In Defense of Bankers

The same point goes for bonuses and salaries. On the larger point, that the gap between executive pay and the pay of working people is a moral scandal, President Obama is surely correct. Financial firms have failed in part because they rewarded people in ways that encouraged them to serve their own interests at the expense of shareholders. Moreover, grotesque rewards for banking jobs are themselves an illustration of how the market can misallocate resources, sending too many intelligent people away from more economically productive (and stimulating and fulfilling) pursuits. But even under a different system, we will need an energetic and creative financial class. Shooting the wounded now won't help us get one back.

The current peasant revolt blurs indignation at the underlying inequities with the search for culprits in the catastrophe. Let's say you work for a bank in the more prosaic areas of consumer banking, corporate underwriting or trading. You worked hard, managed risk effectively and earned money for your firm—which was wiped out by losses in esoteric forms of finance. It may be reasonable to deny you a bonus, but it's malicious to suggest you deserve a scarlet letter. Government-mandated salary caps risk institutionalizing failure; creating new, perverse incentives; and deterring talent when it is most needed. A CEO who can turn around Citigroup—which could save tens of billions in taxpayer funds—is worth a lot more than $500,000.

If punishing all for the sins of a few is unfair, it is also likely to prove counter-productive. The economy will grow again only with a revival of what Keynes called the "animal spirits" of financiers and capitalists. Bankers have to be willing to lend money and take risks again. If we want them back in the game, we'd best not humiliate them at the supermarket.

Weisberg is editor in chief of the Slate Group and author of “The Bush Tragedy.” A version of this column also appears on Slate.com.

© 2009