Adding to yesterday’s comments, banks are run by Pay Cartels. They buy the myth of superhero financial status, despite the fact that they consistently destroy value at banks. Any major bank ownership group consists of two classes of owners. Those that were acquired and had shares of the new institution exchanged for shares of their purchased institution. And new owners who trade the stock. The legacy owners consistently get the shaft. This is because of the pay cartels that rule decision making, taking excessive risk for excessive pay. The Federal Reserve notes that pay practices have not changed enough. I can tell you that from what I can tell, the pay philosophy has not changed at all.
The Federal Reserve has completed an initial review of compensation policies at 28 large banks it oversees and has been giving them confidential feedback on areas where they must change. On Monday, the Fed and other federal regulators issued final guidelines, stressing the need for policies that do not give executives, traders, and other bank employees incentives to make overly risky investments that might earn them huge bonuses in the short run while leaving the bank exposed to losses in the long term.
Good work there on the part of the Fed. Real cutting edge stuff.
At least they are beginning to address the problem.