Primer on Wall Street Pay

Doug Elliott of Brookings has written a primer on wall street compensation practices. A nice quick read. Though I think he underplays the role of moral hazard and government’s policy to protect too big to fail. The risks were taken because it led to high compensation and the belief that if it blows up, government would bail them out.

Another problem is the feeling that if I don’t pay the talent would go to other finance industries. Let them go!!

There was and is a feeling that there is some great skill in doing all that jazzy finance. The real skill lies in making finance efficient and low cost for everybody. With these kinds of salaries and fees, we are saddled with a highly inefficient financial system.

The highly paid executives call their country/region financial system efficient and continue to make so much money. Both are inconsistent. If markets are efficient, you cannot be making that kind of money. One could understand if few people made that kind of money. All cannot. There is something wrong with the system and is getting dysfunctional as Paul Woolley calls it. Or wall street culture that only pays itself as Bogle has been saying for so long.

The whole financial sector usually overpays for fancy activities. In this sector a fresher is paid a huge salary and it could be that he does not even understand the difference between assets and liabilities (This is no joke as have met a few).

Then there are others who are highly underpaid. For instance, I have always wondered. Who is doing a more rigorous job?  Someone sitting in a small town in India trying to run a bank branch enabling financial inclusion or someone sitting in a plush office in Mumbai doing Treasury work. Given the challenges of financial inclusion India faces, the former should be highly rewarded as well. I think one big missing ingredient for lack of financial inclusion is the poor incentives. All want to rush to Mumbai/Delhi and enjoy better incentives.

Anyways, before this crisis no one could have imagined primers would be written on these topics. It has become a central issue now. And the way wall street is behaving now as crisis has eased, calls for a lot of introspection. Subbarao gave a speech titled ethics in finance. One can simply say, is there any?

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3 Responses to “Primer on Wall Street Pay”

  1. Primer on Wall Street Pay « Mostly Economics Economic Finance news Says:

    […] Here is the original post:  Primer on Wall Street Pay « Mostly Economics […]

  2. Primer on Wall Street Pay « Mostly Economics Information Says:

    […] Primer on Wall Street Pay « Mostly Economics Tags: agrawal-doug, denied-it-apparently, elliott, global-financial, moral-hazard, ntroducing-the-fuel, primary-cause, role, the-government, wall-street, you-want Project Syndicate – Is Bankers' Pay Really the Root of Financial Evil?Games N Gadgets: Get ready to pay for your HULU TV fixOf course drivers will pay. And everyone else, whoever wins …New York Times announces pay wallPoll: Less Pay for More Praise? | Sales Machine | BNETComscore Blackmail: Pay Us $10000 Or We'll Keep Under-Reporting …The question Geithner can't escape: Why pay off AIG's partners …Oliver Dudok van Heel on Local Currencies, Transition and the …How Can the Doctor Aid the Caregiver? – The New Old Age Blog …Wash. court: Doctor's pot OK doesn't preclude search – Spokesman … View the Contact Powered by Information […]

  3. K R Vaikuntam Says:

    Robert Samuelson makes the important point that those involved in managing production get paid less than those involved in managing wealth. American GDP is say 15 trilion but the cumulative wealth is – dont remember the figure – but say 50 trillion. Most people are part of the 15 trillion but those who have some hand in the management of the 50 trillion make more money. The number is not small, there are quite a lot of them. Even the sweeper in the goldsmith’s shop makes more money from the dust than the manager of the ironsmith’s shop next door.

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