19 December 2008

A gross misallocation of resources

Paul Krugman argues that the nonsensical accounting and compensation systems in the financial "services" industry allowed money managers to keep reaping big bonuses even as their clients lost everything. He suggests that the primary difference between Bernard Madoff and his colleagues was that

...while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype.

Well, shame on us for entrusting our money to people who were not actually held accountable and to a totally opaque system that allowed the managers to spin their numbers however they wanted. Not a winning plan.

But the really tragic part, in my view—the part where our losses may not be so easily computed—is the that the growth of the financial services industry produced a distorted view of what is really valuable:

[How] much has our nation's future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?

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