Bailed Out Executives Will Repeat Mistakes if We Keep Rewarding Their Failures

by: Michael Panzner

Although I disagree with economists about many things, I'm a big believer when it comes to incentive theories. Simply put, when people are rewarded in some way for doing one thing instead of another, they will tend to oblige.

That is one reason why, for example, Soviet factories were famous for producing large stockpiles of substandard goods that nobody really wanted. Instead of responding to market forces, workers and managers were being rewarded on the basis of how well they met state-mandated production targets.

In that vein, given that many of those who helped bring about the worst financial crisis since the Great Depression are still in charge -- read: being rewarded for earlier bad behavior -- as detailed in the following Associated Press report, "AP IMPACT: No Pink Slips for Bailed-Out Bank Execs," logic suggests they will carry on making the same mistakes as before.

They've been bailed out, but not kicked out.

At banks that are receiving federal bailout money nearly nine out of every 10 of the most senior executives from 2006 are still on the job, according to an Associated Press analysis of regulatory and company documents.

The AP's review reveals one of the ironies of the bank bailout: The same executives who were at the controls as the banking system nearly collapsed are the ones the government is counting on to help save it.

Even top executives whose banks made such risky loans they imperiled the economy have been largely spared any threat to their jobs, as Washington pumped billions in taxpayer money into the companies. Less fortunate are more than 100,000 bank employees laid off during a two-year stretch when industry unemployment nearly tripled, bank stocks plummeted and credit dried up.

"The same people at the top are still there, the same people who made the decisions causing a lot of our financial crisis," said Rebecca Trevino of Louisville, Ky., a mother of three who was laid off from her job as a Bank of America training coordinator in October. "But that's what tends to happen in leadership. The people at the top, there's always some other place to lay blame."