Richard Fletcher’s short piece is oh so true [Apart from his insistence that I borrowed too much, had overdrafts, and excessive mortgages. Just for the record I paid off my mortgage 34 years ago, have never had an overdraft or a loan and continue as always to pay off my credit card each month.]
Bankers’ bonuses had absolutely nothing to do with with the crisis any more than they are in any way relevant to the future. If the state owns the banks then it has the right to tell them what to do but the truth is that London is good at investment banking and will remain so as long as we have the best investment bankers. For this bonuses are necessary. They can easily set up in Singapore or even Switzerland. Don’t kill the goose that lays the golden eggs!
The think tank “Compass” is a highly socialist outfit, a left-of-centre pressure group chaired by Neal Lawson, a former Gordon Brown aide, and has launched a campaign to crack down on “excessive salaries” among high earners. We all know what a socialist’s definition of ‘high earners’ is - it is anyone earning one penny more than the national average wage. Before we know where we are there would be a national incomes policy - again! - and it would end in the same disaster as the last one produced! It would do even more than the French and German assault on the pre-eminence of the City of London to drive the international business centre away from our shores. New York, Singapore and Geneva are all waiting with bated breath.
The Independent today sums up Compass’s proposal thus:-
“the Cabinet appears sceptical about a policy which would smack of Old Labour interventionism and a return to the discredited incomes policy which contributed to Labour's 1979 election defeat.”
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*It would mean a return to the failed incomes policies of the 1970s
*It would damage the City of London and make the British economy less competitive than its rivals
*It would be a bureaucratic nightmare for an independent body to interfere in the pay policy of individual companies
Christina
TELEGRAPH
18.8.09
Stop bashing bankers - we must all accept blame for the recession
Listen to those (not so) bright young things at Compass and you would be forgiven for thinking that it was bankers bonuses that sparked the global recession.
By Richard Fletcher
The left-leaning think tank argued yesterday that the "unjust rewards of a few hundred 'masters of the universe' exacerbated the risks we were all exposed to many times over" – fuelling the risk-taking that bought down the whole economy.
Excuse me – I thought it was a decade-long credit boom (that, if we are honest, most [excuse me! “some” perhaps ! -cs] of us enjoyed at the time) that sparked the credit crisis and subsequent recession, not the mega bonuses of a few dozen bankers.
Over more than 10 years, higher and higher levels of debt became more and more acceptable: whether in the form of the 125pc mortgage Northern Rock offered to all and sundry, £15,000 credit card limits or the £12bn leveraged buy-out of Alliance Boots.
But after this binge of cheap credit it is far easier to blame a few greedy bankers for the recession, than admit that we were all culpable – [excuse me! “some” perhaps ! -cs] individuals, companies and governments.
Blaming bankers also gives the likes of Compass an excuse to try to drag us back to the 1960s when the government's tentacles stretched far and wide.
The think tank called yesterday for the establishment of a High Pay Commission (staffed no doubt by the trade unionists that support Compass) to review top pay and look at measures to limit "excessive pay". What do they plan to do? Revive the ill-fated Prices & Incomes Board of the 1960s and charge it with approving individual City bonuses and salaries exceeding a certain level? Why stop at bankers – why not regulate the salaries of Premier League footballers?
City remuneration undoubtedly ran out of control during the good times, with bonuses encouraging short-termism – but banks' boards and shareholders are much better placed to rein it back in than government.
Instead of bashing bankers we should be asking ourselves how to empower boards and shareholders to ensure that remuneration is linked to long-term performance
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CITY AM 18.8.09
Bonus debate is heading out of control
THE row over City bonuses shows no signs of petering out, certainly if the last 24 hours is anything to go by.
Yesterday the focus of everybody’s attention was Bob Diamond’s BarCap [Barclays -cs] and its £30m offer to hire Todd Edgar, a commodities trader, and four other members of his team.
Edgar and his colleagues left rival JP Morgan a couple of weeks ago and there were reports – denied by some – that the traders’ former employer has complained to the Financial Services Authority (FSA) that it transgressed its new code on City remuneration.
BarCap is not amused by the suggestion it has “spat in the face of the regulator” and contends that it is keeping the authorities fully informed about all its ambitious hiring moves.
But the timing of the row is not propitious.
All of the talk about bonuses has been too much for shadow chancellor George Osborne, who is determined to outdo his political opponents in being tough on the banks.
Tough on the City, tough on the causes of the credit crunch, seems to be Osborne’s pre-election mantra, though there must be a doubt he would continue with his anti-banker approach when, as seems likely, the Conservatives get into power.
Says Osborne: “These banks need to live in the real world, where the country’s in a deep recession, and where the taxpayer has spent billions of pounds, not just bailing out some failed banks, but also underpinning the rest of the banking system.”.
What would Osborne do to remedy the situation? Would he ban the City’s golden hellos? Would he ban bonuses? Would he ban guaranteed bonuses, currently being offered to some? I think not, unless he wants a City revolt on his hands.
City A.M. editor Allister Heath recently wrote that any individual who creates wealth for his employer in a legal, honest and sustainable manner (in other words, that his work doesn’t endanger his firm or the financial system) is entitled to be paid as much as he is able to negotiate with his employer.
“I have no problem with somebody who makes $50m trading equities in a fair manner for his firm and is then paid $10m,” he wrote.
“However, anybody who has lost money should get nothing and be fired; guaranteed bonuses are meaningless and should be phased out. Deferred compensation schemes would discourage certain forms of short-termism (such as investing in mortgage debt which eventually turns out worthless) but continue to reward genuine success.”
That seems a sensible way forward to me, rather than reaching out in a knee-jerk fashion towards some sort of legislative solution, which becomes more likely as long as investment banks fall out with each other.
Setting up a High Pay Commission to look at the evidence as suggested yesterday by think-tank Compass, might also throw some light on the issue.
The government, which appears hamstrung, now seems to be in danger of opting for legislation it hopes will put a stop to the headlines suggesting it is being too soft on the City. There is a real fear this is spinning out of control.
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