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End Bonuses For Bankers
theodp writes "NYU risk engineering prof Nassim Nicholas Taleb has a suggestion that won't sit too well with the banksters. In his NY Times op-ed, Taleb writes: 'I have a solution for the problem of bankers who take risks that threaten the general public: Eliminate bonuses.' The problem with the bonus system, Taleb explains, is that it provides an incentive to take risks: 'The asymmetric nature of the bonus (an incentive for success without a corresponding disincentive for failure) causes hidden risks to accumulate in the financial system and become a catalyst for disaster. This violates the fundamental rules of capitalism; Adam Smith himself was wary of the effect of limiting liability, a bedrock principle of the modern corporation.'"
bankers will still upset the market on purpose for bribes, much like how politicians lie to (and upset) voters because of what amounts to bribery....
This isn't a solution until he first figures out how to get this by the politicians that said bankers have bought with said money.
"why didn't anyone think of this before" things.
After all, banking isn't really an "industry" in the sense that the word is used in relation to other industries. What does the banking "industry" produce? Money? (In the form of deposits when they make loans?)
How do you increase productivity? More loans per bank employee?
Ideally, banking is supposed to be a support process, not a growth industry in itself. So, yeah, it seems to make sense not to give bonuses to bankers.
I'm not a lawyer, but I play one on the Internet. Blog
If the problem is no corresponding disincentive for failure, it doesn't make sense to remove the incentive for success.
Instead, should unwarranted bonuses be given that later turn out to be fraudulent, the bonuses should be clawed back. Perhaps add a penalty of 50% of the bonus on top of clawing back the full bonus.
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How about if a corporation is awarded death penalty, all its assets would be sold,the proceeds will be distributed to the shareholders, the corporations name, ticker symbols and other trade marks will be sequestered for ever?
It is far too easy to create corporations, compared to real human beings. Corporations do not require visa/green card/work permit/citizenship to work and profit inside the USA. So we can apply the lower standard of "preponderance evidence" to award death penalty to them, not the stricter "beyond reasonable doubt".
Any corporation that is too big to fail, is too dangerous to exist. They should be executed. We bailed out the financial institutions. They technically are living due to our mercy.
Let us break up any bank that has more than 10% market share in retail banking. Any investment bank that has more than 10% market share. And reinstate Glass-Stegall act. Let us do it peacefully when we still can do it in an orderly manner. Else someday roving mobs will be pulling out chairman of Goldman Sachs hiding in sewer pipes.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
This is a fundamental property of capitalism: when a corporation gets lucky it can dominate the market so strongly that when it gets unlucky it gets bailed out by the tax payers.
This changed when firms went public and came to be run by employees rather than partners, with the usual issues of agency, of which asymmetrical incentives are high on the list.
Lacking <sarcasm> tags,
I'm a voracious reader. I figure I've easily read thousands of books in my life. My top ten list (hey, I'm a nerd) of most thought-provoking books I've ever read are:
10. Why Societies Need Dissent - Cass Sunstein
9. The Road to Reality - Roger Penrose
8. Diplomacy - Henry Kissenger
7. Last Chance to See - Douglas Adams
6. Free to Choose - Milton Friedman
5. Cosmos - Carl Sagan
4. Guns, Germs, and Steel - Jared Diamond
3. Black Swan - Nassim Nicholas Taleb
2. Meditations - Marcus Aurelius
1. Bible (KJV)
You are doing yourself a disservice if you don't read Taleb. He is one of those rare authors who doesn't just serve up facts, but fundamentally alters the way you see the world.
no, that's a property of a failing political system/class. Bail outs are not an automatic thing. They require the complicity of politicians and the complacency of voters.
That's true. The system we have *now* in most of the world is basically "stone cold capitalism for the people" and "cosy socialism for the corporations"
It's not a property of capitalism. It's a property of cronyism. I'm so sick of anti-capitalists and their Che Guevera T-shirts. What do you think the guy you bought that shirt from is?
Government bailing out corporations? That's definitely not a free-market principle, and we'd all benefit if such ridiculous falsehoods weren't spouted off by every junior blogger. Whether you like capitalism or not, in a pure system a failed company fails and whatever assets it has go to its creditors.
Gamingmuseum.com: Give your 3D accelerator a rest.
This is not true.
Historically, corporations were required to be non-profit and demonstrate that their existence served the public good to be registered.
"In the United States, government chartering began to fall out of vogue in the mid-19th century. Corporate law at the time was focused on protection of the public interest, and not on the interests of corporate shareholders. Corporate charters were closely regulated by the states. Forming a corporation usually required an act of legislature. Investors generally had to be given an equal say in corporate governance, and corporations were required to comply with the purposes expressed in their charters."
You believe that the way things operate are fundamental because you were programmed to believe that by those who have been exploiting you since you were born.
For every proposed solution or reform, people come up with a thousand reasons why it can't possibly work, and why we can't change the status quo.
I guess the implications of that are obvious - We're living in something approaching the best of all possible worlds.
Therefore we shouldn't change anything.
On our current course, we're set to virtually eliminate the middle class in several more decades, so I guess that makes the world a better place. I guess that makes it sound like my status as a member of the middle class is making the world a worse place, but I guess I'll go on being "evil" as long as I can mange.
But let's look at the bright side...
Without a middle class, we won't need as much infrastructure, since most of us will be walking or taking a bus, since we won't be able to afford cars any more. We don't need to bother fixing that aging infrastructure, we can just decommission it. Decaying infrastructure problem solved.
As our income sinks lower and lower, even those low-paying jobs currently taken by illegal immigrants will start to look attractive. Americans will take the low-paying jobs. Illegal immigration problem solved.
Once there is no middle class and the wealthy are safe in their gated communities, drug addicts won't be able to find easy victims to support their habits. They'll wind up going cold-turkey simply because they can't afford the drugs on their own, and are no longer able to steal enough. Drug problem solved.
The military becomes the only reliable employer, since all other decent-paying jobs have been sent overseas. There are so many people trying to get in that the military can raise their standards back up to where they ought to be. Recruiting problem solved.
As we quite being able to afford to travel, we can take the national parks and either mothball them to eliminate cost, or out-and-out sell them as resorts, generating revenue. Not a solution, but certainly an assist to the deficit/debt problem.
The living have better things to do than to continue hating the dead.
I'd say that this is a property of a certain subset of capitalism where influence of the political system is treated as any other good. That is to say, buy what you can afford, at whatever price it's worth to you.
The libertarian approach is to weaken government to the point where it can no longer aid corporations in their corruption. The liberal approach is to not treat it as a free market good. I can't for the life of me figure out what the conservative approach is. Seems to be, "What's the problem again?"
You want the truthiness? You can't handle the truthiness!
Indeed. I heard an interesting argument a week or so ago, where one businessman said that one of the problems with banks in the US is that the government insures all deposits (up to a limit). On it's face it sounded possibly terrifying, can you imagine giving your cash to a banker with no gov't insurance. However since the gov't backs the holdings the banks do not need to operate in a low risk manner with that money, since they know regardless they will get bailed out. It made for an interesting thought, in that if the gov't did not insure any of the holdings you can be sure people would only put their money in a bank with an absolutely solid reputation and no tolerance for risk.
There was a similar argument I heard a few years ago regarding insurance companies, in that they also have large holdings which they were investing in ever more risky ventures. The fact that the gov't backs up all deposits implicitly indicates their distrust in the banking system (after all, if it were trustworthy, why would it need backing), but yet they do things like repeal Glass–Steagall which encourages ever more risky behavior. There is a lot the gov't could do to rein in bad bank and investment behaviors. After all if things like derivatives are indeed equivalent to financial mass destruction tools, why not ban them outright. Just because things can be done, doesn't mean they should be allowed.
Essentially the corporation will be broken into divisions and sold off in pieces. Most of the actual productive jobs will remain. We have quite good knowledge, experience and track record of breaking companies into smaller pieces. In the long run, the competition creates more jobs and more vibrant economy. When AT&T was broken up by court order, and before the baby bells re-agglomerated into Verizon, we had a nice trajectory of falling prices and improved services.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
Often times some of the biggest shareholders are the executives of said corporation so that would be directly rewarding them for executing their company.
I got here through a series of tubes
The problem of "too big to fail" is simple to solve by following this principle: any bank that is too big to fail is also to big to exist. Thus any bank that receives government money must be either closed down or broken up and sold in pieces.
This is the solution proposed by Paul Volcker, and for my money it is the correct one.
"First they came for the slanderers and i said nothing."
I agree with the other poster, as soon as you're "Too Big to Fail" your company should be seized, nationalized, broken up and sold. The ONLY institutions that should have the power to bring the world to its knees like this last crisis did, is governments, and even then im not a big fan. But I feel MUCH better with that power in the hands of my government, than with a private citizen.
Think of it from a military point of view, If my company had a private security force, that rivaled the US/Chinese military, would they let me keep it? Then why the fuck is a company allowed to wield the same economic power?
Funny how historic problems repeat themselves, and we let it. East India Company was so big and its reach so massive that it had it's own flag, its own military, and its administrative section was larger than most governments. Eventually even government officials, who were quite comfortable with someone else managing their nasty colonial duties, began to realize that they had outgrown their own britches and started systematically taking them apart.
-- "In order to have power, I must be taken seriously." -Mojo Jojo