Cut bankers' bonuses

It is intriguing to see the various arguments being deployed around bankers' bonuses. The apologists for the bankers, such as Dominic Lawson in the Sunday Times, argue that cutting the bonuses would be a Bad Thing.

I think that Mr Lawson makes some good points, particularly in highlighting that the reasons for the financial collapse go further than the way in which bankers were paid. But I suspect he underestimates the way in which the incentive structures in banks encouraged behaviour that was dangerous and destructive.

By contrast with Mr Lawson, the view of the leader writer of The Economist is much more critical of the banks and their remuneration regimes.

The Economist points out a number of things that Mr Lawson ignores. Perhaps the most important is that all the banks (yes, even Goldman Sachs) have been the recipients of state aid of one kind or another. All the banks are benefiting from the extraordinarily low interest rates set by all the major central banks. Many have been bailed out explicitly at huge expense. Others benefit because their counterparties were bailed out. Governments should attempt to claw this subsidy back on behalf of the tax payers that provided it.

Underlying the arguments of many who wish to leave the bankers to get on with it is a fear that the bankers will up sticks and move elsewhere if governments restrict their ability to earn huge bonuses. But perhaps we don't want the kind of banks that pay these bonuses. In the light of events of the last couple of years, it is tempting to conclude that a highly profitable investment bank is simply an accident waiting to happen, and that we should seek to minimise our exposure to them rather than compete to attract them to or retain them in London.