders, depositors and third parties?

(Enron, Lehman, BP, TEPCO, Bernie Madoff, and the whole raft of “Public” companies that are immune from shareholder criticism, but subject to growing heaps of federal prudential micro-management directives like Sarbanes-Oxley?)

How do we get government out of the risk management business, unless we insist that others take responsibility for their own investments?

Categories: Uncategorized Tags:
  1. No comments yet.
  1. No trackbacks yet.