A strange solution to our banking problem

Ok, so let me get this straight.  Credit got all constipated from banks' misguided feast on crappy assets.  My thought (see, especially, the most recent posts in this archive) was that maybe bank managers need better incentives. 

I guess I must have been wrong, because the government is now putting a quarter trillion in non-voting stock.  Well, that's one way to fix the misalignment of manager-shareholder incentives -- undermine the shareholders' incentives too.

I have read that the government hopes to address the incentive problem with more regulation.  Like another SOX, for example? 

Comments

[Michael F. Martin]

The misalignment of incentives is certainly a problem, but as a practical matter, how could the gov't exercise control (such as voting rights) without creating an even worse distortion?

Think about it from an information theoretical perspective: the point of granting voting rights to shareholders is so that you get a diversity of perspectives on management decisions put up to shareholder vote. But when the shareholder is an entity that is largely indifferent to losses, that entity isn't likely to contribute much information to the vote.

I can't see how they could have done better here. The plan looks pretty good to me. As a rule of thumb, it's a fair deal if everybody is unhappy, and that is certainly the case with the deal "offered."