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"They know they will be protected by a taxpayer rescue should a large institution teeter." This should be mitigated by the fact that shareholders will lose val
by MichaelApproved 14y ago
"They know they will be protected by a taxpayer rescue should a large institution teeter."
This should be mitigated by the fact that shareholders will lose value, even in the event of a taxpayer rescue. Meaning, a bailout isn't a good insurance policy for a shareholder because they lose anyway. But that fear of a bailout doesn't seem to limit the risk appetite as I'd expect.
I think it's because regulation and control hasn't made this type of risk transparent to the shareholder. The shareholder isn't calling for these types of regulations because of fear the regulation would be overbearing and hurt profitability.
Often, over regulation is a shortsighted concern that allows a company to take on more risk than an investor would typically allow for (at existing valuations).
- refurb 14y agoDidn't the shareholders lose out during the past crisis? Just look at the beating the stocks of the major banks took.
- richardw 14y agoShareholders have very little power over the big banks. The bank managers and traders have perfected demonstrating the principal-agent problem (link below). For example, huge bonuses being paid out even as the banks were being torn apart around them. Managers and traders kept arguing that they need to retain "talent", to the detriment of the supposed owners of the business. http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem More simply: Taxpayers are suckers Lenders are suckers Shareholders are suckers Managers and traders, not suckers.