Commentaries
Now raising intellectual capital
Forget about bankers’ bonuses
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.
If regulators give banks enough slack to take large risks, they will find a way of doing so. Even if bonuses were eliminated altogether, ambitious bankers could be encouraged by executives to bet the farm in expectation of a large bump up in basic pay.
It is also doubtful that rules on bonuses would really work: Financial institutions are masters at navigating their way around all kinds of regulations.
By contrast, America’s bank capital plan promises to get at the root cause. One of the chief reasons that bankers are overpaid is their bets are backed by an implicit government guarantee.
-
The Wall
This is why the banks should have never been bailed out in the first place. If they give away billions in bonuses, the company must be making a lot of money, of course they were given billions. When the bank goes broke because they gave away all their profits, it is the bonus program that is set up by whom?, that will be a big part of that banks failure. The banks that were responsible will still be operating. Don’t reward bad behavior. I know there is a lot more to this but the government should keep their nose out of businesses, and try to run their own. The government is doing a much worse job, look at the trillions we are in debt.