Arguments for relaxing bankers’ bonuses are bankrupt

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As the Guardian has reported:

The UK's financial regulators have formally scrapped the banker bonus cap, removing one of the key reforms introduced by the EU in the wake of the 2008 financial crisis.

The Bank of England and Financial Conduct Authority (FCA) confirmed that the cap would disappear on 31 October, nearly a year after Liz Truss's short-lived government first revealed plans to ditch the rules in a bid to attract more investment and shed EU rules post-Brexit.

Three thoughts. First, Liz Truss' friends in the Institute of Economic Affairs are still causing harm, a year after being given access to power for just a few weeks. The need to be vigilant continues.

Second, there is no reason for this beyond a pandering to the greed of bankers and the whims of those researchers they fund or are in cahoots with.  Banker's bonuses should be properly described as economic rents - which are the sums extracted by those with economic power in excess of the return that a genuinely free market would pay. So, let's not pretend that there is economically virtuous about this. These ‘rewards' are exploitative.

Third, nor should we on any way think that these payments encourage entrepreneurship. That requires that a person put their capital at risk. The bankers being paid these sums are employees using other people's capital, often recklessly, and all the time to participate in something little better than a casino to no overall gain to society.

Arguments for relaxing bankers' bonuses are bankrupt. But the Tories have done it anyway. They will probably be trumpeting it as a Brexit win next.

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