- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
The awful thing about lynch mobs is they so often hang an innocent man, leaving the guilty totally untouched. In the case of the banks, the danger is acute. As I have already argued, hedge funds and private equity are being unfairly targeted, especially in Europe. But there is another, even less popular class which is likely to end up in the firing line, for no good reason and with consequences which could be damaging for all of us.
Broadly speaking, the banks pay 6- and 7-figure bonuses to two quite different sorts of people. First, there is a layer of what we might call technocrats: the striped-shirted traders of legend, with their loud voices and even louder dress codes, along with the managers who try to control them, the quants who invent complex trading strategies and price exotic new instruments, and a variety of others with specialised skills. Since they are rewarded in proportion to the profit they generate for their employer, which can usually be measured with considerable accuracy, their bonuses are often very large indeed. The question is: should we treat these professionals who trade on their expertise and who heavily outnumber senior management in the same way as their bosses? Not as far as I can see.
However unpopular these market professionals might be, I can see no reason whatever for intervening to limit the rewards their expertise earns for them. Arguments about “justice”, “fairness” and “ethics” are irrelevant, especially when they rely on judgements about lifestyles.
Fairness is no criterion for determining pay scales, unless we are also willing to limit the earnings of rock stars, footballers, best-selling novelists.....that is the way to the madhouse (and the collective farm). The market sets a high price on rare skills, and in a competitive world, any attempt by a single country to restrict that price will result in it losing those skills and the business that goes with them.