Thursday, 9 July 2009

Bankslaughter and recovering bankers' bonuses

James Kwak from Baseline Scenario outlines here a more plausible version of bankslaughter which is an idea doing the rounds in the blogosphere.

Kwak makes the very good point that rather than seeing this as a criminal matter i.e. making managers/directors of banks that made bad business decisions potentially liable for charges of criminal negligence or culpability, far better would it be to see this as a matter for civil law.

It is worth reading the piece in full but the following would seem to be a probable shortcoming in the proposal and which motivated my following response.

You seem to be advocating that precedents need to be set for motivating more class action lawsuits through the civil courts which would find managers/directors liable to repay bonuses and other compensation from poor decisions in the running of a bank.

In comparing that to (say) class action suits against tobacco companies one would need to establish that there exists a body of independent evidence that shows categorically that risk management tools and methods are inherently dangerous.

Whilst intellectually that is a very appealing notion (at least to me) one could also understand the reluctance of "experts" from academia or the financial establishment who would provide such testimony.

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