by Gerald Epstein
Wall Street warns that limits on executive pay may cause a brain-drain from mega banks. (Photo: Reuters)
The Financial Times reports that U.S. bankers are "enraged" about the pay limitations of the new U.S. recovery plan. Numerous bankers warn that these pay caps will lead to a "brain drain": high paid bankers will flee elsewhere in search of the top dollar.
Should we be quaking in our boots about this threatened drain of bankers' brains?
I don't think so.
For starters, this may simply be an idle threat. There are a lot of questions about how many bankers will really be affected by these pay limitations. And even if they do want to leave, the bankers may not be able to make good on their threat. Anti-banker anger is on the rise just about everywhere and pay caps are being imposed in many of the world's financial centers including London and Paris, and are likely to be instituted elsewhere as well. Bankers in other financial centers simply do not receive the huge salaries and bonuses received by "top" U.S. bankers in recent years. In addition, bankers in other countries, including high priced ones, are losing their jobs. So, where are these angry U.S. bankers going to go?
One answer is they will go to the unregulated "shadow" banking sector: hedge funds, private equity firms and the like. Of course, these are also under enormous stress. And if the Obama administration is going to prevent another crisis down the road, it will have to start seriously regulating this "shadow" system, including their compensation schemes.
But, let's take bankers at their word. Let's say many of the "best minds in banking" will go elsewhere if serious pay restrictions are imposed. The question we have to ask is: so what? The answer is: this may be a blessing in not that much of a disguise.
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