“Sure, I’d Make That Bet”

1. Why did these banks pay such large bonuses in 2008? Sold the loans to aig free from obligations if the loan went bad.
2. What grade would you give the decision to award these bonuses? F because they were greedy and got bonuses for not doing the right thing.
3. Finally, how might the prospect of such large bonuses affect the behavior of employees? In theory, people have an incentive to perform well if they make more money when their contribution to their bank’s profits is greater. But what happens to the employees when the bank loses money or collapses? If the banks still pay bonuses, and employees know losses will be borne by investors and taxpayers, will they take on too much risk? The bonus makes the employees feel no obligations or guilt by ripping people off with bad loans.