As stockholders, we have say in banks

Our government has given money to banks in order to prop them up. Many of us have had much to say based upon hindsight, and we have been particularly vociferous given that the money appears to have gone to executives who have driven their institutions to insolvency.

I am one who has the benefit of hindsight. But perhaps hindsight can get our money back. In return for our money the banks gave us (the U.S.A.) preferred stock. This means we own a part of the bank and have a preferred claim on the assets in the event of bankruptcy, or so I believe. The board of directors has a fiduciary obligation to stockholders, and in this instance it is to use the money to make the company money instead of paying bonuses to those whose performance does not deserve it. Improperly paid bonuses may be a breach of fiduciary duty, particularly if those who sit on the compensation committees were paid such bonuses and participated in the discussions concerning said (attorney speak) bonuses. Shareholders can bring what is called derivative lawsuit to recoup the money improperly spent. Since we the taxpayers have a law firm in the "person" of the Justice Department, which has both civil and criminal wings, we need not hire a private firm to redress this grievance. We can get some free legal services and perhaps our money back from our own "in house" attorneys.

But why do the banks need an infusion of capital? Cash is king. At this point if the cash they receive from the assets they have is paying the bills and allowing loans to be made despite balance sheet insolvency, then why do the banks need the money? So what if assets do not equal liabilities plus retained equity? So what if there is no retained equity? Let's save the money until the liabilities exceed the assets and loans cannot be made.

Lets bonus someone who can turn around a bank in this instance instead of getting the bank into the mess many seem to be in.

John Kloempken

Algonquin