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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

(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.

[Images (2)]

[Quotes (2)]

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)

In this Sept. 15, 2008 file photo, former Merrill Lynch executive John Thain speaks during a news conference in New York. (AP Photos/Bebeto Matthews, file)

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Bankers would prefer global disaster to a pay cut, and this obscene calculation needed to be taken into account. Public outrage was apparently nothing by comparison. - Thomas Frank, on why the bailouts didn't seriously limit executive compensation

Let the conservatives' hosannas turn to sneers. The market god has failed. - Thomas Frank

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Populist Outrage Makes Perfect Sense