There is definitely a problem with how Wall Street compensates its executives. While most investors want a stable and reliable return on investment over the long term, those in charge of administering this money are encouraged to take high risks for short-term gain and receive multimillion dollar bonuses.
The Obama administration wants to cut compensation and have bonuses paid out over time, at least at the large Wall Street firms that received taxpayer bailout dollars. This proposal brings a degree of satisfaction to the public who has watched in anger as the crisis spreads across the country while the financial industry returns to its bad old habits. Wall Street seems to feel the worst is over and has returned to the very business as usual practices that led to the huge losses for investors in the first place.
In reality, while the compensation a firm pays is hard to regulate in a free market, its activities can be effectively monitored. The deregulation philosophy of the last several decades let our guard down, removed the separations between financial activities, and put oversight into the hands of ideologues who didn’t believe in that function. The financial industry took advantage of this lax period to experiment with exotic investments that few could explain must less understand.
Comprehensive reform of the financial system is necessary in order to avoid repeating the past. Federal Reserve chief, Ben Bernanke, has called for three tiers of reform: major structural changes enacted by Congress; new regulations issued by the Fed; and, new practices and procedures in the oversight by bank supervisors. He has also proposed the establishment of a new consumer protection regulator. These steps are the minimum basis for changes that must take place on Wall Street.
The debate over compensation has its value but efforts must go far beyond this. Those responsible for the money of others should be regulated. The financial industry has consolidated even further as a result of the crisis, putting investors’ money in even fewer hands. Our economic stability depends on a new regulatory framework.
There is definitely a problem with how Wall Street compensates its executives. While most investors want a stable and reliable return on investment over the long term, those in charge of administering this money are encouraged to take high risks for short-term gain and receive multimillion dollar bonuses.
The Obama administration wants to cut compensation and have bonuses paid out over time, at least at the large Wall Street firms that received taxpayer bailout dollars. This proposal brings a degree of satisfaction to the public who has watched in anger as the crisis spreads across the country while the financial industry returns to its bad old habits. Wall Street seems to feel the worst is over and has returned to the very business as usual practices that led to the huge losses for investors in the first place.
In reality, while the compensation a firm pays is hard to regulate in a free market, its activities can be effectively monitored. The deregulation philosophy of the last several decades let our guard down, removed the separations between financial activities, and put oversight into the hands of ideologues who didn’t believe in that function. The financial industry took advantage of this lax period to experiment with exotic investments that few could explain must less understand.
Comprehensive reform of the financial system is necessary in order to avoid repeating the past. Federal Reserve chief, Ben Bernanke, has called for three tiers of reform: major structural changes enacted by Congress; new regulations issued by the Fed; and, new practices and procedures in the oversight by bank supervisors. He has also proposed the establishment of a new consumer protection regulator. These steps are the minimum basis for changes that must take place on Wall Street.
