From: Peter C. McCluskey (pcm@rahul.net)
Date: Sat Jan 09 1999 - 20:22:41 MST
GBurch1@aol.com (GBurch1@aol.com) writes:
>With all due respect, this doesn't even come close to addressing the issues I
>raised. Saying that it's easier now to determine what a company's policies
>are than it used to be doesn't mean it's a good idea to make shareholders
>liable for a company's wrongs. Imagine that I had instantaneous, searchable
>electronic access right here in my study to every single record kept by
>General Motors for the last twenty years. Now, say you get a judgment against
>GM next year based on a defectively designed airbag that failed to deploy in
>an accident and you come looking to execute that judgment on my personal
>assets. Was I -- a non-engineer -- supposed to identify the records
>documenting that defect before I bought some GM stock this afternoon? If that
You certainly have an incentive under current law, and a slightly greater
incentive if shareholders are fully liable, to evaluate GM's competence.
But changes in your liability limits aren't likely to dramatically alter
the optimum strategy for reacting to those incentives.
>were the law, believe me that I would never put another dime into the equity
>market and I would advise my clients to also refrain from doing it.
No, you would be perfectly comfortable with equity investments in such a
legal system, because you could achieve virtually the same risks and rewards
as under the current system simply by buying equities and simultaneously buying
the corresponding put options with a strike price of zero. In practice, most
people would find they could live with the risks even without buying the puts.
If you look carefully enough, you will see that current law assigns more
liability than most people assume. For example, if a company that pays out a
dividend which later turns out to cause it to default on a debt, shareholders
can be liable (I suspect up to the amount of the dividend). Also, when the
Bank of United States collapsed in 1930, shareholders were asked to pay
some money to help pay off depositors (I'm not sure if this was justified
by dividends that had been paid to shareholders, and at any rate few
shareholders paid other than those who were depositors and had it deducted
from their deposits.)
>And you haven't addressed the cost to you as a judgment creditor of chasing
>me, as a stockholder, to get your money. Oh, and am I, as a stockholder,
>supposed to defend myself personally in your airbag case? If that's the law
>-- even if I genuinely believed that GM would never make a design mistake -- I
>would never buy their stock.
While I assume that you would be allowed to argue your own case,
it would be more efficient to accept whatever result GM's lawyers are
able to get.
Brokers usually keep good enough records that enough of the stockholders
would be tracked down at tolerable costs, but the costs of transferring
money from stockholders who don't have enough readily seizable liquid assets
are probably reason enough to avoid this kind of system.
-- ------------------------------------------------------------------------ Peter McCluskey | Critmail (http://crit.org/critmail.html): http://www.rahul.net/pcm | Accept nothing less to archive your mailing list
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