Ever since the financial crisis hit, people have been complaining loudly about banker bonuses. Considering the severity of the financial crisis, it isn't mysterious why. An industry where employees got paid eye-popping bonuses nearly burnt the entire economy to the ground. But now that the economy has begun to improve, so have bank profits. As a result the bonuses are back. Consequently, the chorus is again growing loud for reform. But it's important to remember the reason why big bonuses might be dangerous.
It's pretty easy to identify when giant banker bonuses are bad: when they are awarded immediately for profits collected due to the industry taking huge long-term risk. If bankers happen to have a great year while taking very little risk, then should bonuses still be curbed? Michel Barnier, the European Union's financial services commissioner appears to think so. He offers a different reason for why banks should limit their bonus compensation. Ben Moshinsky and Mark Deen at Bloomberg report:
"Society is suffering," Barnier told reporters, referring to budget cuts in countries such as Greece and Ireland. "At this current time, banks can't lose sight of the fact that they're part of this society and part of the economy. Banks and their shareholders have responsibilities. Banks need to react in a moderate way."
Certainly some Wall Street critics agree with Barnier. When bonuses returned to banks as U.S. unemployment remained stubbornly around 10%, many Americans were similarly outraged. How could these people be making so much money when so much other suffering is still going on?
Well, let's cross-apply that argument. Should athletes, actors, best-selling authors, tech company CEOs, plastic surgeons, and other individuals that earn huge incomes this year also cut back on their take home salaries until the economy improves? Such arguments are scarce, yet the same logic would still apply. The financial sector has returned to profitability, with most of the big banks having paid back what they borrowed from the government through the bailout. Should banks be criticized for providing generous compensation without mention of other industries that also provide big paychecks?
Again, it depends on the details. If banks are better ensuring that the risks they take are better matching the timing of the compensation, then the big worry about Wall Street bonuses has been answered. Then, criticizing a banker for making millions of dollars shouldn't be any different from criticizing someone like Larry David for taking home seven-plus figure paychecks due to his TV shows' success. Barnier doesn't appear to make a distinction, so if the moral imperative he senses is a valid one, then it should extend to all high-income individuals, not just bankers.
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