Historical lessons in disincentivizing bankers

By Felix Salmon
September 4, 2009
crack down on bankers' pay directly, but that's unlikely to work. You can try to fiddle with capital-adequacy standards, so that big banks become less profitable, but that's unlikely to have much in the way of immediate effect. Or, you could follow the lead of Holland, circa 1581, as explicated by Simon Schama:

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There are too many bankers, and they make too much money. How to deal with this? You can try to crack down on bankers’ pay directly, but that’s unlikely to work. You can try to fiddle with capital-adequacy standards, so that big banks become less profitable, but that’s unlikely to have much in the way of immediate effect. Or, you could follow the lead of Holland, circa 1581, as explicated by Simon Schama:

Bankers were excluded from communion by an ordinance of 1581, joining a list of other shady occupations—pawnbrokers, actors, jugglers, acrobats, quacks, and brothel keepers—that were disqualified from receiving God’s grace. Their wives were permitted to join the Lord’s Supper, but only on condition that they publicly declared their repugnance for their husband’s profession! Their families shared the taint and were only permitted to join communion after a public profession of distaste for dealing in money.

Given that Mammon has long since triumphed over God, I reckon most bankers these days would happily give up communion in order to be able to continue to make their seven-figure bonuses. Maybe we should try banning their children from attending expensive private schools instead.


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Well, now we know why there needed to be a reformation (which was already under way at that time)

Posted by Dave | Report as abusive

I would add bloggers to that list. Since they add nothing productive or of real value to the economy.

Posted by Dogma | Report as abusive

Don’t be a hater, Dogma! You must be getting something that brings you to this blog!

Posted by Dan | Report as abusive

Bravo, Felix!

While Mao was indiscriminate, lumping college professors in with the bankers, he too had a methodology for dealing with an infestation of financial intermediaries – and in eliminating the infestation the People’s Republic also got some well-dug ditches and properly terraced rice paddies out of the process.

Posted by Dollared | Report as abusive

@Dan, Yeah what I get is every time I log onto Reuters finance, I get this free market hating socialist crap. I know every time you people here the work tax you get a warm and fuzzy, but those of us that work in building capital and providing capital to grow the economy cant stand these parasite bloggers.

Posted by Dogma | Report as abusive

What about those institutional investors that own shares or senior credit…should they not also have a say in the incentive plans? It is their capital to risk as well.

I don’t care if bankers get paid…Intermediation of capital / risk should be a well-compensated profession that attracts the best. The ones that are exceptional earn their keep…it’s the average to below-average firms that don’t deserve it (yes sometimes those do fail, but in better times they do not)

PS: what about know-nothings that just peddle shit to institutional investors, investors who lack the wherewithal to truly understand what they have bought? And by shit, I mean auction-rate securities, for an example. Buyer beware, yes….what about sellers beware.

Posted by Griff | Report as abusive

What @Dogma fails to understand is that the banks and their employees have become the welfare babies in our economy. Going beyond the bailouts of last year and the paying of 100 cents on the dollar on FMN and FRE debt and credit default swaps (i.e. AIG) because even Goldman can’t handle its losses, the financial sector welfare continues. Present welfare to the financial sector is in the form cost of capital, set by the FED and subsidized by all of us, in the neighborhood of 1%. This is of course where all the present profitability is coming from, the basis for the new round of lavish bonuses. We all look forward to paying for this present financial welfare as inflation down the road. Dogma should be thanking his fellow Americans for every FED-subsidized paycheck.

Sure, capital allocation is crucial in the economy, but so are the utilities, the food production sectors, oil and much else. I don’t see those sectors gutting themselves of capital through astronomical pay during good times and then requiring massive taxpayer help when things go south.

Posted by Dan | Report as abusive

Ahh … what Dogman really meant to say was he hates socialist crap in things like health care or pensions for instance. But he eats it up when it’s going to the bankers.
So I guess he’s eating a lot of crap these days, hmmm… love it with cheese!

Posted by Patz | Report as abusive