Punishing those responsible through the bailout

There are many opinions about whether the bailout and stimulus package are a good idea or not. But one thing that I hope everybody agrees is bad is that it teaches the lesson that if you screw up so badly that you hurt the global economy, we’re not going to let you fall. Take huge risks because in the event of catastrophe, the government has no choice but to make it better.

Is there a way to do a bailout that doesn’t end up rewarding, or even saving, the people responsible?

Well, outside of the frauds like Madhoff, many of them did not break the law, or didn’t break it severely. Those who broke the law should get the punishment of the law. A lot of people just looked the other way has horribly bad loans were financed, resold and insured in strange ways. Some people had no idea what they were doing was so dangerous. Some didn’t know but should have known. Some suspected but ignored the evidence. And some knew, but where happy if they were getting their share.

I propose taking a small fraction of the bailout and stimulus and using it for “punishment.” It need not be much. With a possible 2 trillion dollars to spend, even 1% would be 20 billion dollars which surely buys a lot of enforcement, and of course stimulates the industries of enforcement. But we don’t need even 1%.

The first step is to define a set of good practices and ethics defining who did wrong. They would be fairly narrow. They would not catch the people who didn’t know they were doing something wrong and were not at the level that they should have known. This is not a simple task but I think it can be done.

The next step is to say “no bailout or stimulus money for any company which employs or significantly compensates, above minimum wage, a person responsible for the collapse.” They lose their jobs. If millions are to be out of work, start with the people responsible. The most adapatable of the laid off can take some of their jobs. If the government can fire all the air traffic controllers without catastrophe, I suspect a lot of bankers can be fired too. Only minimal dole for those fired too, enough to survive, but not well. They will be incented to find other jobs, in industries not getting bailout and stimulus money. Or they can work for minimum wage in their old jobs.

Culpability will run up, as well. While there will still be standards of proof, and a presumption of innocence, if a group of people all working for one person are guilty, that person is going to have to work hard to convince a jury they had no knowledge of what went on underneath and that this was as it should be.

So yes, this means the CEOs and other top executives of most of the banks and brokerages involved will be out of work. I think they can handle it. If they are really civic minded, they can keep their jobs for minimum wage, no options, no bonus.

Now this is not my favoured plan. I think people who screw up should, wherever possible, be allowed to fail, and they and the stockholders will pay the price. If executives mislead stockholders, they should be subject to the rules. But if we have to not do that, somehow a message must get out that if you do something like this, you’re going down.

Note that I also expect, and hope, that many of these people have been fired already. But some of them haven’t. Some got fat bonuses instead.

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His name is Brad Templeton. You figure it out.
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