Wouldn't it be great if we lived in a world where people paid for all of their mistakes? Bank of America investors sure must think so. Earlier this week, they learned that the institution would pay $8.5 billion to settle some claims by investors that it should have bought back souring mortgage bonds issued by Countrywide, which it purchased in 2008. This raises a question: should the bank claw back the bonuses it paid the employees responsible for the mistakes that led to the big settlement?
Eleanor Bloxham, CNNMoney contributor and CEO of The Value Alliance and Corporate Governance Alliance, thinks so. She writes:
But this $8.5 billion settlement -- in real cash, not just paper accounting losses -- brings some very large questions to the fore. What about all the executives who made bonuses based on the sale of those securities? And what about the executives who conducted the due diligence on Bank of America's purchase of Countrywide, which led them to take on this multi-billion dollar headache?
It sure would be nice if they could be on the hook for the big loss Bank of America faces, but we shouldn't expect to see this happen. As Bloxham goes on to explain, the bank doesn't appear to have legal authority to seize past pay for this reason, unless it can prove fraud. Should banks have the capability to seize past bonuses in a situation like this?