Perverse incentives motivate bankers and brokers in ways that are contrary to the integrity of the economic system. Tens of thousands of mortgage brokers, for example, were on commission that paid each thousands of dollars to get the client to sign the mortgage. This in turn led to steady loosening of the requirements for a mortgage such as the down payment.
If the mortgage holder faulted on the loan in most cases the broker did not lose the commission. There was no “claw back,” that is, a reversal of the commission. A default? Take the commission on that one back!
This same fundamental contradiction of incentive pay affected “performance bonuses” of bankers. Usually there was no system to reduce the bonus on real world events. In 2013 millions were still out of work with no homes but Wall Street bonuses were actually up for the year. What an insult!