Friday, 16 October 2009

Bonus Culture


Goldman Sachs is in the news for reviving the bonus culture that has been blamed by pundits for the financial meltdown. High bonuses for short-term achievement foster a culture of high risk investment, so how about linking the corporate taxation of banks to their bonus pot in order to encourage the longer view? The higher the short-term bonus, the higher the tax they have to pay.

Apparently some high street banks in the UK are already offering 95% mortgages to home-buyers. This will create yet another unsustainable house price bubble.

Despite signs of an ease to the world’s financial problems, if these kinds of activities are allowed to continue, I fear we are nowhere near being out of the woods.

5 comments:

  1. Whilst I agree with you I do find it rather sad that most people condemn the high bonus culture because it might bring about behavior which could threaten their own financial stability rather than the fact that such high levels of remuneration are inequitable whether they damage economic recovery or not.

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  2. Alan: There's the argument that the crisis was brought about by a long period of stability, which was foreseen as being never-ending (a bit like house prices always going up). That encouraged excessive risk-taking.

    However, if high bonuses are not to be paid accross the board, the profits merely go to the shareholders, but the profits will be less as the risks taken will be lower due to the immediacy of a bonus not being there for short-term gain.

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  3. Oh I've never believed that horseshit about how we're over the worst of the recession. This just proves it! xx

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  4. I think it will be impossible to drag us all out of the spend now, worry later society. which I think is the only long term solution.

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  5. Kerrie: A well reasoned argument based on pragmatism. Spend, spend, spend!

    You have missed your vocation - World Bank Economist.

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