[glasss]

> 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.

[akira2501]

> 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.

[tylervigen]

The author (Matt Levine) is always a bit tongue in cheek about securities fraud and the “socially useful” role shareholders play in pricing securities. He writes about these kind of incidents in a weekly basis, so his typical audience knows to read it that way.

[panarky]

It doesn't presume that shareholders are altruistic.

It presumes that shareholders' only objective is to maximize the share price.

From Wells Fargo's reports to investors, it's clear that management believed that investors would interpret successful diversity efforts as important to maximize the share price.

After the diversity rules were suspended, the share price dropped.

It's nearly impossible to prove cause and effect, but the plaintiffs don't have to prove direct causation. They only have to show that management misrepresented the facts in reports to investors, that the false statements were material, and that investors suffered a loss at that time.

[lmm]

> 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.

[jordanb]

> 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.

[marcus_holmes]

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]

>> 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?

[golergka]

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]

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

[m463]

> 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.

[maeil]

> 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.

[mathgradthrow]

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

[benreesman]

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]

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

[blastro]

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

[exolymph]

"actors in the market who are buying and selling stocks" does not necessarily mean retail, no?