Banker Bull Sea Elephants?

Forget the "piggies at the trough" analogy for wall street, think 8000 pound bull sea elephant getting fatter and fatter to attract a larger and larger herd of cows. Bull seals put on flab for competitive reasons: the bigger the bull, the greater its chances of thrashing other males on the beach to win a harem of cows. When the fattest seals always win, they are more successful in passing their genes to the next generation leading to a fatter seal population over time. There is a social cost to fatter seals. The Cornell economist Robert Frank has pointed out, the social costs of fatter bull elephant seals come clear when you consider that at 8,000 pounds it is pretty difficult to out-swim a great white shark.

Which brings us back to Wall Street who argues the humongous bonus packages are essential to attract top executives who otherwise would be nabbed by a rival. Bailed-out bankers grumble that the pay caps imposed by the Obama administration will allow better-financed hedge funds to swoop down and poach the best from their ranks. However it is doubtful this executive superstar system adds any value to firms. The last few decades have seen superstar compensation for mediocre performance, especially egregious recently on Wall Street.

Today we are all bearing the costs of bankers' lopsided remuneration. The arms race in financial-sector pay that started with financial deregulation in the 1980s has grossly distorted economic incentives. Not only did handsomely compensated financiers engineer the dot-com bubble and the housing crisis, but bankers' pay is reshaping the economy and society in other perilous ways attracting out best and brightest away from engineering and medicine into finance.

Elephant seals don't know that they would reduce their odds of becoming lunch if they all cut their tonnage by half” a move that would leave the competitive field unaltered. But people are smarter, we hope, and can understand that if we rein in all bankers' pay we might be able to protect society from the fallout of their mating habits.

Read the original NYTIMES editorial here.

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