Now raising intellectual capital
Bank bonuses have been a red herring of the financial crisis, repeatedly deflecting attention from deeper problems. So it is disappointing that the leaders of the G20 nations propose to squander yet more time on the subject in Pittsburgh.
While the French may have recently watered down their proposed curbs on bonuses, their voter-pleasing plans still look likely to be at the heart of the meeting. Worse, they seem to be pushing aside the United States’ sensible proposals for tougher capital rules for banks.
Even so, there is a way of turning the tables on the French. Obama should make a powerful case for capital rules as a tool of social justice, which would moderate princely bank pay while shielding the taxpayer.
Curbs on bank bonuses are intended to serve two purposes. The first is to remove incentives for traders to take reckless risks in expectation of a lavish year-end payout. The second aim is social catharsis — to reduce overall compensation to more acceptable levels. The French plan would achieve neither.