Tags: Joseph | Stiglitz | Bankers | Bonuses

Stiglitz: Stop Bankers From Stuffing Their Pockets

Tuesday, 19 Jan 2010 09:14 AM

Wall Street bankers knew — or should have known — that while high leverage might generate high returns in good years, it also exposed the banks to large downside risks.

But they also knew that under their contracts, this would not affect their bonuses, says economist Joseph Stiglitz.

“Market fundamentalism has eroded any sense of community and has led to rampant exploitation of unwary and unprotected individuals," Stiglitz writes at Mother Jones.

The social contract about the reasonable division of the gains has changed, Stiglitz points out: Pay for corporate leaders used to be 10 or 20 times that of the average worker.

Now it’s however much executives can appropriate for themselves.

“It became perfectly respectable to call it incentive pay, even when there was little relationship between pay and performance,” Stiglitz observes.

“In the finance sector, when performance is high, pay is high; but when performance is low, pay is still high.”

We are on the cusp of what is going to be the most highly visible and contentious bank bonus season in history, says Yale Law professor Jonathan Macey.

“Bonuses are predicted to run into the billions of dollars, and many of the banks that got the most bailout money are paying the biggest bonuses,” Macey writes in The Wall Street Journal.

“The two issues are intimately related — and as long as the administration continues down its too-big-to-fail regulatory path, Mr. Obama will stay in the business of paying huge bonuses to fat cat bankers.”

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Wall Street bankers knew or should have known that while high leverage might generate high returns in good years, it also exposed the banks to large downside risks. But they also knew that under their contracts, this would not affect their bonuses, says economist...
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Tuesday, 19 Jan 2010 09:14 AM
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