The US Federal Reserve is contemplating a surprise move that could effectively make it the "bonus tzar" for more than 5,000 banks. In a major development in the ongoing controversy over bankers' pay, the central bank is considering adopting new rules that would give it sweeping powers over remuneration decisions at the banks it regulates. The news comes just days before the start of the G20 summit in Pittsburgh, at which European leaders are to push for binding rules for bankers' bonuses. However, rather than setting specific limits, a policy paper circulating within the US central bank suggests that the Fed should scrutinize whether the broad structure of compensation is likely to lead to excessive risks being taken. – Telegraph
Dominant Social Theme: It's the bankers' fault.
Free-Market Analysis: Do the wise men (and women) at the Fed really believe, at this point in history, that the reason for excessive risk taking in the Western world has to do with how much bankers are paid? Wait … apparently they do.
Despite a new book by Congressman Ron Paul on doing away with the Fed, despite literally millions of pages on the Internet explaining why central bankers end up destroying the economy over time when they attempt to fix the price of money; despite the iron rules of economics (that price fixing of money or anything else is eventually intensely destructive); despite this and much, much more, those in charge of bank policy of the Fed (and we presume elsewhere in government) have decided that the real reason that modern economies go to ruin is because of skewed industry payouts.
What about the risk-taking of major Western companies? When the economy is booming, large corporations take enormous risks and those in charge tend to operate with significant leverage. Those in charge also take large bonuses. Why not extend price controls to these individuals as well?
Back during the Depression, Franklin Delano Roosevelt came up with an extraordinarily broad catalogue of prices that covered much that businesses and individuals could buy or sell. The plan was eventually defeated in the Supreme Court, which Roosevelt sought to stack. Now again as a result of a financial crisis, price controls are being aggressively contemplated. Thus it is that Federal Reserve, whose price-fixing helped poison the world's financial system, now seeks to fix prices of its appendages. Here's some more from the Telegraph article:
Under the proposals, major banks such as Goldman Sachs or Morgan Stanley, would be required to hand over detailed compensation plans to the Fed, which would then be able to demand changes and monitor the banks to make sure they adhere to their promises.
The thousands of smaller banks which also come under the Fed's auspices would, however, receive guidance based on broad principles to be followed when setting pay and bonuses.
The news comes as Vikram Pandit, Citigroup chief executive, admitted that he believes the $100m (£61.5m) commodities trader Andrew Hall is owed for 2008 is too much in light of the US Treasury's support of the bank. Mr. Pandit, speaking at a debate in New York, also said that Mr. Hall's Phibro trading unit will be "restructured and rationalized".
Former Merrill Lynch chief executive John Thain has also apologized for spending $1.2m of the bank's money on refurbishing his office last year, money he has since repaid. Mr. Thain, no stranger to bonus controversies, said: "That was a mistake, and I'm sorry that I did that. If I had that to do over again, I'd furnish it in Ikea."
This is of course the level to which the discussion will degenerate as these plans move ahead. Who on earth believes that if the head honcho of Merrill Lynch forewent office decorations that the world economy would be even a wit less troubled?
The trouble is not bank bonuses. It is overprinting of money by central banks, which causes first a boom and then a bust. The cycle happens over and over, with ever-grimmer consequences. But instead of granting that this is occurring, the current Masters of the Universe propose that bank bonuses ought to be supervised.
The sort of bait-and-switch practiced by those who create central banking policy is disturbing, to put it mildly. Before the Internet, there was very little about the real consequences of central banks. But that information is readily available now. Those who propose these sorts of weird Fed policies are not the great interpreters of arcane monetary arts. They increasingly appear as an isolated island of elitists refusing to recognize what millions have come to understand – that the institution does not do what it is intended to do and never will. Rather than discussing the imposition of salary caps, these leaders of the Western financial world ought to debating how to move to a market-based money standard, preferably gold, silver or both.