Lots of people have opinions about bank profits and bonuses. But few people speak on the subject with the authority of Mohamed El-Erian.
El-Erian is a rock star of the financial world. He is CEO and Co-Chief Investment Officer of PIMCO, a firm with, oh, about $1 trillion in assets under management. El-Erian understands money.
Which is why I paid close attention this weekend when he gave a lecture to the monetary luminaries gathered for the annual meetings of the IMF and World bank. [I encourage you to read his lecture here.]
El-Erian made many points and I am still trying to digest his comments. But here is one that stands out: As part of the rescue of the world's financial circulatory system, governments guaranteed bank debt AND engineered lower interest rates. The result, El-Erian writes, were large profits.
He continues. . . "In the absence of a durable windfall taxation of the artificial surge in earnings, banks passed on part of their revenues in the form of compensation and bonuses. Understandably, this reignited anger toward institutions that were deemed by many politicians and citizens to be responsible for the global financial crisis."
As banks prepare to release their year-end bonus figures, it will be hard to dismiss his analysis. Did bankers earn their bonuses or were they handed to them by the government?
Source: http://www.pbs.org/nbr/blog/2010/10/mohamed_el-erian_on_the_artifi.html
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