The Third Path: Restoring Bank Confidence; Compensation

[In The Third Path, we examine both sides of an issue, and find a third (and better) solution]

The Great Depression taught us that the public needs to trust banks. When the '08 Recession hit, we knew we had to help the banks. We thought maybe reducing excessive executive pay would help.

The wise bank executives took a moment from snorting cocaine off the tits of prostitutes made of diamonds while riding on a yacht made of endangered rhinoceros tusk to helpfully point out that it would be folly to cut costs. If we were to reduce their paycheck by even one zero, the best bankers would be so insulted they would quit! We'd be left with the second-rate bankers. These second-rate bankers, you understand, are simply unable to do what the first-rate bankers do (that is, lose billions of dollars. Why, Jim over there worked every day in 2008 and only cost the economy $87 million. Ha!).

In the heat of the moment, we went down the second path. But let's think of a Third Path, now that things have gotten so crazy. (How crazy are they?) They're so crazy that the FDIC wants to borrow money from the banks. This is the equivalent of the fox asking the hen to come over and housesit, because the fox is thinking a vacation would be nice but gets a lot of mail and needs his plants watered. Well, time to strike while the iron is crazy... here's the two-point Bentley Plan.

1. Let banks pay executives as much as they will take.
2. When any bank goes belly-up, their executives get punished according to how much money they got paid in the 12 months that they allowed the bank to fail, according to this schedule:
• <$500,000: Anyone who invested money in the bank can give them a wet willy
• $500,000-$1 million: Need to spend 5 minutes in a small room with an angry porcupine
• $1-3 million: Knees broken. (At this level, the executive ought to appreciate the irony that this is the punishment that befalls the smallest of debtors: the loan shark customer)
• $3-10 million: A pound of flesh is taken. (At this level, the sophisticated executive simply must appreciate the Merchant of Venice allusion)
• $10-20 million: Shot in the head. In front of everyone they have ever loved.
• >$20 million: Shot in the head. In front of everyone they have ever loved. While wearing a clown suit.

This is a classic example of "aligning incentives". If you, as a depositor, hear that your bank president was paid $34 million last year, you can be thrilled that your banks is still healthy. Because, as the saying goes, "who wants to be killed while wearing a clown suit?"