Morts Musings

Have just read Robert Peston’s column over at the BBC site, and thought it was such a good, simple, explanation of the what went wrong with the banking system over the last decade that it was worth highlighting for any readers who might be interested in these kinds of things (& really everybody should be concerned about this issue, because unless there are significant changes in the way that the banks are regulated we’re probably going to see a similar “boom and bust” happen all over again in a couple of decades!)


As Peston explains, the miraculous growth which the banks saw, over the last decade or so, was very much the result of smoke and mirrors, and rash gambles, rather than because our bankers are financial geniuses with a previously unknown level of insight into the ways the markets work. In short, their stroke of genius was simply to lend more than the banks could afford to based on their levels of real assets, a strategy that worked fine, up until the point that the bubble burst.


To my mind, coming up with, and following, this irresponsible business strategy in no way merited the high wages, and ludicrous bonuses, the bankers paid themselves. We could have just grabbed a few gambling addicts, put them in charge of our financial institutions, and would probably have ended up with the same net result in the end, and for much lower wages in the mean time.
Anyway Robert Peston says it all a lot better, and with more clarity than I can manage, so go read his piece here: Why bankers aren’t worth it

So, while the economy’s going down the pan, & thousands are loosing their jobs, it would seem that being a banker is still rather lucrative.

Yesterdays Govt announcement that RBS executives are still to get their contractual bonuses is, to my mind, completely unbelievable!

I understand the principle that the bonuses are guaranteed by the bankers’ contracts of employment, & that not paying would certainly lead to court action which the bankers would quite likely win.

What bugs me though is that these guys are essentially being paid out of tax payer’s money; we bailed their bloody bank out! Without state help there’s a good chance that these guys wouldn’t have jobs anymore, let alone bonuses!

Surely common sense and decency would suggest that maybe, just maybe, in a spirit of contrition, for being at least partly to blame for the current economic troubles, the bankers might forego their bonuses this year.

After all it hardly seems like they’ve earned them!

If nothing else, this is something that the govt should have thought about when they were offering the bailout; not paying out bonuses should have been a condition of getting tax payer support in the first place, even if it meant altering the bankers’ contracts, & even if that meant making the whole bloody lot of them re-apply for their jobs. Jobs they should be thankful to have at all, given their performance, & the general state of the jobs market!

What I would like to see is the govt adopting a “hard-ball” position along the lines of “Sure, you can pay those bonuses, but if you do we want our money back, now”.

I know, I know, that’s just a fantasy- we can’t let the banks go under for the good of the economy, but it seems to me that the govt could have got a better deal out of the banks when the bailout was being agreed, if they’d tried at all.

I’m relatively lucky, I still have a job, but I didn’t get a pay rise this year, which, taking inflation into account, amounts to a pay cut, & yet the people that caused this mess are still getting their bonuses, &, to really rub salt into the wound, are being paid out of my tax pounds!

That might be legal, but it’s certainly not right, & I have to think that a legal system which would support the bankers, if they didn’t get their bonuses, is far removed from anything resembling justice or common sense!

I believe I’m far from being alone at being slightly irritated by the amount of UK tax payers’ money that’s been lent to the banks to help bail them out of a mess which they got themselves into, but on the other hand, as much as it grates, I have to accept the pragmatism of the move. Letting the British banking system fail would be a disaster for the country as a whole!

Still, I can’t help but feel that, to an extent, I’ve been bent over a desk and soundly violated. The bosses at these big banks have been creaming all the profits off during the good times, in the form of bonuses, share pay outs and the like, and now when things go bad they haven’t got anything left in their businesses pot, and so come to the govt cap in hand, knowing that the govt will have to step in. It seems totally wrong!

Annoyed though I am, my biggest concern is how we avoid a repeat of this farce the next time there’s an economic crash? The immediate instinct is to impose regulations on our banks to limit “fat cat” bonuses, and incorporate some level of legal liability for those responsible for making the kind of reckless business decisions that have lead us to our current state, but sadly it’s just not that simple. It would all be fine if we operated in a closed market, but with today’s globalised world it’s very hard to control big business, if you impose regulations that are too stringent upon them they’ll just relocate and base their business in some tiny nation that’s willing to impose far looser regulations in exchange for the cash that international business of this magnitude would bring to their economy.

So, for govt it’s a balancing act, when these big businesses are doing well they are good for our economy, and since there’s obviously a demand for banking services in this country we need a banking system, of some sort. At the same time though it’s clearly not acceptable to have a situation, like the one we’re currently experiencing, where the banks are effectively holding the govt, and tax payer, to ransom.

It strikes me that if ever the UK govt is going to be able to get away with imposing regulations on the banks which they might be less than happy with, it’s going to be at the point where they’re being lent an awful lot of tax payers money to bail them out. So my questions to Mr Brown are, “just what have you got for our money, and what steps have you taken to stop this happening all over again, in another 10-20 years, when the economy enters it’s next big down turn?”

So far I’ve not seen much in the way of details of the deal between the govt and the banks, but the fact that not all the banks have bothered to follow the Bank of England’s cut in interest rates doesn’t give me much hope that the govt negotiated sharply on our behalf.

Realistically, all I can do is wait, and see how things pan out. I’ll hope for a pleasant surprise, I’ll hope that the govt has had the guts to make some demands of the banking system, and will give the FSA a well deserved kick up the rear, but the fact that, as of lunchtime today, Northern Rock and Bradford & Bingley (two banks which the govt owns!) haven’t bothered to cut their standard variable rate yet, doesn’t give me a lot of hope!