— James Saft is a Reuters columnist. The opinions expressed are his own —
The Great Debate
Signs are it won’t just be the salaries of bankers coming under fire.
An unusual array of forces are combining to make it very likely that top tier pay may be structurally falling, rather than simply taking a cyclical dip during a downturn.
Nationalization of weak banks in Britain and the United States may be preferable to current plans for insurance and soft “bad banks” schemes which risk being swamped by future losses as assets, especially real estate, continue to crater.
That 8 percent annual return on investment you and your pension fund manager were banking on is now looking almost as optimistic as Madoff’s magic 12 percent, as deleveraging and deflation bite.
As the crisis has deepened we’ve had to search farther back in history for precedents, and with deflation at hand much of the debate now centers on how similar the next while will be to the Great Depression.
The Federal Reserve and U.S. economy have two considerable risks now that quantitative easing is at hand: keeping the dollar from a disorderly decline and figuring out how to dismount from the tiger.