The Great Debate

–James Saft is a Reuters columnist. The opinions expressed are his own.–

The effort to rein in banking bonuses, outrageous as they may be, is akin to banning glue sniffing because you are worried about the effects of intoxication.

There are, as the kids in the alley behind the high school can tell you, other ways of getting high.

Train your regulatory fire instead on requiring more and better bank capital and you will arguably do a great deal to control excessive compensation as well as doing much more to protect taxpayers and the economy.

Financial leaders from the Group of 20 rich nations agreed the skeletal outlines of a plan to reform banking last weekend in London. Included was the idea of claw backs on bonuses if earnings evaporate, forcing more pay to be deferred for longer, and more disclosure of top pay.

– James Saft is a Reuters columnist. The opinions expressed are his own –

Rising pay in the finance sector in the wake of the global financial crisis is no surprise and is driven partly by the government’s bailout itself and the underwriting of banks that are too big to fail.

News that some financial firms benefitting from government largesse actually increased the share of revenue they pay their employees sparked a lot of outrage but more heat than light.

– Tamar Frankel, a professor at Boston University School of Law, is author of “Trust and Honesty, America’s Business Culture at a Crossroad.” The views expressed are her own. –

The debate over corporate executive bonus payments should be put in perspective.  Some say that the executives did not earn these bonuses and don’t deserve the millions in parting payments that they received.  But if parting payments were specified in the executives’ contracts they must be paid.  A binding contract is binding.

But what if the payments were made at the discretion of a board of directors, as bonuses usually are?  Can such bonus payments be retrieved from the executives?  Probably not.  Unless the executives failed to give the board accurate information, or illegally caused the payments, they are entitled to retain them.

– James Saft is a Reuters columnist. The opinions expressed are his own –

The argument about bank bonus payments is as sterile as it is backward looking; compensation at government insured institutions is going nowhere but down.

The real action will be at those places like hedge funds, private equity houses and boutiques, which will try and trade less insurance for more autonomy and which will capture more market share, take on more risk and offer more reward. The question is how will they be regulated, how will they fund themselves and how will the rest of us be protected from the systemic risk they could easily represent.