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Bankers’ pay

“Nationalising RBS was a monumental error; no bank must ever bailed out again. Resolution and bail-in procedures to properly wind-down even the largest institution must be ready for use the next time there is a crisis. The government’s takeover of part of the banking industry in 2008 – combined with a stagnant economy and a flawed narrative about the real causes of the crisis – has triggered a cultural shift that will turn out to be disastrous for Western capitalism and prosperity.”

Allister Heath.

This is also very on point:

It is impossible to run a bank – especially one with a large investment bank unit – as part of the public sector. One can only do it for a very short period of time, as the US institutions found during the Tarp episode; they paid the money back very quickly to liberate themselves from the state’s shackles. Permanent state ownership means political considerations take over; and the pressure builds to pay bank employees like civil servants.

By the way, while I was relaxing after a nice weekend in the country last night, I watched the DVD of the Atlas Shrugged movie (it shows the first third of the story, or thereabouts). I quite liked the film, although it lacks that sparkle I like to see in a big topic like this. (The actress who played Dagny Taggart is good, as is the actor who plays Hank Rearden. The rest are so-so). But even so, one thing that grabbed me from the start was that this might have been a documentary about the financial problems of the West, rather than a piece of fiction.

15 comments to Bankers’ pay

  • Gareth

    From the second quote:

    Permanent state ownership means political considerations take over; and the pressure builds to pay bank employees like civil servants.

    If you believe the rhetoric over bankers pay they already do. Plenty of high wages, pensions, bonuses and being impervious to bad results in the top tiers of the public sector. Councils didn’t used to have CEOs on quarter of a million a year. Didn’t even used to have CEOs. Some quango bosses enjoy similar rewards.

  • Permanent state ownership means political considerations take over; and the pressure builds to pay bank employees like civil servants.

    However, the reality is that if RBS did pay employees in its casino division like civil servants then they would all just bugger off and go and work somewhere else.

    For the (primarily) girls in retail banking at RBS, having the same salary as a civil servant would probably be a pretty good deal compared to their current package.

    Given that about half of all the ‘banker bonuses’ go to the government in tax I suspect Messrs. Cameron and Osbourn are either ill-informed or disingenuous when making the comment about “insisting it was up to Mr Hester to decide whether to give up his £963,000 bonus.”

    Mr. Hester isn’t running RBS for fun, he’s trying to turnaround a multi-billion pound business that just happens to be 83% owned by HM Government.

    Compared to the losses that RBS has generated thus far and the likelihood of future profits provided that the turnaround is successful, Mr. Hester’s bonus is a drop in the ocean.

    This is YET ANOTHER REASON (if any were needed) that the state shouldn’t involve itself in enterprize, but more importantly that the banks should have been allowed to go bust.

    To do anything else is to throw a spanner in the works of capitalism which is about the efficient transfer of assets from low value uses to high value uses.

    The way the banks have been allowed to privatize profits, but socialize losses is a scandal that can only be stopped by preventing governments from bailing them out when they fuck up.

  • Now I thought the real standout of the film was the actress who played Lillian Rearden, right from the moment when she lay back in bed, smiled sweetly, and said, “Done now?” She was thoroughly convincing as a bitch with sugar coating.

  • Laird

    I can’t believe you’re only now seeing Atlas Shrugged. And while I agree that the actress playing Dagny Taggert is good, I thought she was too young for the role.

  • Bod

    I gotta say I have to agree with Laird on this; in fact, I’ll go further (and risk a lynching too) by saying that I always thought that Dagny was nothing more than Rand writing fan-fic of herself.

    Thus, the actress playing Dagny really ought to have been somewhat older, and smoking about 60 a day.

  • Mose Jefferson

    Don’t feel bad, Johnathan. I only just saw “The Fountainhead” last week. Gary Cooper was a powerhouse, and Patricia Neal was, of course, sublime.

    I’ll try not to wait 63 years to watch “Atlas Shrugged”.

  • Mose Jefferson

    Argh, smited!

  • If RBS is already nationalised, then why do i see people people on television this morning discussing whether nstionslising it is a good idea or not?

  • (Please forgive that awful typing, my hands are very cold )

  • Johnathan Pearce

    Laird, yes, I just hadn’t got round to watching the movie but at the weekend decided to put it on.

    Thinking through some more, my overall verdict on the film is pretty lukewarm and I think a TV mini-series would have worked a lot, lot better. It would be better at creating an air of suspense.

    Dagny T. is pretty good but arguably, the actress looks almost too frail and young. The man playing Rearden looks a bit wooden, but then he’s supposed to be playing an emotionally repressed industrial genius.

    The villains are really disappointing. J Taggart is a young idiot and not simply sleazy and weak enough. The union leaders and the politicians should have had more menace.

    I liked some of the outdoor shots and the train scenes, which had a reasonable amount of suspense.

    The film lacks a sense of “drive” and pace and it is a pity that a chance has been missed to make a knock-em dead item. Also, there is a risk that parts 2, 3 will not be made and the whole thing will be a waste of time, which is hardly what you would expect from a film about the virtues of capitalism.

  • Paul Marks

    I agree with the first paragraph from Allister Heath.

    However, banks in the United States only “paid back” the TARP money by borrowing other money from the Federal Reserve (which it has created from NOTHING) and lending this money (at higher interest rates) to the government.

  • Laird

    Paul, that’s only true in the sense that cash is fungible. In fact, the terms of the government’s TARP bonds specifically prohibited their being repaid from borrowed funds, or, for that matter, even from retained earnings. They were required to be paid back from new capital, which essentially forced banks to issue new shares of common stock for that purpose. Which many did, to the dilution of their existing shareholders. (And that doesn’t even factor in the warrants which the government received along with the TARP bonds.) TARP was a very bad deal for any bank which wasn’t already insolvent (or nearly so), which is why they got out of it as quickly as possible. That Paulson literally forced them to take it (allegedly so no one would know which banks actually needed it) is one of the most despicable aspects of that whole sorry episode. [Sorry for the O/T rant; I got carried away!]

  • Rich Rostrom

    “It is impossible to run a bank – especially one with a large investment bank unit – as part of the public sector. One can only do it for a very short period of time…”

    I don’t like state-owned banks, but this assertion is false.

    France’s largest banks were state-owned from 1945 to 1993.

    Italy’s Banca Nazionale del Lavoro was state-owend from 1929 to 1998.

    Germany has dozens of “Public Sector Banks”.

    I don’t suppose the records of these institutions was especially good, but neither were they especially bad – certainly not catastrophically bad.

    Of course the culture of banking in those days was rather different, which probably constrained public sector bankers of those days from indulging in wild-hair practices with government backup.

  • Paul Marks

    Understood Laird.

    However, all the institutions concerned are dealing in government bonds.

    And all of them are also dealing (at a lower interest rate) with the Fed “Discount Window” (and so on).

  • Laird

    True, Paul, but you specifically said “TARP”, which is what set me off. Sorry.