Misallocation Of Funds

Obama and his team voiced outrage after the New York comptroller reported USD 18.4 billion in 2008 bonus payouts to the Wall Street bankers. The simple economic theory behind avoiding government intervention and spending is that such funds will be used inefficiently due to a lack of knowledge of the administrators and/or vested interests of people with the knowledge and influence to direct such funds toward themselves. In the current bailout the latter is being made all the more easy by the refusal of the Federal Reserves to disclose the recipients of the $2 trillion of emergency loans, despite Bloomberg news filing a suit under the Freedom of Information act in a desperate attempt to get this information. However, not even the Freedom of Information act can get the details out of Bernanke and Paulson who only managed to get congress to agree to this huge amount of money with guarantees of transparency. So it's no surprise the money is being pocketed by the former colleagues of Hank Paulson but what is a surprising is that Obama is surprised by this. He's obviously not a naive man. No matter though, it would be good to see him doing something beyond simply handing out a scolding to those concerned. Even if their criminal facilitators, messieurs Bernanke and Paulson are removed, the recipients of the money will keep on taking and lying until the cost of doing so outweighs the benefit and it will take a lot more than scolding.

Connected to all of this, and even more ridiculous, is the justification these banks give for having to pay these bonuses now they have been discovered. The claim is that it's important that such money is paid to prevent these talented bankers from walking out the door with all their expertise. One has to wonder at how people who managed to destroy a decade of savings belonging to their customers, the banks they work for and also deliver the world into the biggest financial disaster since the 1930s are considered to have a talent that is worth paying for. It would be better for any financial institution left standing to see that kind of talent walking out the door. In a sector where job levels are collapsing it's hard to believe that they'd be off anywhere else anyway, bonus or no bonus.