Robert Frank may have answered the question of the Wall Street bonus system, with all its outrageous benefits in all their ugly glory. An old professor once told me that fanaticism hangs at the extremes of any ideation. I also remember the happenstance where I could not convince a head of an economic department that statistical data will always become skewed at extreme range of data points; the reason Why mathematicians often get rid of the Highs and Lows of statistical datum. Businesses need to pay their labor on the basis of the Mean of productivity, not the Average; all due to potential erratic performance from their best Help. Wall Street insists that Wages and Bonuses be guided by individual performance, and statistically, these firms are at much greater threat of high loss of productivity; a major factor behind the failure seen in this arena. It is truly appalling when these firms insist on Government protection of their structural soundness. I once proposed that all Wall Street labor who averaged 3 years of higher than the Mean compensation should be forced to endure 1 year of unpaid leave until they approached the Mean of Income of their fellow employees; all this to demand the creation of universal Contacts and associations, buttressing the Mean productivity of all Workers, while limiting the Gain of the few outstanding Earners. This is not something which was well-received by business personnel.
Read this Review, and ask whether ordinary bankers compile the necessary information to set boundaries on their Credit extension. Loans bring Interest which are Profits to bankers, without their ability to estimate the soundness of their extension policies, except to try them and witness whether they fail. The free market is not a self-correcting beauty in operation, needing almost a universal firm failure to even begin to function. This may be construed as an inefficient approach in evaluation if either Employer, Employee, or Investor in the enterprise regulated. A Doctor might decide to forestall blood flow prior to triage, simply to forestall Patient complaints. Emergency measures call for intervention, and the only means the Public may have to achieve intervention may be regulation. We are in an actual discussion of Who should pay for Emergency services, and How those services should be extended. It might not be profitable to the Public to listen to the Patients, who have a tendency to show up at the Emergency entrance.
Read this Piece from Rajiv Sethi, and ask if self-regulation can be effective. Can self-regulation, or any regulation, be sound if the performance criteria alters in mid-stride? What I mean states that Reserve requirements based upon previous Profits performance, itself produced by an escalator ride of past performance, will always fail at some point; producing an elevator ride to the bottom. It might function well, if there is only short distance between floors, but would you ride an unbroken escalator to the top of a skyscraper; something which the anti-regulators would propose to Us as adequate regulation of the markets. I am not an expert at regulation, but suggest that real enhancement criteria must be followed, or We will be destined to continuous interruption of productivity at great Cost. lgl