We've got to congratulate Britain's prime minister, Gordon Brown, for his tough stand on bank bonuses. He plans to make some bank bonuses illegal, according to a Bloomberg article.
Regulators will be given "powers if necessary to tear up contracts that would result in payments being made that would cause instability," according to the Sunday Telegraph. Not only that, but the paper reports that City Minister Paul Myners told Sky News that "if those contracts are written, they will be voided under law."
The goal here is to transform regulators of the financial sector and make banks, not the taxpayer, liable for the failings, Brown stated.
These proposals are in sharp contrast to the milktoast approach being tossed about in the U.S. House and Senate. No one is willing to step up to the plate and make some definite, concrete changes regarding bank bonuses. In fact, bank bonuses will reach record levels in some firms.
One constructive proposal is to break up large banks to reduce their risk to the economy. If there are any critics of this approach, let them recall the breakup of Standard Oil and AT&T into the baby bells. We have precedents for breaking up large conglomerates that pose a threat to the economy and have pricing policies that affect consumers.
Should U.S. regulators be given similar powers to those in the UK?
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