Events | 2009.11.16
Finance: Banking on the state | Editorial
The archbishop, the lord mayor and top businessmen all declared yesterday that something was rotten in the state of finance. The Queen herself is set to speak on the subject tomorrow, although the words in the gracious speech will not be her own, but those of her ministers. Their extensive pre-briefing has conveyed the steps she will set out, to tackle what the entire establishment now seems agreed in regarding as the bankrupt culture of banking.
The most eye-catching move is to " tear up " those individual contracts for bankers that inflame risk – although, as the only contracts to be ripped up will be those that have not yet been written, the effect may not match up to the spin. A parallel plan to ban errant banks from engaging in particular practices could prove somewhat more important, potentially preventing a little exploitative short-selling here, or stamping out a particularly dangerous bit of debt repackaging there. Welcome as such initiatives are, they seem woefully inadequate after 14 months during which the financial sector has – in the words of an authoritative recent report – been "banking on the state", continuing to pay out vast bonuses in troubled times by stinging taxpayers for even vaster amounts. The same report totted up official support internationally and found it equal to one quarter of all the income accrued on earth each year.
Against all political logic, public largesse has bankrolled the continuation of private greed, in part because of the City\'s balloon-like ability to respond to every squeeze by reshaping the bonus bubble – for example, immediately shifting to payment in shares when spraying cash around becomes unacceptable. But the deeper reason the money men have made off with the money is that a generation of politicians schooled in marketopian thinking has lacked the intellectual confidence to take on the argument that there is no alternative to continuing to reward the very variety of supposed talent that has brought the world to its knees. The lack of real radicalism is apparent in the insistence of the City minister, Paul Myners, that he is interested only in the riskiness rather than the level of reward, as well as in his warning that the UK could veto European efforts to take on the banks if sovereignty was compromised. Still more anaemia was evident in the Conservatives\' proudly proclaimed bonus ban, which turned out to involve merely banning them from being paid in one particular form.
A more full-blooded response would start with the truth eloquently set out by the Archbishop of Canterbury , Rowan Williams, at a TUC conference yesterday: markets must serve men and women rather than the other way around. It would continue by taking seriously the claim of the Financial Services Authority\'s chair, Adair Turner, that much of what the City did is " socially useless ". The credit crunch revealed that the genuinely important work of matchmaking between savers and entrepreneurs has given way to arcane deals supposed to rationalise risk, which in fact merely serve to conceal it. Such deals facilitate new financial products, and the scramble for margins from giddy corporations and clueless consumers is what powers the whole sub-zero-sum game.
It all gets so complex that the shareholders (and latterly the treasuries) footing the wage bill have no sensible basis for assessing the worth of what bankers do, their only guide in setting pay being the nagging fear that they can never afford to lose anyone who has any sense at all of what all the complex bets mean. Unravelling them will not be easy, not least because it will require extremely close co-operation between governments. But it is only by looking afresh at what we really want bankers to do that we will make them our servants again. And it is only by retaining what is valuable in their work, while stamping out those activities that are socially harmful, that we will ever find a satisfactory means of paying them what they are worth.
For more information, please visit
http://www.guardian.co.uk/commentisfree/[...]crisis-greed-bonuses-financial
