The Bonus System
The news that bailed out bankers have been awarding themselves large bonuses while the rest of the economy suffers irks more than a few. Of course, it is in their contracts, there is nothing we can do.
Looking a little closer into the bonus system we find one of the core reasons behind the recent economic collapse. Bankers get bonuses for successfully investing our money. That means, they make a profit and get a cut, right?
First, why should employees managing other people's money get a cut of what should be shareholder gain? It is their job to deal, not their right to take. Nuff said.
Second, and more importantly, they do not take a hit when they make a loss. What this means then, is that it is in their interest, not ours, to make more riskier bets. It is no different to sending an employee off to the casino with a wad of company money (not theirs) and telling them they get, say 1% of the winnings, but lose nothing if they lose. The employee will be very happy because he can only win, and it is not his money that he is betting. The investor has no clue and trusts the employee and the overly regulated system.
This is what the banks were and still are doing. This casino mentality caused the securitisation (converting a product into shares) of everything. Bankers converted anything they could into securities in a mad attempt to find fancy financial products to sell in the boom. The $hite really hit the fan once they latched onto the securitization of mortgages (compounded by sub-prime). Think about it - they are converting a loan, which is not money but a debt, which does not exist because it is by definition a loan which has not yet been repaid, yes, converting it into a security, a share, to be bought and sold on the stock market, with perceived value. And worse, said load was given to people of limited means (sub-prime) who will stop paying on a whim, not to mention what happens when faced by rising prices, a lost job, increasing interest rates, and so on. And incredibly, most investment bankers who bought such were ignorant as to the nature of what they were buying. Incredible!
More Regulation?
This is not a time for demanding more regulation - we have too many regulations. The fact that we have so many causes investors to overly trust the system. With less regulation, investors would need to take a more professional approach and be more responsible for what they invest in. Less regulation would lead to wiser choices. The free market works.
What the banking system needs in not more regulation but sensible change. Some bankers need to be sent to prison - they have abused the trust they have been given for their own personal gain. What they have been doing is nothing more than gambling, or plain ole bank robbery.