In his latest blog post, Herb Greenberg asks whether Wall Street should hand over its bonuses to victims of the subprime mess.

Of course, it's sort of academic -- kind of like asking whether Michael Vick should donate money to the ASPCA. Fat chance. But anyway, it's an interesting philosophical question, so I'll give it a shot.

The idea that Wall Street executives should give some of their bonus money to "victims" of the subprime mess seems to be based on a lack of understanding of what actually happened. The housing bubble and increase in subprime lending and decline in the quality of the loans was a happy conspiracy (for awhile anyway) between lenders, Washington, and people who were eager to own their first homes.
Last month, I wrote about how Washington's bipartisan fetish for increased homeownership played a huge, and largely ignored, role in driving the growth of subprime lending. The predatory and unethical lending practices of many of these companies aside, we have to keep in mind that the outcome of this mess was an increase in homeownership to historic highs. The problem was that a lot of the people who ended up getting homes probably shouldn't have, and those loans are in trouble now.

The biggest losers have been the banks that ended up owning these loans through a complicated web of collateralized debt obligations. If executives who presided over policies that led to billions in losses and massive declines in the market value of their companies should return their bonus money to anyone, it should be the people they worked for: the shareholders.

But here's a better question: What does it say about corporate governance in America that we are even having to discuss the bonuses being received by executives who presided over the the destruction of corporate value?

The subprime lenders that broke the law and ripped off consumers should definitely have to pay fines and restitution. But why would Wall Street executives who lost their companies billions on bad loans pay their bonuses to the debtors on the bad loans?

Admittedly, this idea of "reparations" has a certain intuitive appeal -- kind of like using leaches to suck out disease. But ultimately, there are much better ways to hold people accountable for the subprime fiasco.