Don't Blame Bonuses

THE SOURCE: “Bankers’ Bonuses and the Financial Crisis” by Ian Tonks, in Vox EU, Jan. 8, 2012.

Everyone has a theory about what caused the 2008 financial crisis. One idea that’s made the rounds is that the money flashed at bank executives in the form of salaries and bonuses encouraged them to take big risks that maximized short-term profits at the expense of long-term viability. The U.S. Financial Crisis Inquiry Commission asserted as much when it connected the crucial 2008 failure of the investment bank Lehman Brothers in part to an executive compensation scheme “that was based predominantly on short-term profits.” In the United Kingdom, the chairman of the Financial Services Authority linked “inappropriate incentive structures” with risk-taking and the financial turmoil of 2007–09.

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