A Great Idea From Nassim Taleb: End Banker Bonuses
Posted Nov 08 2011 12:00am
This is the best response to the 2008 financial crisis I have seen: An op-ed by Nassim Taleb that says end banker bonuses. They encourage risk-taking with other people’s money.
Separation of risk-taking from consequences (you gamble, if you lose, other people pay) is an ancient problem. The Chinese government would be wise to take a page from Hammurabi’s code, which Taleb quotes:
If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.
During the Sichuan earthquake, hundreds of schoolchildren died when their schools collapsed. Surrounding buildings did not collapse. It turned out the schools were badly built. No builder was punished, much less put to death.
At the end of his op-ed, Taleb puts it very clearly and simply: “bonuses and bailouts should never mix“.
This is the best response to the 2008 financial crisis I have seen: An op-ed by Nassim Taleb that says end banker bonuses. They encourage risk-taking with other people’s money.
Separation of risk-taking from consequences (you gamble, if you lose, other people pay) is an ancient problem. The Chinese government would be wise to take a page from Hammurabi’s code, which Taleb quotes:
If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.During the Sichuan earthquake, hundreds of schoolchildren died when their schools collapsed. Surrounding buildings did not collapse. It turned out the schools were badly built. No builder was punished, much less put to death.
At the end of his op-ed, Taleb puts it very clearly and simply: “bonuses and bailouts should never mix“.
Thanks to Dave Lull.