Sunday, February 08, 2009


Osborne Sound on Bonus Culture

Surprising myself, I was impressed by George Osborne on the Marr Show this morning. He sounded credible when lambasting bankers for clinging to the bonus culture when it has been a root cause of the current crisis and wholly unjustified given that such a huge percentage of banks are now owned by the taxpayers. He recalled that when Gordon first mooted his bail-out package last autumn, bonuses were to be verboten but as Polly Toynbeepointed out on Friday, the culture is still very much alive and many bankers are rooting to have their pounds and pounds of flesh as in previous years:

Culture change may be coming, but it's not here yet. The financial sector will pay itself £3.6bn in bonuses this month: banks are rumoured to be rushing to beat any proposed cap. Even 70% state-owned RBS will pay generously, despite losing £28bn at the blackjack tables of investment banking. The government braces itself for outrage.

She also points out that Obama has had the temerity to suggest a cap on directors' salaries in bailed out banks of $500,000. Now that seems like a huge sum to me and most other people I suspect, outside the realms of the yacht owning plutocracy to whom it will be small change. I can imagine them grinding their teeth at such a 'communist' proposal, but Obama has led the way and it would be nice to see our Labour government come up with something similarly threatening to the big bucks culture which has caused so much damage to date.

Osborne was composed and measured I thought. Far from defending what some might have described as his 'friends in the City', he insisted they should be told directly and criticised Brown's lack of leadership. And he's right. When Darling came on screen he insisted all this was in hand but to set up a task force into the matter at this late stage, smacks of a casually dilatory approach while banks are still refusing viable small businesses the credit they need to avoid bankruptcy.

I am surprised that you are surprised. In their history, the Tories have never supported doling out huge amounts of taxpayers money to incopetent public sector linked businesses. That's Labour's job.

The issue as I see it is that these businesses are accepting taxpayers' money. That changes all the arguments regarding bonuses. Contracts should of course be honoured. However bonuses in these industries must be capped. I don't see why this is such a drama, since HM Govt is now the majority shareholder in most of them.

In any case part of the reason we are in this mess is that many city bonus schemes are flawed. They reward activity rather than achievement. And a market should never operate like the Civil Service, where this seems to be standard practice. But the market here always works. Such companies will always suffer as a result of these flawed policies.

The only flaw in the system is that Government is bailing out these business and breaking the market mechanism. Shareholders will not be punished as they should be and executives will not lose out for their incompetence. Their poor behaviour will effectively be rewarded, and thus encouraged. So the Government(as usual) is merely making a repeat incident all the more likely.

Quelle surprise.
You are, I daresay, economically correct re letting struggling businesses go to the wall, but are banks not special caseds as they are part of the 'enabling' mechanisms of capitalism? if we let them go won't the system fail to work at all? It's a bit like authors and publishing- if publishers all went bust, who would publish our books?
I'm not too surprised, either. Cameron's project is a warmed over one nation Toryism for the new century. Less compassion with a hard edge, more cuddly conservatism.

They believe capital has certain paternalist social responsibilities, and this screw you culture that really took off in the Thatcher years is diametrically opposed to Cameron's project. So if/when some of their chums in the city step out of line they'll be ready with the criticisms.
Banks are part of the enabling mechanism of course. But huge amounts of cash for the banks won't make them lend again. The reason the banks won't lend is because of the CUSTOMERS! Too many of them are now a poor credit risk.

Good businesses will always get credit from somewhere. Just as good writers will always get someone to publish their books. If their respective businesses are operated under sound financial practices, with returns judged likely, these people will find partners who want to make money.

The only people who will suffer in all this are the bad businesses and the bad authors. Or at least they would suffer if the taxpayer wasn't the patsy in all this.
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