Wednesday, March 18, 2009
So the RBS board pulled the wool - more wool than was already there, that is - over the eyes of Lord Myners to ensure Fred would have plenty of wonga to ease the pain of the searing guilt he must feel at running a bank while knowing full well he was the worst banker in the world. Meanwhile, AIG bonuses give Maureen Dowd another column, though Jim Manzi argues bonuses have become a distraction and, anyway, they are just the way these industries pay salaries. I sort of agreed with Manzi and then I didn't. I'm sure he's right about the distraction. Fred's pensions is plainly being used by government 'strategists' (Mandelson) as a useful populist issue to distract from their own rabid incompetence - as, for example, when they allowed the wool-pulling in the first place. But bonuses are not a minor aspect of this crisis, they are the heart of the matter. as Nassim says, 'The first thing we need to do is to get rid of the vicious bonus system that encourages you to take these hidden risks.' Bonuses made banks unstable because they were paid for short term gains and not taken back if these turned into longer term losses. This point also destroys the free market defence of the practice - since there was no downside, the bonus market was utterly unfree; it was, in fact, corruptly rigged. These bankers did everything in their power to avoid a free market. If this is not understood then we'll just end up in the middle of Nassim's worst case scenario - a resumption of business as usual and, in time, an even bigger crash.
Posted by Bryan Appleyard at 7:08 am