They say it takes one to know one. So who better to suggest ways of keeping money traders on a tighter leash to avoid a repeat of last year's bank collapses than a former money trader turned politician.
Making a poacher-turned-gamekeeper transition, John Key yesterday briefly reached back to his
foreign exchange dealer past to suggest money traders' pay be based on long-term performance rather than providing incentives or bonuses which made traders take dangerous risks to secure high returns for investors in the short term.
Addressing an audience of business executives from the Asia-Pacific region, the Prime Minister said simply blaming the markets for the financial meltdown achieved nothing.
Risk-taking was the reason those markets had been so successful in allocating financial capital over long periods.
While much attention focused on what often seemed to be "obscene" cash bonuses to senior executives in investment banks, it was necessary to look beyond them to the incentives being paid to traders on the floor, fund managers and hedge fund promoters.
"Pay should wherever possible be based on long-term performance and in a way that reflects the fact that often high short-term returns were simply the result of excessive, and potentially dangerous risk-taking."
But it had to be recognised that it was hard in many financial institutions to limit risk-taking when investors were demanding those institutions did whatever was necessary to generate higher returns.
"Those are the facts of life for traders and their bosses," Mr Key said.
The Prime Minister's speech, which also called for a new commitment from countries to free trade, followed the announcement of a free trade agreement between New Zealand and Hong Kong.
The deal, which follows other recently-negotiated agreements with Asian countries, was described as strategic by Trade Minister Tim Groser.
It would make it easier for New Zealand businesses, particularly those in the services sector, to operate from Hong Kong when marketing products in China.
Mr Key said the Hong Kong deal was another piece in the patchwork quilt of such agreements, and was another gateway into the Asian region.
