When a bubble bursts, do people actually regret it? Well, they may say they do, or that they wished it had never happened, but what they really regret is not buing in and then selling out at the top.
After the internet bust, there was that famous “Please god, just one more bubble” bumpersticker that was going around. The message was, “Oh, I wish I’d sold at the top.”
With this in mind, it’s worth being sceptical of any idea that puts more emphasis on shareholders policing companies to guarantee better behaviour.
Shareholders simply don’t have the time, information, or ability to do this: they’re owners, not managers. And they certainly have no way to address systemic, as opposed to company-specific, risks. Federal and indeed international regulations and regulators are absolutely necessary; the only question is whether they will be sufficient.
But Salmon doesn’t go far enough. It’s not just all that stuff, it’s that shareholders, when empowered, demand more risk taking. Do you think shareholders in the big banks regret all the risk that they took, or that they didn’t just sell their stock at the top?
And this isn’t just theoretical. Studies have shown that companies with “better” corporate governance — i.e., more receptive to shareholders — took bigger risks during the last boom.
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