Bankers are about to get big bonuses for the turn around in financial markets. Some people are outraged at the fact of bankers getting bonuses of hundreds of thousands or millions after needing billions in bailout money and helping to trigger the Great Recession*. I don't think the problem is that they can make millions in bonuses. I think the problem is that they cannot also lose millions.
Right now, if things go well, they make big money. If things go poorly, they make their salary (or might even get laid off). The incentive is to take big risks that - if they pay off - result in big bonuses. They are not incented to reduce risk because that would reduce return - or bonuses.
But if these bankers could lose money, they'd be more cautious. They'd still accept risk in the hopes of returns, but they'd be careful about it. It's lovely (I have to assume) to make $2 million in bonus money. It would be worrisome to have to pay out $2 million in a negative bonus. The balance between the hope for the $2 million positive bonus and the fear of the $2 million negative bonus might be enough to incent them make money without being reckless. This is the balance that makes entrepreneurs successful. I don't see why it wouldn't work with bankers. As it is, bankers can't lose money but they can make it. This skews them towards reckless investing and makes things stupidly risky for us taxpayers.
As long as we taxpayers take the risk and they take the reward, they'll continue to try cute tricks with money that mean higher risk and return than is good for the economy.
* Let's see if this new phrase catches on. If it does, remember that you read it here first: the Great Recession of '09.