Warren Buffett calls for penalties for bank executives who led their companies to fall

Berkshire Hathaway has invested in Goldman Sachs Group Inc., Wells Fargo & Co. and American Express Co., all of which saw their values drop. Buffett also has interests in Irish banks that almost collapsed during the financial crisis.

In a letter to shareholders, Buffett pointed out that while shareholders felt the effects of the recent crash heavily, bank leaders got over it relatively ligthly.

"It has not been shareholders who have botched the operations of some of our country's largest financial institutions," wrote Buffett.

"Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascos of the last two years. To say these owners have been 'bailed-out' is to make a mockery of the term.

"The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style," added Buffett.

The Berkshire chairman suggested that those in charge of the firms should be penalised.

"It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price -- one not reimbursable by the companies they've damaged nor by insurance. CEOs and, in many cases, directors have long benefited from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well," he wrote.

In related news, Reuters reports that the chief executives of HSBC Holdings, Europe's biggest bank, and Asia-focused rival Standard Chartered are set to give their bonuses to charity, following a high-profile row over the sums paid to bankers. [Read more...]