Just a bunch of greedy bankers?

With the UK hobbling unconvincingly out of recession, can huge bonuses for bankers possibly be justified? Peter Burgess examines an incendiary economic debate.

Last year I am sure that bankers were privately saying thanks to whichever god they worshipped for MPs, Peers and the Daily Telegraph. Indeed I am willing to bet that Telegraph Newspapers gets a very good deal from whichever bank it works with – they certainly should. Until the shocking tales of expense-fiddling by those who govern us were exposed, the group most widely reviled by the public (with the possible exception of terrorists) were the bankers. Rightly or wrongly the banks were portrayed as greedy, short-sighted and very likely corrupt. It was their excesses, their incompetence to which everyone pointed as the root cause of the worst economic slump since the Great Depression, a slump that cost tens of thousands of jobs in retail and hospitality alone. They were the perfect target: it is one thing to be perceived as arrogant and hugely overpaid if you’re good at your job but with all evidence to the contrary, with major banking institutions needing bail-outs from the public purse they were a headline writer’s dream.
But then along came the Daily Telegraph with its revelations about MPs expenses, providing the perfect cover for the banks to shuffle quietly out of the public spotlight. Thereafter we had month-upon-month of politicians being staked-out for the crows to peck as a nation’s righteous anger was channelled through every media source. But now the pendulum appears to be swinging back the other way again. The bonuses paid to banking staff, particularly the top tiny fraction who command the six and seven-figure bonuses, are once again getting a lot of scrutiny. Much of the British public are to one degree or other outraged at the sums being paid and thus the media have the scent of blood in their noses again.
The trouble is, the majority of people know they don’t like bankers just like they know that MPs have been fiddling. But beyond that they don’t really understand why except that top bankers are paid a lot more money. The politics of envy are an ugly business. The central question is: do these people deserve this amount of money and if not, what can be done about it?
Does anyone deserve a £1 million bonus? Does a footballer deserve to be paid £100k per week? Does an 18-year-old pop star deserve to get millions for producing one single? The hard fact is that no one can really say who deserves what. The market will pay what the market needs or wants. At the risk of provoking a public stoning, I have to say we do need these bankers – highly paid as they are, flawed as they are.
Financial services are among our most important exports. They have been for the last 300 years and probably will be for the next 300 – along with pop music and culture. There was a time, quite recently, when a quarter of all recorded music on the planet was recorded on these shores. Just like these infinitely more palatable services, banks and insurance companies (loathsome though we may find them) earn this country an awful lot of money. If they were not here we would all be a lot poorer. But given the Government and thus by extension the public had to bail out many of the banks, could we force them to remunerate themselves in a way that is acceptable to us normal folk? Only if we get every other country to do so too – and that just ain’t going to happen.
We have a choice, either we put up with watching the excesses of the financial industry and keep taking the taxes and letting rich bankers spend their money in our shops and restaurants, or we encourage them to leave the country and spend their money and taxes in Switzerland or New York. Be assured if that happens we will be in a permanent recession. Like it or not when these bankers get it right, their collective contribution to wealth creation within the economy is considerable.
Having said that of course, it’s not quite as straightforward as that. Bankers are getting their contracted bonuses at the moment because the banks are doing rather well. However, the core of their success right now stems from artificially created factors. Base interest rates are at 1/2% and yet your credit card is still 18%. Mortgage rates are making disgustingly rich margins for the lenders at our expense. This is a deliberate government policy because they need to rebuild the banks’ balance sheets so that the likes of RBS and Northern Rock, which required public money, can soon be privatised again.
That in itself should not be an issue. But it does suggest that many of these huge bonuses are being paid to people who have not been skillful so much as lucky. But that has happened because no one in Government thought to put any clauses in the bail out contracts to stop them. I know it’s a sickening fact that these people are basically getting paid millions indirectly from tax payers’ money for not achieving very much. But how many of us would turn down a £million from the government if it was offered?
The problem with bankers’ pay is of course about good old fashioned greed. But it’s also a lot to do with official incompetence.