8 ms·

> Wells Fargo did a bad thing. But the badness of the thing is uncertain, amorphous, hard to quantify: People were harmed, but not in ways that the legal system

by glasss 2y ago

> Wells Fargo did a bad thing. But the badness of the thing is uncertain, amorphous, hard to quantify: People were harmed, but not in ways that the legal system can easily reduce to money. > But the financial system can: The bad thing that Wells Fargo did caused its stock to drop, which is a good rough measure of how bad it was. The shareholders perform the socially useful service of measuring the badness [...] I think this is a really interesting point - assuming the actors in the market who are buying and selling stocks share the same general morals of the rest of the population, they can penalize companies that do bad things. But that would mean market forces would need to act on moral grounds and not on profit motives.

blastro 2y ago
The idea that retail buying/selling pressure has any effect on market price is a very old fashioned idea.
- exolymph 2y ago
  "actors in the market who are buying and selling stocks" does not necessarily mean retail, no?
  - blastro 2y ago
    > share the same general morals of the rest of the population funds don't share those morals
  - benreesman 2y ago
    People who have the stake or dry powder to move the share price of a bank (or megacap tech company while we’re at it) are in no way interested in socially useful pricing around dickhead behavior.
    - lazide 2y ago
      Well, except to make sure it doesn’t apply to them, hah.
benreesman 2y ago
There is a financial accounting line item called “goodwill” and it’s often non-trivial. In a functioning market customers (whether consumers or enterprise purchasing decision makers) tell you to take a walk if you act with bad will in any kind of consistent way. There isn’t much money to be made in markets that are both of “mature” and functioning.
- takinola 2y ago
  Goodwill has a very specific definition that has nothing to do with your behavior. It is simply the difference between the price an acquirer pays for something and the book value of that thing
  - benreesman 2y ago
    TFA accurately cites a decrease in cap on the day over a revelation of bad behavior, in no way affecting fundamentals. That comes out of goodwill. Why do people say things like this?
    - takinola 2y ago
      Goodwill only comes into play in the context of an acquisition. Unless they are being bought, the decrease in market cap is just that. It doesn't come out of anything in particular, accounting-wise.
      - benreesman 2y ago
        Price is definitionally attached to the likelihood of a transaction! The “price” of something is perfectly defined at the moment of a transaction, at any other time it is at best a rough estimate of the consensus of an amount at which a transaction would occur. I’m not nitpicking: this a la carte treatment of market capitalization neatly severed from what anyone would be willing to pay, warped by the prospect of intervention and other insidious capture is why we’re discussing this embarrassing cavalcade of depressing behavior on the part of the executives in the first place. Goodwill isn’t germane only to risk arbitrage discussions, it is (among other things) how the accountants keep track of the impact on value that accrues to piece of shit finance guys pulling stunts like this one.
jordanb 2y ago
> which is a good rough measure of how bad it was This is a part that he takes on faith which is completely unsupported. What the market is really doing (assuming rationality) is judging how much any punishment Wells Fargo might receive from regulators, customers, counterparties will alter the net present value of the stock.
- deleted 2y ago
  [deleted]
akira2501 2y ago
> The shareholders perform the socially useful service of measuring the badness That's a dangerous idea as it presumes that shareholders are investing not for profit but to improve "goodness" in the world. This is obviously not true. The shareholders are providing the economically useful service of measuring _risk_ to those future profits. These two factors may be linked through an abstraction but they are most definitely not equivalent. > they can penalize companies that do bad things Without journalists to expose the bad things in the first place the investors can do no such thing. There is no mechanism in place to discover these facts and there is no effort to build one independent of journalism.
- lmm 2y ago
  > Without journalists to expose the bad things in the first place the investors can do no such thing. There is no mechanism in place to discover these facts and there is no effort to build one independent of journalism. Isn't that backwards? Investors are a major funder of journalism in the broad sense, and one of the few robust revenue sources left for it.
  - akira2501 2y ago
    > Investors are a major funder of journalism in the broad sense I see it as an advertising driven industry. I'm not sure how investors could be funding it directly. > and one of the few robust revenue sources left for it. That there are publications meant for investors does not mean investors can be seen as the revenue source. The advertisers looking to get in front of investors are the source. If someone was investing in news for it's own sake then why is the quality of the information presented so poor? You'd almost have an easier time making the case they invest to _intentionally_ obscure the process of reporting facts.
    - lmm 2y ago
      > If someone was investing in news for it's own sake then why is the quality of the information presented so poor? Financial-oriented news tends to be noticeably better than other kinds. Often the best widely-published journalism in the UK will be in the Economist or the FT, for example, and some more specialised publications allegedly have even higher standards.
golergka 2y ago
I think the point of this case is that they don't have to be moral at all. They penalise the company for doing bad things not because they think it's bad, but because they have financial incentive to do so.
- takinola 2y ago
  Markets are not about morality. They are designed to allocate resources optimally. If you want moral outcomes, you would need to inject incentives that make those outcomes optimal for the market participants
  - golergka 2y ago
    Whatever the incentives, they already decided to include DEI commitments into their obligations to shareholders.
  - forgetfreeman 2y ago
    Point of Order: markets are designed to make money, which is orthogonal to optimal resource allocation.
    - deleted 2y ago
      [deleted]
    - Nasrudith 2y ago
      And what is money but a proxy for the sake of resource allocation?
      - forgetfreeman 2y ago
        Explain Enron.
mathgradthrow 2y ago
It's almost like the state actually has standing in a lot of the cases where regulatory power has been slashed.
m463 2y ago
> not in ways that the legal system can easily reduce to money this is a sad truth for lots of things. Like folks who collect, then lose private information. It is wrong and bad, but rarely quantifiably so in court.
marcus_holmes 2y ago
I think this explains a lot of the "companies only act in the interests of their shareholders" thing, too. I know there's a legal obligation to act in the interests of the shareholders, but additionally, as TFA points out: shareholders have a really easy time quantifying their damages so that a case can be brought. Employees having a really bad time at a company because it keeps doing bad things have to be able to quantify that bad time in dollars, and that's hard. It's interesting to think of how we could adjust the legal system to allow for emotional distress, environmental damage, morally bad actions, etc on their own terms without having to convert them to monetary damages. Make it easier for a court to judge executive decisions on moral grounds and that makes it easier to claim damages for bad decisions and that makes it easier to keep companies behaving morally.
- bruce511 2y ago
  >> judge executive decisions on moral grounds Morals are subjective and fluid. They are effectively areas where society has "agreed to disagree". Morals that society agree on are codified into laws. The legal system is set up to enforce and uphold laws. It cannot uphold morals because they are not law. As executives we allowed alcohol at the year end party. If some of our group gave a moral position of no alcohol (say Mormons or Muslims) is that morally incorrect for us yo allow it? What if said objector imbibed at the event? Are we "morally responsible"? Who gets to decide and tell us what is morally ok or not ok?
  - marcus_holmes 2y ago
    I disagree that morals align with laws. There are endless examples of legal actions which are utterly immoral. I agree that morals are personal and differ between individuals. Though that's not an opinion that religious folks accept: they hold that morals are defined by their deity and codified in their sacred texts. I'm glad we don't recognise that codification in our laws (though some countries do). Having said all that, there are some pretty clear cases where companies are acting immorally; against the interests of their employees, customers, etc and generally against the interests of humanity. It would be cool to be able to call this shit out in a court without having to monetise the damages.
deleted 2y ago
[deleted]
maeil 2y ago
> they can penalize companies that do bad things. This is inaccurate, and the article itself actually contradicts itself by showing that it's inaccurate. They can penalize companies for lying. If the companies just stop lying that they do/will do/will not do/don't do a certain thing, there's no securities fraud. The issue is that they lie about it.

by glasss 2y ago

blastro 2y ago

The idea that retail buying/selling pressure has any effect on market price is a very old fashioned idea.

exolymph 2y ago
"actors in the market who are buying and selling stocks" does not necessarily mean retail, no?
- blastro 2y ago
  > share the same general morals of the rest of the population funds don't share those morals
- benreesman 2y ago
  People who have the stake or dry powder to move the share price of a bank (or megacap tech company while we’re at it) are in no way interested in socially useful pricing around dickhead behavior.
  - lazide 2y ago
    Well, except to make sure it doesn’t apply to them, hah.

benreesman 2y ago

There is a financial accounting line item called “goodwill” and it’s often non-trivial. In a functioning market customers (whether consumers or enterprise purchasing decision makers) tell you to take a walk if you act with bad will in any kind of consistent way. There isn’t much money to be made in markets that are both of “mature” and functioning.

takinola 2y ago
Goodwill has a very specific definition that has nothing to do with your behavior. It is simply the difference between the price an acquirer pays for something and the book value of that thing
- benreesman 2y ago
  TFA accurately cites a decrease in cap on the day over a revelation of bad behavior, in no way affecting fundamentals. That comes out of goodwill. Why do people say things like this?
  - takinola 2y ago
    Goodwill only comes into play in the context of an acquisition. Unless they are being bought, the decrease in market cap is just that. It doesn't come out of anything in particular, accounting-wise.
    - benreesman 2y ago
      Price is definitionally attached to the likelihood of a transaction! The “price” of something is perfectly defined at the moment of a transaction, at any other time it is at best a rough estimate of the consensus of an amount at which a transaction would occur. I’m not nitpicking: this a la carte treatment of market capitalization neatly severed from what anyone would be willing to pay, warped by the prospect of intervention and other insidious capture is why we’re discussing this embarrassing cavalcade of depressing behavior on the part of the executives in the first place. Goodwill isn’t germane only to risk arbitrage discussions, it is (among other things) how the accountants keep track of the impact on value that accrues to piece of shit finance guys pulling stunts like this one.

jordanb 2y ago

> which is a good rough measure of how bad it was This is a part that he takes on faith which is completely unsupported. What the market is really doing (assuming rationality) is judging how much any punishment Wells Fargo might receive from regulators, customers, counterparties will alter the net present value of the stock.

deleted 2y ago
[deleted]

akira2501 2y ago

> The shareholders perform the socially useful service of measuring the badness That's a dangerous idea as it presumes that shareholders are investing not for profit but to improve "goodness" in the world. This is obviously not true. The shareholders are providing the economically useful service of measuring _risk_ to those future profits. These two factors may be linked through an abstraction but they are most definitely not equivalent. > they can penalize companies that do bad things Without journalists to expose the bad things in the first place the investors can do no such thing. There is no mechanism in place to discover these facts and there is no effort to build one independent of journalism.

lmm 2y ago
> Without journalists to expose the bad things in the first place the investors can do no such thing. There is no mechanism in place to discover these facts and there is no effort to build one independent of journalism. Isn't that backwards? Investors are a major funder of journalism in the broad sense, and one of the few robust revenue sources left for it.
- akira2501 2y ago
  > Investors are a major funder of journalism in the broad sense I see it as an advertising driven industry. I'm not sure how investors could be funding it directly. > and one of the few robust revenue sources left for it. That there are publications meant for investors does not mean investors can be seen as the revenue source. The advertisers looking to get in front of investors are the source. If someone was investing in news for it's own sake then why is the quality of the information presented so poor? You'd almost have an easier time making the case they invest to _intentionally_ obscure the process of reporting facts.
  - lmm 2y ago
    > If someone was investing in news for it's own sake then why is the quality of the information presented so poor? Financial-oriented news tends to be noticeably better than other kinds. Often the best widely-published journalism in the UK will be in the Economist or the FT, for example, and some more specialised publications allegedly have even higher standards.

golergka 2y ago

I think the point of this case is that they don't have to be moral at all. They penalise the company for doing bad things not because they think it's bad, but because they have financial incentive to do so.

takinola 2y ago
Markets are not about morality. They are designed to allocate resources optimally. If you want moral outcomes, you would need to inject incentives that make those outcomes optimal for the market participants
- golergka 2y ago
  Whatever the incentives, they already decided to include DEI commitments into their obligations to shareholders.
- forgetfreeman 2y ago
  Point of Order: markets are designed to make money, which is orthogonal to optimal resource allocation.
  - deleted 2y ago
    [deleted]
  - Nasrudith 2y ago
    And what is money but a proxy for the sake of resource allocation?
    - forgetfreeman 2y ago
      Explain Enron.

mathgradthrow 2y ago

It's almost like the state actually has standing in a lot of the cases where regulatory power has been slashed.

m463 2y ago

> not in ways that the legal system can easily reduce to money this is a sad truth for lots of things. Like folks who collect, then lose private information. It is wrong and bad, but rarely quantifiably so in court.

marcus_holmes 2y ago

I think this explains a lot of the "companies only act in the interests of their shareholders" thing, too. I know there's a legal obligation to act in the interests of the shareholders, but additionally, as TFA points out: shareholders have a really easy time quantifying their damages so that a case can be brought. Employees having a really bad time at a company because it keeps doing bad things have to be able to quantify that bad time in dollars, and that's hard. It's interesting to think of how we could adjust the legal system to allow for emotional distress, environmental damage, morally bad actions, etc on their own terms without having to convert them to monetary damages. Make it easier for a court to judge executive decisions on moral grounds and that makes it easier to claim damages for bad decisions and that makes it easier to keep companies behaving morally.

bruce511 2y ago
>> judge executive decisions on moral grounds Morals are subjective and fluid. They are effectively areas where society has "agreed to disagree". Morals that society agree on are codified into laws. The legal system is set up to enforce and uphold laws. It cannot uphold morals because they are not law. As executives we allowed alcohol at the year end party. If some of our group gave a moral position of no alcohol (say Mormons or Muslims) is that morally incorrect for us yo allow it? What if said objector imbibed at the event? Are we "morally responsible"? Who gets to decide and tell us what is morally ok or not ok?
- marcus_holmes 2y ago
  I disagree that morals align with laws. There are endless examples of legal actions which are utterly immoral. I agree that morals are personal and differ between individuals. Though that's not an opinion that religious folks accept: they hold that morals are defined by their deity and codified in their sacred texts. I'm glad we don't recognise that codification in our laws (though some countries do). Having said all that, there are some pretty clear cases where companies are acting immorally; against the interests of their employees, customers, etc and generally against the interests of humanity. It would be cool to be able to call this shit out in a court without having to monetise the damages.

deleted 2y ago

[deleted]

maeil 2y ago

> they can penalize companies that do bad things. This is inaccurate, and the article itself actually contradicts itself by showing that it's inaccurate. They can penalize companies for lying. If the companies just stop lying that they do/will do/will not do/don't do a certain thing, there's no securities fraud. The issue is that they lie about it.