Populist Outrage Makes Perfect Sense

Pay system at the heart of this whole mess
By Kevin Spak,  Newser Staff
Posted Feb 4, 2009 11:44 AM CST
A protester holds a sign as he marches past the New York Stock Exchange during a rally against the Wall Street bailouts, Thursday, Sept. 25, 2008 in New York.   (AP Photo/Mary Altaffer)
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(Newser) – All it takes is $18.4 billion, and suddenly the mob is restless. Once, we were content to brush Wall Street’s gross inequities under the rug, but “we’re populists of a more fiery sort now,” writes Thomas Frank in the Wall Street Journal, “the old bromides no longer palliate.” And the outrage isn’t just, as David Brooks joked yesterday, a manifestation of the “resentments” of middle-class Washington liberals—it’s entirely justified.

The frenzied crowd realizes the truth: “Wall Street’s compensation system isn’t just aesthetically displeasing to liberal snobs. It is the very heart of the problem.” The pay-for-performance model gives executives incentives to take crazy risks, hide losses, and, in the words of one economics professor, “loot the place through seemingly normal corporate mechanisms.” Banks must overhaul the bonus system; it's good PR, and it might just save them.