Buyout firm founders are by nature risk-taking entrepreneurs.  By making money for their clients, they create a loyal following as has Guy Hands, founder of buyout firm Terra Firma Capital Partners.  In his holiday letter, he criticizes a system that has allowed “risk to be taken in the knowledge that, if things go right, bankers will take on average 60-80% of the profits generated through compensation and, if they go wrong, shareholders and ultimately the Government will pick up the costs.” 

Add to his remarks, those made recently by National Economic Council director Larry Summers, “there is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”

It would be wise for bank directors to consider these views when approving compensation plans.