Friday, 15 May 2009

Joseph Stiglitz on banking bonuses

The system of compensation almost surely contributed in an important way to the crisis. It was designed to encourage risk-taking—but it encouraged excessive risktaking.

In effect, it paid them to gamble. When things turned out well, they walked away with huge bonuses. When things turned out badly—as now—they do not share in the losses. Even if they lose their jobs, they walk away with large sums.

1 comment:

sobers said...

Thats it, blame the bankers. Sure they're an easy target. But the basic fact is this. All the financial shenanigans that bankers got up to was for one aim and one aim only. To feed the voracious appetite of the Western consumer.

We wanted 'it', whatever 'it' was NOW, and we weren't going to wait. A bigger house, sign here for a 110% mortage. A new car, sign here for the finance deal. New kitchen and bathroom, sign here for the mortgage equity withdrawal. For the 3 holidays a year and everything else there's always Mastercard (and Visa and Amex of course!).

No one was forced at gunpoint to overextend themselves, either to buy expensive property, or buy consumer goods on credit. And if we hadn't done so, all the financial schemes of the bankers would have come to nothing. Like a drug dealer and user, bankers and the consumer go hand in hand. One could not exist without the other. It pleases us to blame the bankers, because that stops us from having to look in the mirror.