It's hypocritical plain and simple. Isn't all this cheap money designed to push banks to take on more risks? The Fed wants to slap banks on the wrist for paying its employees too much because that might encourage them to get reckless. But at the same time, the Fed is tempting banks to lapse into bad habits with what may be an overly accommodative monetary policy.
This is the equivalent of your doctor telling you that he wants to approve every meal you eat for the next few months so you don't gain a lot of weight -- while handing you coupons for McDonald's and Krispy Kreme on your way out of the office
The Fed, according to aWall Street Journalreport Friday, is said to be considering a plan that would allow regulators to closely monitor and even change the pay practices at financial firms in order to make sure that these companies aren't encouraging excessive risk-taking.
Considering that the mess that we find ourselves in is partly due to big banks and insurance firms failing to recognize the many subprime warning signs in order to satisfy Wall Street's myopic focus on quarterly profits, reining in bonuses and other compensation tied to stock performance may not sound like a bad idea.
But riddle me this Bat-readers: Isn't it more than a tad hypocritical for the Fed to be trying to tell banks that too much risk is a bad thing?
After all, the Fed has kept its key overnight bank lending rate near 0% since December and has shown no indication that it will raise this rate anytime soon.
And the Fed has pumped trillions of dollars into the financial system through a variety of programs in order to try and get banks to loan more again. The business of lending is inherently risky. So what kind of message is the Fed trying to send here?
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