Compensation in finance tends to reward risk-taking asymmetrically. When the going is good, taking big risks reaps big bonus rewards. But the downside is limited, even when big risk-taking leads to large losses.   More 

Nassim Taleb is always interesting. His latest op-ed in Financial Times lists "Ten Principles for a Black Swan-Proof World. (Thanks to Matt Warren for the pointer.) Taleb's key point is that crises are inevitable, so it's pointless to try to avoid them. But what you can do is mitigate their severity by limiting leverage, limiting moral hazard that comes from socializing risk, and keeping companies from becoming too big to fail.   More 

In case you missed it, Steve Kaplan, a professor at the University of Chicago and Morningstar board member, wrote a nice piece recently on executive compensation. Kaplan is an expert on corporate governance and venture capital. He nicely sums up the fundamental problem.   More 

Compensation practices in the financial industry are a disaster. It's not that senior executives or derivatives specialists make too much money-maybe they do, maybe they don't-but rather the structure of that compensation. If Joe I-Banker can make $20 million this year by underwriting risky loans, creating structured notes, or writing credit default swaps-and walk off to Bermuda if those instruments blow up next year, leaving creditors, shareholders, and taxpayers to pay for the losses, we have a dysfunctional pay system. Of course, Joe I-B. will take risks-the more the better-since he'll have made millions before the music stops.   More