Barney Frank would like to see a moratorium on all Wall Street bonuses, until the banks figure out how to better mete out the money. In his opinion, they don’t work. They’re supposed to reward those that take risks and succeed through generous payouts. But even those that gamble and lose still get their payouts.
So what’s his logical solution to this problem? Cancel every single bonus, until they figure out a system to discourage risk. Aren’t the banks supposed to be doling out the bonuses based on merit, already? Isn’t that a system? Perhaps Frank doesn’t trust them to manage themselves. Thank goodness he approved giving those same banks $700 billion dollars.
Bloomberg: House Financial Services Committee Chairman Barney Frank said there should be a freeze on Wall Street bonuses until companies find a way to keep the year-end payouts from encouraging excessive risk-taking.
“There should be a moratorium on bonuses,” Frank, a Massachusetts Democrat, told reporters yesterday in Washington. “They have a negative incentive effect because they are the ones that say if you take a risk and it pays off you get a big bonus,” and if it causes losses “you don’t lose anything.”
The five biggest U.S. securities firms paid out a record $39 billion in bonuses last year even as the credit crisis began to affect investments in mortgage securities and leveraged loans. One of the firms, Lehman Brothers Holdings Inc., went bankrupt this year and two others, Merrill Lynch & Co. and Bear Stearns Cos., were rescued in emergency sales. The two largest firms, Goldman Sachs Group Inc. and Morgan Stanley, became bank holding companies and are receiving $10 billion each of government money.
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