The furor on bank bonuses: except hot-air no change
The annual bankers bonus debate is again with us. Yesterday (11th Jan) Bob Diamond – chief executive of Barclays – was given a few gentle questions by the Treasury Select committee, and although he admitted that the new government had not asked him at all to curtail his own bonus (expected to be £8m) he did confirm that he felt the financial services industry was critical to the UK economy and hence effectively should be left alone to get on with it as best they see things. Whilst he is right to highlight the scale of his business (Financial Services contributes 10% of the UK’s GDP) it’s rather convenient that the debate is over pay rather than the legality of his work.
Since the UK plunged into recession 2 years ago and the then government bailed out a near bankrupt Banking system the focus has rather perversely been upon bonuses. Yes, it seems strange that state owned banks such as RBS can maintain a bonus pool of £1.3 billion when large swathes of the population are nervous over whether they will have a job in the next twelve months, and face no prospect of the government bailing them out.
The public is justifiably angry that a full range of politicians have said they will tackle the excessive bonus culture within the banks, yet do nothing. It was only a few months ago on 4th October, 2010 that Chancellor George Osborne said: “We will not allow money to flow unimpeded out of those banks into huge bonuses, if that means money is not flowing out in credit to the small businesses who did nothing to cause this crash and suffered most in it”.
Yet the reality is that the enormous bonus payments are merely an extension of the enormous revenues generated by the banks. The real question is over the legality/appropriateness of these revenues. Vince Cable was closer to the mark when he commented on the 22nd of September: “I make no apology for attacking spivs and gamblers who did more harm to the British economy than Bob Crow [the RMT union leader] could achieve in his wildest Trotskyite fantasies, while paying themselves outrageous bonuses underwritten by the taxpayer”. The spivs and gamblers to which Cable refers are the deal makers, traders and derivative salesmen who have transformed the banking industry from conservative managers of capital to aggressive creators of credit (money) and all manner of complex gambling instruments (derivatives).
But as Vince Cable found to his cost when making an off the record comment about ‘declaring war on Rupert Murdoch’ for his monopolisation of print media big business controls the reins of government policymaking. The inflated size and conspicuous growth of the financial services sector means government will never really take a comprehensive view of the illegality and useless nature of many of these transactions; and until the wider public take a view against the prevailing view that gambling and greed are good, then we won’t see any change.
It may well be that the banks can gamble their way out of the current crisis, after all the government is giving them money for virtually free with tiny interest rates. They hold onto that money to rebuild their balance sheets and to “play” the markets. But society cannot debate the scale of bonuses when it turns a blind eye to the essential corruption of what the banks do. Capitalism encourages growth of scale, so if you give a green light to outrageous gambling and risk taking, then the high rewards for the winners must also be endorsed.
Only Islam bans interest, credit creation, gambling, short selling, futures trading, manipulation of markets with derivatives and bailing out of failed banks. Bonuses are optional, but only for legal work.