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We must ratchet back bankers' pay
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| Parent(s) |
Issue
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| Contributor | RP |
| Last Edited | RP Jul 01, 2010 11:50am |
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| Category | Commentary |
| Author | Matt Miller |
| Media | Newspaper - Washington Post |
| News Date | Thursday, July 1, 2010 05:00:00 PM UTC0:0 |
| Description | If Sen. Scott Brown (R-Mass.) can manage to get last-minute tweaks into the financial reform bill, can't we still get something in that fixes banker compensation? Without changing the incentives facing the wizards who rule American finance, three thousand executives on Wall Street will leave the other 300 million of us holding the bag again before long.
The way pay is rigged at publicly owned Wall Street firms creates incentives for casino-style gambling, because bankers reap all the upside and stick shareholders or taxpayers with the losses. When their big bets go bad, in other words, top bankers walk away rich anyway. This is not how capitalism is supposed to work.
Still, if we know such pay schemes are corrosive for capitalism -- and, in banking's case, potentially devastating for taxpayers -- the question remains: what to do?
The answer is to re-create some version of the old private Wall Street partnership structure, in which every partner bore full personal liability for the firm's losses. When your entire net worth is on the line, "this has the effect of focusing the minds of management on exactly what the worst-case scenario of the behavior can wreak," writes investor and financial blogger Barry Ritholtz. |
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