Cutting bankers down to size - by Philip Augar
Attacking bonuses addresses the symptom of the crisis, not the cause. It's time to break up the investment banks. The huge profits that the investment banks made before the credit crunch and are beginning to make again enabled them to pay the bonuses that are causing such outrage. Yet it took the catastrophic failure of risk management to bring this to public attention and even now politicians, regulators and the general public are struggling to understand the dark arts of investment banking.
The global economy needs to have effective investment banks for reasons but they must be cut down to size. Focusing on bonuses addresses the symptom rather than the cause. Big bonuses are paid because most years the banks make too much money. They make too much money because they are allowed to combine too many conflicting activities. Breaking up the banks into trading houses that provide customers with liquidity, research firms and boutiques that advise corporate clients would remove that advantage and ensure that the investment banks remained proportionate in scale and influence. That way we would be able to keep the bubble gum in the sweet shop, avoid the risk of over-mighty finance threatening the global economy and retain the socially and economically useful functions of the industry.
1 comment:
Then why call it a democracy? I am just as outraged over the current state of affairs as anyone. Yet, I truly believe that tearing down institutions and regulating pay is not the answer and will lead to a decline in productivity, morale, and any entreprenuerial spirit.
The question that needs to be addressed is "where was the Board of Directors" for these companies? Why did they not take a more active role in understanding the company they were supposed to be guiding? Are these jobs ceremonial or functional?
We could be punitive and do as you suggest-tear them apart and regulate pay structures. I was taught that every action has a consequence. In the US, I would rather we stop all the bail outs. Stop printing money! It is akin to getting a cash advance on your Visa in order to pay your other bills! Let these groups fail. Yes, that will cause lots of trouble but in the long run, we will rebuild and be better. On the current course, we will just be over-regulated, and broke with no motivation to do anything about it!
Post a Comment