My good friend Ricardo Torres in his tradingcafe blog has again hit the nail on the head. We have done nothing to change bankers' compensation packages and everyone with experience with the system, from Ricardo to Dominique Strass-Kahn is again warning that the ridiculous bonuses paid to bankers because they earn fees for their banks not necessarily profits for their clients is a sick system based on simple and venal greed.
At the height of the financial crisis in 2009, we, society, talked a lot about changing the bonus system to force bankers to wait to receive their variable compensation until the deals they structure actually show a profit. If the compensation is supposed to be based on the success of investments that have components of risk, then make it so. You only get the bonus when the profits of the deals are realized.
As ever, talk is cheap and the rhetoric of two years ago has gone away, replaced by a new wave of outsized and unproved bonuses. Where are you SEC, US Congress, CVM, Banco Central, FSA and all the other supposed regulators of the financial system? Your lack of action is condemning us to more rounds of bubbles and recessions.
Tuesday, February 22, 2011
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