Bankers’ bonuses

It is hard not to feel some frustration when many of the investment bankers who have condemned us to massive levels of public borrowing are now about to receive bonuses rivalling those paid out in the pre-credit crunch years.

For decades the investment bankers were the loudest exponents of a free market, natural selection, law of the jungle Weltanschauung. Now, having been partially or largely rescued through nationalisation they want to retain the obscene levels of earnings that they enjoyed while taking huge risks with our livelihood.

In spite of the harrumphing coming from Nos. 10, 11 and the FSA, precious little is being done to prevent a massive act of injustice. The reason for the limpness of response, we are led to believe, is that the UK financial institutions are too important to our economy for sanctions to be applied, when such sanctions might force this grotesquely profitable investment work into foreign hands.

But so what? Suppose we were to place stringent limits on the earnings of UK investment bankers and their partners in crime? Will the UK economy really suffer?

I suspect not as much as the bankers’ lobbyists suggest, because:

• UK financial institutions are notorious for avoiding most of the corporation tax that tax experts suspect is due
• Overseas institutions and their highly paid staff will continue to pay tax in this country (particularly when the UK tax rules and employment laws continue to stay so attractive), and
• These staff will continue to live in the UK either because they prefer it here, or because they sank their last bonus into an over-priced property which cannot be now sold or rented at a commercial rate. And while they and their families stay here they will spend here, so the trickle-down won’t dry up.
  

If a few UK institutions crash out as a consequence, so what again? Two years ago the bankers would have said that failing companies fail because they deserve to fail, “it’s the law of the jungle, squire”. So my ears are deaf to their entreaties.

More importantly what would happen to the deserving stakeholders, the taxpayer, the shareholder and the innocent employee?

Innocent employees are mostly in the retail parts of banks and could be protected best by splitting the retail and wholesale operations as Mervyn King is promoting.

Taxpayers and shareholders might be harder to protect but the old shareholders in, say RBS or HBOS, now have nothing left to lose anyway. Those proud champions of shareholder value, Fred Goodwin, Andy Hornby and Adam Applegarth poured that investment down the pan a year ago.

What of the government’s (i.e. the taxpayers’) holding? Well the sooner the banks pay off their debts the better, and they’d do that a littler faster if they didn’t trouser over 50% of their revenue.

Whose moral hazard?

As our increasingly feeble minded GOM contemplates the imminent arrival of a wholly inadequate private pension he ponders the term “moral hazard”.

This insurance industry expression has been popularised by Mervyn King and is now bandied about freely in the context of the derivative creators, investment bankers and fund managers who took the fruits of the economic boom but left the customers (mostly pension fund investors) with the costs of weak performance and (in conjunction with other tax players) sole ownership of the wreckage of the economic recession.

As he looks at what he paid pension managers over the past decades and the loss of value he has received at their hands the GOM certainly has no time for these scoundrels.

But are they the only villains of the piece? What about another group of people who took the credit for the boom but who were wholly protected from the growing level of risk?

Might it not be the case that the continued payment of MP’s and civil servants’ pensions out of current revenue, not the proceeds of past investment, has exposed them to an entirely comparable risk of moral hazard?

Could this be why successive Governments have done so little to head off the inevitable pension train crash? They were simply immune to the consequences of their irresponsible inactivity.

Let’s hear it from Mervyn (whose pension, we suspect, will not rely on “past performance”, either).