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.'"

Re:Except that....

[V-similitude]

More to the point . . .

http://www.theatlantic.com/business/archive/2011/11/no-wall-street-bonuses-arent-destroying-the-economy/248093/ [theatlantic.com]

Re:Corporations are people. Death penalty to corps

[Reverand Dave]

Often times some of the biggest shareholders are the executives of said corporation so that would be directly rewarding them for executing their company.

Re:Except that....

[Anonymous Coward]

People literally live and die by some of the software I have written. Sure, there's abstraction because I don't see their faces but it's the truth. Aside from that people are often laid off and have their financial lives turned upside-down directly due to software I've written and unfortunately I do meet those people on a regular basis. No, I wouldn't compare it to being fired at in live combat, but depending on the work you do it can be pretty stressful.

Re:Except that....

[korean.ian]

Fannie Mae and Freddie Mac purchased the bundled loans, they didn't do the actual bundling. The bankers bundled the crappy mortgages up with the AAA one and then flipped them into the fund market. How the hell they could get away with lending to NINJAs is ridiculous.

Re:True to every corporation

[Jiro]

"Bonus" in an executive context often means "payment that is like salary, but is given in a lump sum at a particular time". It does not necessarily mean "payment given for exceptional performance".

Re:Except that....

[inviolet]

You also had a law passed in the Carter years to make it easier for people who couldn't (and as we can now see, shouldn't) have been granted a mortgage provided one. This law got itself teeth during the Clinton years to aggressively push these high risk mortgages out there, or the banks would suffer fines. All of this backed up by federally created Fannie Mae and Freddie Mac, who then started bundling these high risk loans with AAA credit loans. All the while, anything that had once been considered wise lending practices were thrown out the window.

This is horseshit. This is the "blame the poor minorities and the liberals who thought they should be subject to the same standards as everyone else" canard that was trotted out after the collapse to try to divert blame away from the deregulation that is the real obvious cause -- point of fact, even if this bull excrement explanation held any water, had the old rules about the types of securities banks could invest in and the limits to their ability to leverage were in place, the collapse wouldn't have happened.

The law never required banks to make risky loans. It only required them to not refuse loans based solely on where someone lived, or to use a higher standard to secure the loan than they would for someone who lived somewhere else.

And here is the actual text of the CRA and IBBEA laws that forced the banks' hands: IBBEA [wikipedia.org]. Read up before you accidentally release any further un-data into our already troubled world.