Income Inequality

In light of the current financial markets crisis, that is.

As Tyler Cowen puts it:

And, if you’re more worried about the growth in income inequality that comes from gains at the top, well, the last few months have remedied that just a bit.

Or in the words of The Economist:

Bear’s executives have lost billions. At $2 a share, the 5% stake held by Jimmy Cayne, the chairman and former chief executive, worth $1.2 billion at the shares’ peak last year, is now valued at $11m (less than half of what Mr Cayne recently paid—mortgage-free, naturally—for an apartment in the Plaza Hotel). There are reports of managers putting holiday homes on the market. BFdesigns, which tarts up such dwellings before they are sold, has charitably offered to cut its fees for any Bear employees.

So yeah – I wanna see the shiny headlines that illustrate how investment bankers this year had income of, well, minus-god-knows-how-many-millions. But then again – that really doesn’t make for great headlines, now does it? Much better to ignore how salaries are determined in the first place and just make preposterous statements about huge dollar sums ignoring those annoying details that might complicate the matter a little. Sure they get paid good money – usually. But this just highlights the whole principal agent problem – you really can’t claim that what’s happening now is in the interest of these people and they are certainly being punished for it. Both shareholders as well as employees are hurting – in the case of Bear Stearns they’re hurting real bad, too.


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