Why is Osborne obsessed with bonuses?

28 October 2009

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Allister Heath says that the Tory war on bankers is not just pointless, but allows the truly guilty men to go unpunished

So instead of wasting so much time obsessing about bonuses, which didn’t cause this crisis, we should look instead at simple reforms to our financial system and economic policy. Banks should be allowed to fail — we need new wind-down procedures that wipe out equity-holders, bondholders and management in the event of insolvency. Living wills are part of the answer; no bank should be ‘too big to fail’, however large it may be. Financial institutions must start to fear failure again. They should also hold more capital to protect themselves in the event of another recession. Meanwhile, the West must save more — and the East spend more.

Perhaps most importantly of all, central banks need to stop focusing exclusively on targeting consumer price inflation, a purblind strategy where booming asset prices (houses, wine, art) are not seen as the problem of cheap money that they invariably are. This was the warning sign everyone missed during this (and most previous) bubbles. The more the Tories focus on bonuses, the less likely they are to notice another such crisis in the making. Politicians love to decry what they see as business as usual in the City; but what would really kill the British economy is business as usual in politics. And so far, there are ominous signs that the Tories may well provide precisely that.

Allister Heath is the editor of City A.M.