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?
