The Nobel Prize-winning economist Joseph Stiglitz has blamed the "unconscionable" system of generous bonuses paid to investment bankers for exacerbating the global credit crisis, reports The Independent.
“The system of compensation almost surely contributed in an important way to the crisis,” said Professor Stiglitz, a former chairman of the President's Council of Economic Advisers, under Bill Clinton.
“The system was designed to encourage risk taking – but it encouraged excessive risk taking. In effect, it paid them to gamble.
“When things turned out well, they walked away with huge bonuses. When things turn out badly – as now – they do not share in the losses.”
Despite the turmoil in the markets, bank failures and write-offs amounting to $120bn (£60.5bn), City bonuses will top £6bn this year, though that will be down on the £7.2bn estimated to have been paid out in 2007, which was itself a reduction on the peak of £8.8bn in 2006. This year's bonuses will be the lowest since 2003.
PAUL TUCKER, A BANK OF ENGLAND monetary policy committee member, moved last night to dampen speculation that the MPC was prepared to cut interest rates sharply, reports The Guardian.
In a speech to bankers, Tucker said the credit crunch was likely to slow the economy and push inflation down in the medium term, but that rising commodity prices and a falling pound would act to raise the inflation rate.
The MPC is required by the government to keep CPI (consumer price index) inflation as close as possible to 2%. It is now at 2.5% because of rising food and energy prices.
Tucker argued for British interest rate changes to be gradual. “Given this unusual combination of significant downside and upside risks to the medium-term inflation outlook, the broad policy strategy is to offset some but not all of the adverse shock to demand from tighter credit conditions,” he said.
ALITALIA’S BOARD WILL hold a crisis meeting later today after the collapse of takeover talks between Air France-KLM and Italian unions, which left the Italian flag carrier facing imminent bankruptcy, reports The Times.
Shares in Alitalia were suspended after the talks collapsed on Wednesday night, as the only chance for rescue of the state-owned airline expired just 11 days before a general election.
A cabinet meeting is also expected to discuss developments after Economy Minister Tommaso Padoa-Schioppa said the alternative to Air France-KLM was emergency administration.
The airline’s future has become a key issue in the run-up to the general election campaign and Romano Prodi, the outgoing Prime Minister, said unions had made “a grave mistake” in breaking off talks.
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Slow progress in improving diversity
Share purchase deal with assets of £28m
Came into effect in January
Three examples of compensation rule issues
Buying in baskets