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The Fed vs. Wall Street bonuses
Is the nascent Federal Reserve plan to reform financial-industry pay good policy or just populist posturing?
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hen it comes to reforming Wall Street pay, said Paul Krugman in The New York Times, President Obama needs to “get over” his “visceral reluctance to engage in anything that resembles populist rhetoric.” Backing emerging Federal Reserve plans to make banks rein in “obscene bonuses” and link pay to long-term gains is good politics—everyone’s angry at bankers—but also good economics: It’s the “single best thing we can do to prevent another financial crisis.”

Any “attack on bank bonuses” is sure to be a “reliable crowd-pleaser,” said Christopher Swann in Reuters, but there are much better ways to “control risk-taking” than this “populist flourish” from the Fed. Making banks keep much larger capital reserves, for example, would curb both risk-taking and overall bank pay. Besides, the “notoriously spineless” Fed is no match for the banks’ “armies of lawyers dedicated to gaming the regulatory system.”

“The big issue isn’t that bankers get paid too much,” anyway, said Kevin Drum in Mother Jones. It’s that “banks make too much money by engaging in risky practices.” If the Fed, say, pushed the large banks out of the securities-trading business, they would be “forced to make money by providing actual useful services to the rest of the business community,” and the pay issue would “sort itself out.”

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