Homeowner's Blog

Punish the Perpetrators, Not the Stockholders

Yesterday U.S. District Judge Jed Rakoff threw out the Securities and Exchange Commission's proposed federal settlement with Bank of America over its failure to disclosure controversial bonuses paid to Merrill Lynch employees as part of Bank of America's agreement to acquire Merrill Lynch. Merrill Lynch had agreed to pay a fine for the violation, but the judge ruled that a fine paid by the company would unfairly punish Bank of America's stockholders for the actions of its corporate executives. The decision lends credibility to  the New York State attorney general's announcement that he  may bring civil-fraud charges against Bank of America's chief executive, Kenneth Lewis, and Chief Financial Officer Joseph Price.

We totally agree with Judge Rakoff.  Penalizing stockholders for decisions  made by corporate executives is unfair and undermines the a primary function of those penalties, which is  to deter future misbehavior. Corporations don't make decisions - they are an inanimate form of business. Corporate executives make the decisions, and it is they who should be held accountable in this and other cases. 

Obama Announces Major Financial Regulatory Reforms

President Barack Obama proposed sweeping changes to the way the U.S. government regulates financial markets. It is unfortunate that many large financial institutions adopted the unsound business practices that caused tremendous losses to their stockholders and American homeowners, and still threaten both the U.S. and the global economy. No government regulations forced them to cause this economic debacle. Unfortunately there is currently nothing but their short memory spans to prevent the same thing from happening again in the future.

The current economic crisis makes it clear that we must take action to prevent future meltdowns of the financial services sector. We applaud President Obama for this proposal and hope that reasonable financial services sector leaders who recognize this reality will be willing to work with other stakeholders to craft a solution that erects needed protections without unnecessary restrictions on the private sector.