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Pay controls on banks

To all intents and purposes, the banking industry inside the EU has ceased to have any serious claim to be a part of the free market. The EU has voted to cap bonuses for bankers, introducing remuneration controls that look pretty draconian.

Of course, defenders of such controls might say that we are where we are: the modern banking industry, with all its privileges, “too big to fail” ability to claim taxpayer support, controls on capital ratios, and the rest, means that banking has not been a proper model of free market behaviour for decades. That is true. But capping bonuses is about the least relevant reform that policymakers could make, though no doubt this panders to the sort of anti-banker sentiment that also recently encouraged Germany’s government to impose, without warning, controls on the investment techniques of hedge funds. The radical overhaul of our banking system advocated here, for example, is not really considered.

We are in the best of hands, as Glenn Reynolds likes to say.

6 comments to Pay controls on banks

  • John B

    The whole banking scenario, with bankers calmly and publically taking over the top bonuses when the economies started reeling in earnest a year or two ago, leaves me with a sense of unreality that might indicate an artificial situation.
    Is it possible that the people who really run the banks have provoked a situation where “decency” demanded regulation, in order to achieve regulation (against their will, of course) ?
    Reserve banks are simply the banks working together, and are also a loosely affiliated extension of the state.
    Is the separation of the banks and the state an artificial deception, in some ways?
    I imagine many of the people involved in the different “camps” are actually the same people.
    Perhaps there are aims and intentions here that are not immediately clear?

  • Paul Marks

    One government intervention (bank bailout) is used to justify another government intervention (limits on bonus payments).

    The logic of interventionism – of which the logical conclusion would be all bankers being paid what the government thinks they should be paid (no more and no less) and being told who they should lend money to.

    After all the “great and the good” all say that banks should “start lending money again” especially to “small business” or whoever it happens to be the political fashion to lend money to.

    A useful reminder that there are no free market people as heads of government in the E.U.

    If there were they would not agree to such things as controls on bonus payments.

    Of course this is true of most non EU governments as well.

    The international academic, media and political class tends to think much alike.

  • I discovered the other day that the Met Office’s executive directors got millions of quid in bonuses last year, despite their predictions being so woefully inaccurate that the UK’s tourism industry now blames them for significant damage. Where’s the public outcry?

    Whenever I have this argument with people, I always make the same point: that the state will always use a cause with mass popular appeal to establish a precedent and will always roll that precedent, once established, out to everything else. People think this is about banks. It’s not. It’s about whether the government should stop your employer paying you what they’d legally agreed to pay you because a bunch of people you’ve never met are resentful. See also the BP shakedown.

  • Paul Marks

    How do governments get away with all this?

    A brainwashing “education system” and “mainstream media” is part of the reason – but their are also other reasons…….

    American banking bonus payments in 2007 (before the crash) – about 80 billion Dollars.

    American banking bouus payments in 2009 (after the crash) – about 80 billion Dollars.

    I do not know the European numbers – but I doubt they were much different.

    “A drop in the sea” I know – compared to the general economy.

    However, it leaves ordinary people spitting blood – as John B. rightly points out.

    Indeed if there was an international treaty to hang (by the neck till they are dead) bankers – I doubt their would be serious public opposition to the policy.

    Of course such a policy would be unjust (just as bailing out the “financial system” was unjust), but I still do not think the hard public disquiet (the riots in the streets to save the lives of the bankers) would be there.

    Of course where there is subsidy (“it is not really subsidy, all the money is paid back and ….” shut up Tim Congdon, you twat) there is control.

    Governments will decide how much bankers are paid – and who they lend money to. “You must lend money to people to buy houses or you will be sued” was accepted by President Carter and co as far back as the 1970’s (and pushed further by Clinton, Chris Dodd, Barney Frank and Barack Obama – with clueless President Bush looking confused on the sidelines), “you must lend money to small business – especially minority owned ones” is a natural next step.

    Once one has accepted the doctrines of Central Bank subsidies and baillouts, the logic of interventionism is inescapable.

    And, yes Squander Two is correct, the logic of interventionism does not stop at banking – it applies to everything.

    “But what is your alternative – allow the banking system to collapse and have everyone building things up from scratch, YOU SOUND LIKE GLENN BECK you beast”.

    Well I have been saying this for several decades (and Glenn has only been saying since about 2007), but I have no problem with people saying I am like Glenn Beck.

    I have many faults – but snobbery is not one of them.

  • Are banks ‘too big to fail?’ Presumably, if there is a need for banks then, were they to fail the market would throw up some entrepeneur with a bank or another business that performed the same function. Right?