Obama Leaves Bonuses Intact

U.S. President Barack Obama dodged the word “bonus” carefully in a major speech on the U.S. financial sector. This was a major disappointment for Wouter Bos and his European colleagues.

Barack Obama gave a speech on Monday, September 14, where he gave his views on the future of the U.S. financial sector. The date was of symbolic importance, because on September 14, 2008, Lehman Brothers went bankrupt.

But Bos must have watched Obama’s speech with great disappointment, because the subject of bonuses was not mentioned in what Obama was saying.


The fall of Lehman set up the credit crisis and subsequent recession. Bank directors around the world were in shock: the Americans dared to let a big bank like Lehman fall! The mutual trust disappeared like snow in the sun, and the credit crisis reached its peak.

One of the main causes, as Wouter Bos and most of his European colleagues know, is the bonus culture in the banking sector. Big bonuses drive bankers and traders to take big risks.


Obama’s speech was disappointing, because he only repeated his old views.

Banks should have more cash, the gaps in existing legislation should be repaired (he remained somewhat vague about the exact details) and U.S. regulations should be harmonized with those of other countries.

Also, a new supervisor should be appointed to watch out for “system risks,” a sort of Consumer Union for the financial sector with penalty options should be created and the federal government should have legal opportunities to take over financial institutions or to stop them.

Nothing New on the Bonus Front

Everything Obama said he had already previously proposed. Obama devoted exactly zero words to concrete measures to address the issue of bonuses. He primarily spoke about a moral appeal to the financial sector to learn from the mistakes of the past and not to think that now it is business as usual.

This does not bode well for the big meeting between the G20 countries – plus the Netherlands – in Pittsburgh, on Sunday, September 20.

Timothy Geithner, the U.S. Treasury Secretary, spoke during the last G20 meeting in London – Bos also attended – especially about focusing on strengthening the banks capital buffers. That, combined with enhanced monitoring of the ratio of equity over debt, should convince banks to operate more carefully.

Bos later complained that the bonus issue was “hardly discussed.”

Apart from that, the other G20 countries have other priorities. China, Russia, India and Brazil want more say in the International Monetary Fund and the World Bank. The entire discussion about bonuses is hardly an issue to them.

The Netherlands Stands Alone

So far, only a select club of European G20 members is in favor of putting the bonus issue on the agenda. Germany, France and Sweden – serving as President of the European Union and a G20 member – want action. Great Britain still has doubts. By introducing the Meuse Code, the Netherlands, so far, stands alone in the relatively harsh treatment of the bonus culture.

That is unfortunate. Leading economists on both sides of the Atlantic warn against a repeat of the credit crisis if the bonus culture is not dealt with firmly.

Public Enemies

Perhaps it will go wrong again before the American politicians understand the need to curb bonuses.

In the movie “Public Enemies,” about the notorious Depression bank robber John Dillinger in the 1930’s, there is a scene in which two Mafiosi call each other. They are worried; because of the violent acts committed by Dillinger, the U.S. government is considering giving the federal police force extensive powers.

Later, these fears proved true. Dillinger keeps going, the law is enforced and the bank robber is finally shot by the police.

Perhaps the film is a harbinger. The title is applicable. But hopefully such harsh measures are not necessary, and next week there will be a compromise at the G20 meeting.

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