As I am sure you have noticed, citizens and several government leaders have been upset, to put it mildly, at the recent proposals for large bonuses to be paid to executives in the financial sector. President Obama has now joined Gordon Brown and Nicolas Sarkozy in calling for some form of taxation on windfall checks to banking heads. Besides obvious populist appeals, what is the problem here? I thought that in a free market system merit should be rewarded. If the banks are making huge profits, those responsible for the profits should also profit.
Actually, there are three different reasons for the outcry. First, the very banks which are now making huge profits recently benefitted from taxpayer bailouts. Although most of the banks have already paid back their debts, there is something downright uncomfortable about the banks being bailed out by taxpayers, and then hauling in gross fortunes or even enormous stock options because we allowed them to stay in business.
Second, and this somewhat follows from the previous comment, there is the populist feeling that the bankers have made considerable money in spite of the fact that they made mistakes. In other words, we bailed them out when they failed on big risks. Now that they are making money, they will be encouraged to take risks in the future knowing they are too big to fail. The new head of the Swiss National Bank, Philippe Hildebrand, has made this point several times, but the bankers seem to be in another world.
Finally, what I think fundamentally galls the public is the growing disparity between the superrich and the average citizen. Statistics only confirm that the growing disparity between the top 1 per cent earnings and the middle class continues. With 10 per cent of the U.S. workforce officially unemployed, it is outrageous to see top executives receiving billions of dollars in bonuses.
The wealth of the wealthy has not trickled down to Main Street. And the hubris of the captains of industry before the Financial Inquiry Commission in their eternal denial of responsibility for the crisis further maddens the average citizen. President Obama knows that something must be done here, if only for political reasons.
The people of the United States continually reject discussions of any form of socialism. But, their sense of social justice is clearly behind some form of taxation to equalize pay in the private sector. Let the bankers beware, this could get nasty.
