It seems to me the problem is that bankers have gotten very good at passing risk onto other parties. And other parties have been behaving in incredibly stupid ways. You can't fix stupid, so how do you prevent banks from separating risk from return?
And if bankers are not providing adequate returns, should this not be the responsibly of their shareholders to fix?
But boards have failed their shareholders. You can't fix stupid, again.
Those are the systemic problems in banking - separation of risk from reward and corrupt corporate leadership. Any regulation should be aimed at fixing those problems. I don't see where compensation structure comes into it at all. It's a symptom, not a cause. If people can make huge amounts of money, they will. That money has to go somewhere. And good on the bankers for making it- so long as they don't ruin it for the rest of us. Making sure they don't ruin it for the rest of us is the thing the government needs to concentrate on.
But the government is dumber than the bankers. You can't fix stupid- part three.
The point is that the current system is high risk, high reward. Except if the risk goes sour, there is no "you're not getting paid this year" or something. Your bonus may just be smaller or something or nothing. You pay is already high. NO RISK. Your only risk is not getting a reward.
The problem is that is the nature of bonuses. Succeed and get a bonus. To mitigate the risks we need a system where instead of bailing out, we let the companies fail. Banks should close. People should lose money. People should be cautious of investing on shaky grounds.
The only need is credit unions and financial institutions who are FORBIDDEN from behaving in certain risky ways. People will store their money in these banks/unions which are "stable" so nobody loses their savings. If you invest, you invest, and all is well because you knew the risk, or should have known. These crashes will actually balance themselves out as people's money won't just dissappear. And those responsible will be out on the street. Well... maybe not, the big wigs probably have their money safely tucked away.
> The only need is credit unions and financial institutions who are FORBIDDEN from behaving in certain risky ways.
Wasn't that exactly what caused the subprime mortgage bubble? Giant pools of cash (pension funds and the like) that could only be put into "completely safe" investments but also wanted decent returns, thus providing massive incentives to misrepresent risk?
> To mitigate the risks we need a system where instead of bailing out, we let the companies fail. Banks should close. People should lose money. People should be cautious of investing on shaky grounds.
This is absolutely true, in theory. The sickening truth is that all those wounded giants were far too big and too frakked up to let this happen. The stock market crash at the end of the 20s led to (or happened right before) the Great Depression which lasted well over a decade. The situation this time was at least as bad but this time, governments stepped in and exercised their duty to protect their citizens - which unfortunately meant bending the very foundations of capitalism and free market 360 degrees and making sure those institutes do not fail and implode our economy.
But, for the billions used to bailout these corrupt bankers you could have probably just let them fail and pay people the current value of their depots or savings...
A funny detail on the side: when the USA voted on whether to bailout or not, quite a few republicans (so the ones you would typically suspect of cheering for the rich) voted against the bailout just because it was completely against the idea of western capitalism.
which unfortunately meant bending the very foundations of capitalism and free market 360 degrees and making sure those institutes do not fail and implode our economy.
That would be 180 degrees. 360 is a complete circle ;)
And if bankers are not providing adequate returns, should this not be the responsibly of their shareholders to fix?
But boards have failed their shareholders. You can't fix stupid, again.
Those are the systemic problems in banking - separation of risk from reward and corrupt corporate leadership. Any regulation should be aimed at fixing those problems. I don't see where compensation structure comes into it at all. It's a symptom, not a cause. If people can make huge amounts of money, they will. That money has to go somewhere. And good on the bankers for making it- so long as they don't ruin it for the rest of us. Making sure they don't ruin it for the rest of us is the thing the government needs to concentrate on.
But the government is dumber than the bankers. You can't fix stupid- part three.
Maybe it's hopeless.