This commentary piece in The Independent was one of the best articles I’ve read for ages. It discusses the totally ridiculous general attitudes towards bankers’ remuneration – here’s a sample:
Maybe Boris Johnson, too, is right when he says the banker bashing season should be declared closed.
Right, that is, in the sense that all the emotive stuff about “obscene” bonuses, “fairness” and rich men entering the kingdom of Heaven misses the point a bit. Is this debate really about creating an efficient, safe banking system (but one which has the same right as any other bit of the economy to pay people very well indeed)?
Or is it about what kind of society we want: the old, but perfectly respectable argument about what is an “acceptable” distribution of wealth, income and opportunity in a country.
Is paying Eric Daniels, boss of Lloyds, a £2m bonus bad because it is bad for the strength of his bank, or because it’s rather a lot of money for one chap?
Would it be “acceptable” if it was £1m? If so, why? Do we wish to be more like Sweden; more equal? Or more like the US or Brazil, with more billionaires and more shanty towns?
If we want to argue these points, then we ought to be more honest about it.If it is more about the way we supervise banks, then we should de-emotionalise and sub-contract it to the Bank of England and the other central banks and regulators around the world who are even now bending their minds to the task. Maybe the money Mr Diamond, Mr Daniels and the rest are getting should be put to better use, building up the capital of their banks or lending it out to small businesses.
If so that is something we ought to entrust to the Bank of England to secure. But those banks would still need bosses and would still need to be paid the going rate, hefty as it is. There is clearly the possibility that, in a good, healthy bank in a good year, appropriate, going-rate rewards for bosses and traders will be many times what a nurse or head teacher gets and the Bank of England will be OK about that.
Are we happy with that or not?Or put it this way: is the £75m that Mr Diamond has made from his involvement in Barclays over the past few years offensive because it is such a lot of dosh and “unfair”, or because it has been detrimental to financial stability? Would it be all right if he had received it as an oil executive? Or as a hedge fund head; an investment house; in other words, one that has made no demands on taxpayers at all? Would it be satisfactory if the Barclays board paid less than the going rate to Mr Diamond and his colleagues and they lost a competitive advantage to other banks? The same goes for the taxpayer-owned banks. The state-owned BBC and Post Office pay execs the rates for the job, so why not state-owned banks?
I have no friends who are bankers and I have no feelings about them as a group of people (just like I have no feelings about accountants, nurses, whatever). However, the public hysteria about bankers’ bonuses and salaries, entirely fuelled by ridiculous media coverage, really gets on my nerves.
There’s a perception that the British government ‘bailed out’ many of the banks during the economic crisis and that the money being paid to the bankers now is coming from the pockets of hard-working tax-payers. People will still claim that the banks shouldn’t have been ‘bailed out’ and should have been left to fail, to ‘teach them a lesson’.
I think that several points are missed:
- If the British banks hadn’t been assisted during the economic crisis, the entire financial system of this country would have collapsed and we would have probably ended up queuing for several hours to buy a loaf of bread. The UK government had no choice but to help some of the banks.
- The UK government didn’t just give the banks money as a philanthropic gesture – it took shares in RBS and Lloyds. We, as UK taxpayers, own a stake in those banks.
- The money used to pay bankers’ bonuses is generated by profits made by the banks – it isn’t coming from a UK government pot and it wouldn’t otherwise be used to pay nurses and teachers.
- If we want the value of our investment in banks to increase, we need them to make money. They will do this if they can employ and retain the best talent. They will not manage to do that if their pay and bonus arrangements are uncompetitive.
As the Indy article goes on to say, the weird thing is the way in which the general public is directing all of its ‘unfairness’ accusations solely at bankers. There are plenty of people in UK society who are paid a vast amount of money – Premierships footballers, for example (Wayne Rooney makes £250,000 a week, but nobody’s complaining about how unfair this is). I think the attitude towards bankers is partially because they are perceived as being stupid and irresponsible, having bought bad debt and all that. But are UK tax payers in any position to fling around these accusations? Personal debt (excluding mortgages) is up around £40,000 a household in this country, and plenty of UK tax payers made the most of the good times by doing things like taking out 100% mortgages on properties that have now dipped in value – pretty irresponsible and stupid behaviour, in my opinion.
Back to the Indy article:
Bankers were merely going about their lawful business, if not doing God’s work, with no evil intent. Let’s draw an analogy with the pharmaceutical industry, which is also involved in developing new, but risky products. If we suddenly decided to stop making them do extensive clinical trials and they went ahead and put drugs on the market that turned out to do harm and which cost the NHS billions to treat, who should we really blame? They ought not to do it, but it is the authorities’ job to oversee what they do. In the go-go years everyone was happy watching the City make money and no-one mentioned the emperor’s clothes.
If anyone should have done that it was the nation’s financial journalists, so wise and so indignant now. They did not. Neither did the regulators. Should they also now have their pay docked for their failure? Does paying Bob Diamond huge amounts damage his bank? If it does, then let the regulators penalise Barclays – they are plenty of ways they can do that.