In Simon Jonson’s excellent Powerpoint presentation “Economic Recovery and the Coming Financial Crisis,” he argues that financial sector compensation and flawed incentives were integral to causing the event, and that so far, the crisis has solved nothing (“the surviving oligarchs are stronger”). He copied a chart from the Wall Street Journal showing how distorted financial sector pay is to the rest of the economy in the long view (see below). The Wall Street Journal reports tonight that 2009 bonuses will be at record levels, exceeding 2007.
In other words, the people, companies and distorted incentive systems that managed to drive the financial system to the brink of collapse have not changed at all. Extraordinary costs have been borne by our society (and our children), yet it is business as usual on Wall Street.
The Greenspan put has morphed into the larger and more expansive and more morally hazardous Bernanke put, the people who did not see the crisis are selling hard that all the “toxic” problems have been remediated, and
Johnson suggests that in the big picture it will end badly. Who knows, but the compensation issue is not going to go down well with a weary public.
