Bank Bonuses and Broader Implications

I’d like to make a brief comment about the “bank bonus” story that came out a few days ago.  Here is one article on it, titled “Bank Bonus Tab: $33 Billion” from The Wall Street Journal on 7-31-09:

Needless to say, it seems outrageous that such bonuses, in said amounts, were paid out so broadly in 2008 given the overall situation – especially for those banks that would have otherwise collapsed absent tremendous levels of government intervention.  Of course, there may be some mitigating factors or legitimate reasons for at least some of these bonuses, but I have yet to read or hear of any.

It seems as if this bonus issue should have been adequately addressed before any intervention funds were allotted to the various banks.

Overall, I think the two major issues concerning these bonuses are Fairness, as well as the impact on Moral Hazard.

As I have alluded to previously (on a 6/21/09 post) the Moral Hazard environment that has been created and perpetuated over the last few years is truly epic and mind-boggling.  It appears as if this Moral Hazard situation has only been exacerbated with the Bank Bailouts that have occurred during The Financial Crisis.

Moral Hazard implications are very important, even if (seemingly) few people really want to think about them.  Moral Hazard has many types of direct and indirect effects ranging from our potential National Debt to issues regarding Sustainable Prosperity to issues concerning Fiduciary Responsibility.  Part of the challenge, and importance, of crafting appropriate national policy is to consider, in totality, how the economic environment will be impacted by various government actions.  To ignore, or downplay, Moral Hazard implications is a serious mistake.

SPX at 1002.63 as this post is written