The City and financial markets in general are often accused of short termism and with some justification.  Many of the current problems we are facing in the credit crunch are borne out of a misalignment of the interests of investment bankers and the shareholders in their banks.  As we approach bonus season, the problems are about to manifest themselves in the pockets of bankers who are set to receive less than they had hoped.

Bankers and traders are generally rewarded for their performance in creating profits during the course of the year.  This encourages highly risky strategies which may produce fantastic returns for a few years even if subsequent losses more than wipe out past profits.  The banker will not have to return previous year's bonuses, although they may lose their job.  The shareholder, on the other hand, may see all of their returns over the years reversed within a short space of time.

This is not a case of twenty twenty hindsight, it was eloquently described by Nasim Taleb in his book 'Fooled by Randomness'.  To anyone who had read this book, none of the recent turmoil will have come as a surprise.  The problem is that I think there is no chance whatsoever of a significant change to the way rewards are doled out in investment banks over the long term.  It is just not the nature of the beast.