January 24, 2011

How should then bank regulators be paid?

Sir, I fully agree with the wisdom of deferring the payment of bonuses to bankers in order to establish that the reasons for earning them were real and not purely a mirage “Paying bankers to be prudent” January 24.

That said the title seems to indicate you believe that the bankers, as a group, were imprudent. That fits poorly with the fact that what caused the current crisis was not excessive lending or investments in what was perceived as risky but excessive lending and investments in what was perceived as not risky.

If you really want to talk about imprudence then take a look at the financial regulators who indulging in the mother of all regulatory hubris assumed the role of risk-managers of the world, and if a triple-A rating was involved in the operation authorized the banks to leverage 62.5 to 1. The outrageous bank bonuses that we have seen are mostly the result of the outrageous profits resulting from these outrageously authorized bank leverages. I ask, how should then regulators be paid?