EU Hedge Fund Manager Bonus Caps May Actually Make Things Worse.

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Anyone who has read us for very long knows that we give bankers a hard time, often. The financial industry, especially the big banks, is rife with crony capitalism. The big banks are arguably the biggest crony capitalists of them all, and the corruption which comes with a Wall Street/Washington DC axis must be dealt with. It is vital for the future of our economy. Ending the Fed would be a good start.

But when politicians (probably with the best of intentions—maybe that’s a bit too kind) make rash decisions in an effort to curtail what they see as the prime driver of financial corruption, we’ll say when we think they are being unwise.

The issue is with the money and system of central banks the world labors under. Restricting bonuses etc, like they are in Europe is just squishing a water balloon. It does nothing to solve the problem and potentially makes the system that much more vulnerable.

(From Bloomberg)

“We will see many firms put up fixed pay by 50 percent and maybe they will put them up by 100 percent because they’re worried about losing people,” said Carl Sjostrom, director of executive reward for Europe at Hay Group, a Philadelphia-based management consulting firm. “The worry is that, systemically, this will make the firms less stable because they’re less able to adjust in bad times.”

European asset-management firms are concerned the proposal, which may affect two-thirds of senior fund managers, may cause a bidding war for their best-performing employees, increasing fixed costs and making the industry more vulnerable to market downturns. European Union lawmakers supporting the cap say their proposals will rein in risk-taking and better align the interests of fund managers with investors.

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