There is something inherently wrong with the excessive risk taking: financial markets go through fashions, moods, and phases. If a manager's particular risk taking style fits the current moods of the markets, this manager will seem like a genius. Once the moods changes and the manager start taking massive losses, oh, seems like this guy should be fired.

But his replacement will be just someone kinda aligned to the current moods. Once they change, this one will also be fired.

The financial system is unpredictable. Even the best and most refined models fall apart. Excessive risk taking must be curbed because regularly taking losses due to flawed predictions is not a professional way of managing money.

Banks are not hedge funds. There is a lot wrong with excessive risk taking by banks, that's why it's heavily regulated. Systemic risk is bad.

But excessive risk taking by hedge funds might be _net_ good, since it reduces inefficiencies in the market by removing bad money managers and investors from the system.

If you can handle the consequence of failure, the risk is by definition not excessive.

What should the consequence be for bankers who take too much risk, their banks' failure spreading to the wider banking system, sending the economy into a recession and millions of people into poverty?

Consequences (claw back) is the least that should happen, but it doesn't help the victims and might still incentivize short term risk taking (I win vs you loose). The solutions that the article offers (only allow long term incentives, include the interest of the entire banking system) might actually stimulate better risk-taking behavior. The real economy is slow, bankers' incentives should be too.

Depends on your definition of "excessive".