Previously in this blog and elsewhere, I have expressed my displeasure with political proposals for caps on the pay that private businesses pay to their executives. While I acknowledge that our economy is not perfect, and that the free market is sometimes unable to correct corporation power grabs and excessive compensation, I'd still rather entrust these corrections to the economy rather than having a government mandate to restrict compensation. Specifically, if A.I.G. felt the need to retain those employees, their...um...loss.
And guess what? Bankers agree with me that banker compensation should not be limited. And the bankers - at least the ones in Europe - identify a group of people who should share the blame for the mess.
There is little argument that previous pay arrangements for the industry encouraged extreme risk taking by many bankers in a dash for short-term gain — a factor in the collapse of banks globally. In the public’s eye, the profits were private, but when things went wrong, the losses were nationalized, with taxpayers picking up the tab.
Yet many banking professionals say they are already cleaning up many of the excesses themselves. The current drive for tighter rules on compensation, they argue, is mostly a tactic by politicians to deflect the blame away from themselves.
They contend that governments were complicit in the explosion of liquidity and lack of regulation that contributed greatly to economic growth — but also to last year’s financial meltdown when it all fell apart.
Oh, and I feared that the banks that were taken over by the government would have to respond to political pressures, and thus be non-competitive. I was wrong, apparently.
In fact, bankers say, bailed-out banks like Royal Bank of Scotland and Citigroup, which are operating largely as government-owned institutions, are now among the most generous employers in the market, using bonuses to tempt talent from rivals in hopes they can quickly repay government funds.
More here (New York Times).
