Monday, October 19, 2009

Bank on indiscretion

The Economist writes a good summary of opinion on the banks profits and bonuses, in the wake of huge taxpayer bailouts. I'd say that the last paragraph is a bit off, though:
One doesn't want to get in the habit of seizing profits wholesale. On the other hand, the banks clearly feel no obligation to help pay for the bail-out that kept them afloat, no obligation toward the economy as a whole, and no need to mask their behaviour with even the barest of public relations fig leaves. It is in the interest of everyone involved for policymakers to do something to rein the banks in and publicly rebuke them for their disregard, lest populist rage grow out of hand, leading to ill-considered measures that may ultimately impair the important economic functions financial markets are supposed to serve. If things continue on as they are now, the situation will not end well.

Banks are acting just as if they own the government. It's not in everyone's interest to rein the banks in, though. At least not in the short term. Those who receive large donations from the financial industry do not have a good incentive to rein that industry in. The question is, will legislators be able to convince their wealthy funders that they need to make a show of making them behave to stave off real reform?
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