Not all bankers are bad people. Not all banks are surviving only with the support of the billions of pounds of taxpayers’ money. Not all bankers’ bonuses are rewards for failure.
It is important to state these things, obvious though they may be, because Downing Street has undoubtedly poured petrol on the bonfire of rage about bankers’ bonuses as a tactic to deflect public discontent over Gordon Brown’s handling of the economic crisis — a strategy that backfired when it emerged that a former Brown adviser, Sir James Crosby, had allegedly sacked someone for warning about the risks HBOS was taking. This week’s Treasury select committee show trial — like the equivalent Congressional hearings in Washington — was much more about ritual humiliation of former bank chiefs than about extracting technical evidence of their business failings. Soon the Prime Minister really will be the only person in this story not to have publicly said ‘Sorry’. At a time when the mood of the crowd is so febrile and fearful, we should be wary of politicians eager to nominate public enemies so that we might alleviate our apprehension by pillorying them.
But there is nevertheless widespread revulsion, not to mention sheer disbelief, at the crassness of bankers who still believe themselves entitled to pay packets far in excess of those awarded to ordinary mortals. Of course some bank employees have performed better than others, and deserve to be better rewarded. Some are lucky enough to have contracts which entitle them to bonuses come hell or high water — both of which might be said to have now overwhelmed financial markets — and cannot seriously be expected to tear up their own contracts. But all of them belong to a profession which stands in disarray and collective disgrace, and which must recognise the damage it has wrought through recklessness fuelled by the prospect of disproportionate personal gain.
The damage is evident on all sides. The unwillingness of crippled banks to lend to the corporate sector is driving businesses of all kinds to the wall at an unprecedented rate, destroying thousands of jobs every week; job losses within the banks themselves look modest when you consider that this week the unemployment figures reached 1.97 million. The collapse of bank share prices has destroyed a huge swath of savings — including pension-fund holdings, endangering the ability of those funds to meet their pension obligations. The record low interest rates needed to keep the economy from further collapse by making credit more affordable have reduced incomes from cash savings by more than four fifths. There can be very few people left in Britain who have not noticed some tangible adverse affect of the banking crisis on their family income or circumstances. Many of those most affected are among the most vulnerable, including the elderly. Among those least affected are the elite bankers themselves, cushioned by a decade of giant bonuses — and in some cases, apparently, looking forward to another six- or seven-figure cheque in the next few weeks.
Even if you believe that governments are as much to blame for this crisis as bankers — indeed, even if you still believe fervently that free-market capitalism is the most powerful engine of prosperity and progress ever invented — it is untenable to argue that pay-scales in the financial sector in recent years have been equitable or justifiable, either in relation to pay elsewhere in the business and professional world or to wider economic outcomes.
The bankers’ answer to that accusation is, of course, that they operate in a global market, and that the market determines the rewards. But for years they overlaid their market with false mystique and black-box hocus-pocus, attributing a brilliance to their own work which was, in truth, the gambler’s negligence of risk. They persuaded their shareholders and clients that the balance of reward between the providers of capital and the providers of brainpower should be heavily skewed in favour of the latter — of themselves, that is. For every profit made with other people’s money, fat slices were creamed off for bank executives. And it really was other people’s money, because most bankers were mere employees, not entrepreneurs risking their own capital.
This is not an argument about ‘short-term’ bonuses, or bonuses for the wrong people. Sophisticated banks have for years operated strictly measured, performance-related, long-term incentive schemes, in which part of the rewards are offered in shares rather than cash. They will no doubt protest to Sir David Walker — whose hurriedly announced inquiry into the subject seems unlikely to tell us anything we don’t already know — that such schemes accurately reflect individual efforts while aligning the interests of the recipients with the interests of shareholders. But that is not the essential point, which is that when the quantum of wealth on offer is so large that a single year’s pay-out can elevate a middle manager to the private-jet lifestyle of a multimillionaire, then risk judgments and standards of personal behaviour are inevitably corroded. And now that the shareholders’ interests have been all but destroyed and customers’ interests have been so severely damaged, while top bankers continue to live like Russian oligarchs, the utter folly of the system is all the more apparent.
So bankers are more than mere political scapegoats. The era of the mega-bonus really has to stop now. Bankers must face reality and bring about the change themselves, rather than trying to face down public disgust with a last-ditch defence of the status quo. Their profession has to revert to being dull but respectable, decently but not lavishly paid, transparent in its accounting practices and the way it measures profits, intelligently regulated, and by nature risk-averse. And if that means talented people drift away from the banking sector, so be it: there are plenty of other parts of the economy that urgently need them.
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