> And why would shareholders be specifically punished but not creditors? If there is some liability claim how are shareholders not just equally responsible as everyone else including creditors?

FWIW I also believe that creditors should take more responsibility on the credit they give. We saw in the financial bubble of 2008 that there are many incentives for creditors to provide credit to persons and companies that _they know_ won't be able to pay.

> Am I just transferring money from my 401k to someone else’s and then they transfer it back since we both own shares in index funds?

Putting your 401k into stocks and index funds is a choice you make. Nobody forces you to do that, and you, e.g., put them in bonds instead for lower returns and lower risks, or if you are willing to take more risks, there are Index funds and ETF for pretty much any criteria you can imagine. I personally think that using a 401k with index funds on stock is a great choice given how the market has grown the last 100 years, but many countries actually don't have 401ks (e.g. most of Europe doesn't have them) and they do jut fine.

> What you’re proposing here could use some work.

That's a really positive and kind way to put it, thanks. It was just a thought.

The system of "a company is only liable with its assets" is what we have had for a very long time. There are many scams that exploit this, and a continuous stream of gross negliglence or malice that shows up every now and then when those at fault are able to just walk away and do it again.

Thanks for your thoughtful response here. I want to really dive into something here which is your comment about 401ks and bonds.

Unless I misunderstand what you are intending with your original post (and obviously that can be subject to reinterpretation, modification, etc. - i.e. I don't hold anybody to the original idea when there is room for evolution) - if you put money into your 401k into something like, let's say a total stock market index fund - you could be sued for any company doing anything negligent. Right?

Now you might say - well that's the point. You should do your research. So let's say you're risk-adverse to being sued as a shareholder and only buy stock in the S&P 500.

So the S&P 500 Surely those are good companies, right? Sure. Except now there's only a small exclusive group of companies that get investor dollars. You're funneling money straight into the dominant companies. How could a smaller company ever raise capital?

You may recall that index funds and ETFs are made up of individual companies - actual shares. So to the extent that you have to research every company and know it inside and out so that you aren't exposed to potential lawsuits effectively eliminates all individuals from the capital markets. Only the wealthy would have ownership stakes! 401ks are just a convenient vehicle to help regular people save money - many in Europe and elsewhere opine for such a thing (spend some time on the investing subreddit).

Part of the whole point of this exercise is that you want regular people to share in the success of companies. If you open them up to liability, you defeat that. Jeff Bezos and Marc Andreesen can afford liability lawsuits. You and I can't. The rich get richer.

I'm also not sure why bonds would shield you from liability. You're still giving the company money to do these bad things, why does it matter if you have ownership? Hell, maybe companies just issue high-dividend paying bonds and avoid the whole "ownership" liability thing?

I think you're on point with regard to accountability - but that's a current failure of government, not corporations. I'm also not sure about the potential externalities that are caused by making any shareholder liable for a company's bad behavior. From a philosophical standpoint there are a lot of things to consider and I think we'd really have to nail down what specifically the issue is. Certainly workers who work at bad companies should be punished just as much as shareholders, right? Shouldn't the be personally liable even more than shareholders since they make the whole company run? And why would that not extend from management down to the janitor?

> I'm also not sure why bonds would shield you from liability. You're still giving the company money to do these bad things, why does it matter if you have ownership?

Sorry, should have clarified "government bonds" here.

We are hypothetically talking about changing the rules, so we could change them to whatever.

I think the fundamental problems here are a lack of oversight, and also a lack of financial incentive to avoid defaulting in the very long term (as a "mortal" investor, at some point you are going to cash out).

Thinking about the 401k, you mention the S&P500 index, but there are thousands of indices. There could be an S&P500 "proper oversight" index, that filters the S&P500 by some oversight metric. If that gives you 200 stocks instead of 500, and that's too little diversification for you, there could also be an MSCI ACWI IMI "proper oversight" variant as well.

Creating an exemption for 401 and pension plans in general could be an option, but TBH many index funds are big investors in companies, and they do often have a say.

> Sorry, should have clarified "government bonds" here.

Sure, no problem. But what about when the government does bad things and gets sued? At least something to think about.

I think some of the things you're discussing here are still fundamental government enforcement issues. You can create a "proper oversight" index but that doesn't shield individual investors. Facebook would have been part of that, for example, but now things have changed and the company could be open to liability for damages. I think the main issue here is there is too much risk for individual investors - they can't be experts in every stock or research every company - or get out if they start to see a pattern of fraud. So the only people who will own companies will be wealthy individuals and institutions that can fight lawsuits.

I also don't think this solves the concentration of wealth to the top companies. You can be a small, highly ethical company but not be able to raise capital in the public markets because investors are too risk adverse.

In my view, I think if you believe that there is a lack of oversight and a financial incentive to default, then you need to go back and look at how the government enforces rules that already exist before blowing up the entire capital markets for regular people. They seem to work pretty well, overall. Government bonds pay nothing now - if every investor had to exit the market (me and you) we'd just be stuck with useless dollars and no means to deploy them.

If you haven't read it, Fooling Some of the People All of the Time is a great, but also depressing read into this.

Thanks for the book, will give it a read!

Thanks for the interesting thoughts and discussion!