Your Mouth to God's Ear, Warren

Warren Buffett is saying that executives and board members at the three (3½?) failed banks should face, "Punishment."

Buffett is suggesting financial consequences, something that I agree with and not criminal prosecution.

I am of the, "Why not both?" persuasion myself.

As I noted more than 4 years ago, we have historical studies showing that bankers are more reckless when they are provided greater insulation from the consequences of their mismanagement.  (It involves the potential use of spousal assets to mitigate the personal effects on bank presidents of failures of their institutions.)

If people take stupid risks because they make money now, and can walk away when it all blows up, then they will continue to take stupid risks:

The billionaire investor Warren Buffett has said executives who led the US banking system into crisis should face “punishment”, as the American economy grapples with the worst series of bank failures since the 2008 financial crash.

The owner of the investment firm Berkshire Hathaway said US bank directors “should suffer” when they run into trouble, adding that he was wary of most banking stocks because of “the messed-up incentives”.

………

Speaking at Berkshire’s annual shareholder meeting, Buffett criticised how politicians, regulators and the press had handled the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank, saying their “very poor” messaging has unnecessarily frightened depositors.

He said “the CEO and directors should suffer” when the banks they run get into trouble. Otherwise, it “teaches the lesson that if you run a bank and screw it up, you’re still a rich guy, the world still goes on … That is not a good lesson to teach the people who are holding the behaviour of the economy in their hands.”

………

He said: “The incentives in bank regulation are so messed up and so many people have an interest in having them messed up … it’s totally crazy.” You have to have a punishment for people who do the wrong thing.

………

Charlie Munger, the Berkshire Hathaway vice-chairman and Buffett’s right-hand man, echoed his concerns, telling the meeting: “I don’t think having a bunch of bankers, all of whom are trying to get rich, leads to good things. I think bankers should be more like an engineer, avoiding trouble rather than trying to get rich … It’s a contradiction in values.”

Indeed.  To quote Elizabeth Warren, "What I want to do is get banking back where it ought to be, and that is boring."

Also, frog-marching executives out of their homes and offices in handcuffs is a good way to do this.