Bankers do it again. . . . and again and again and . . . . . . .

Yet more news over the last 48 hours of the financial system’s failure to adhere to it’s own rhetoric and to the capitalist system’s needs to function properly.

First we had Sir Philip Hampton stating the banks are too big to fail and bankers are paid too much.  Finally admitted but hardly something the rest of us didn’t know. (Peston, R, 2011)

Then, today Goldman Sachs defy logic yet again when revenue drops significantly (13%) yet the pay goes down only 5% and the restraint shown in the final quarter of 2009 is now a thing of the past. ( Treanor, J, 2011)

On the 11th January 2011, Bob Diamond told us all at the cross-party Treasury Select Committee that the Banks had made amends for their past excesses and should now be left alone to “take risks” and make profits. (Kirkup, J, 2011)

He said “There was a period of remorse and apology for banks. I think that period needs to be over”.

We are over 2 years into a financial crises that is still ongoing and will continue for several years to come. Shocks in the market place will continue this year with debt management in the Euro zone and stresses on the Euro. In the UK we have many shocks of price rises beyond our control, a weak pound and what will soon become rising interest rates.  Youth unemployment has just reached 1 million. (Butterworth, M, 2011)

Our entire financial system and the very basis upon which our society rests is in danger until the financial services sector is fully reformed, meaning that banks are no longer too big to fail. At some point capital reserves must increase in the biggest banks and some of these may well require breaking up and the separation between investment and retail banking. Regulation will also be a major factor, not more regulation, but better regulation.

The bankers, whether its Barclays, Goldman Sachs or RBS  still haven’t got it yet, and until we have some brave politicians who can take them on globally, the next financial crises will be just around the corner.

Butterworth, M, (2011), Youth unemployment jumps to record high, [online], telegraph website, available athttp://www.telegraph.co.uk/finance/personalfinance/8269835/Youth-unemployment-jumps-to-record-high.html

Kirkup, J, (2011), Bob Diamond: Bankers should stop apologising, [online], Telegraph website, available athttp://www.telegraph.co.uk/news/8252771/Bob-Diamond-Bankers-should-stop-apologising.html

Peston, R, (2011),  RBS Hampton: ‘Journeyman’ bankers are paid too much, [onile], BBC website, available at    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2011/01/rbss_hampton_journeymen_banker.html

Treanor, J, (2011), Goldman Sachs bankers to receive $15.3bn in pay and bonuses, [online], Guardian website, available at http://www.guardian.co.uk/business/2011/jan/19/goldman-sachs-bankers-pay-bonuses?showallcomments=true#end-of-comments

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6 responses to “Bankers do it again. . . . and again and again and . . . . . . .

  1. I think a major problem is using the term ‘the banks/bankers’ in such a blanket way. Only a small proportion of bankers were actually a major part of the crisis. Bob Diamond was silly to say it in those words, but I think that he and Barclays feel wrongly targetted seeing as they didn’t take excessive risks and had no need to accept government bailouts.

    • Thanks for your comment Cahal, and I do appreciate that using such terms can lead to sweeping statements and stereotypes. However, I do disagree with the fundamental argument that Barclays are wrongly being targeted as they did not receive government bailouts.
      It is not that I am singling out Barclays, it is just another example. Barclays took many of the risks other banks did, and had to recapitalise their bank via the middle east to cover potential losses. They would not have been able to do this without the government bailouts by the US and UK governments of other parts of the banking sector and the acceptance by the market that no bank would be allowed to fail. They have also benefited from better trading conditions as a result. The whole banking system is effectively nationalised, it is not acting like a truly free market and therefore they should not reap the rewards when they cannot suffer the risks of failure.

      • Perhaps HSBC is a better example than Barclays, but there are bankers throughout the system and in every company who had almost nothing to do with the crisis and actually feel slightly confused by the public hatred towards them. Obviously they have all benefitted from bailouts indirectly but it still seems unfair to punish them when they weren’t really in the wrong.

        In my opinion the ideal ‘solution’ would be to limit bonuses only for those companies who were most at fault but this would be almost impossible in practice. Perhaps a start would be to limit bonuses for companies in which the Government has more than a certain percentage share.

        I do agree with your general rhetoric, I almost feel that the government is turning a blind eye until they are ready to go out all out with financial reform (if they ever do). Hopefully these bonuses will only be something the public has to accept in the short term.

  2. I think the point is not that bankers are to blame and shouldn’t take bonuses, but that banks should be allowed to fail if they are not successful. That is the point of a free economy, and if it was a free economy then they wouldn’t have to be bailed out and they could pay whatever bonuses they wanted to. They would be forced to act responsibly and make good business decisions or they would have to face the consequences. The fact there is no possibility of them being subjected to the negative consequences of their actions is not a very healthy situation, and makes a mockery of the ‘free’ economy.

    There should be regulation of banks in terms of them having checks and balances to try to ensure they don’t conduct themselves in such a way that could negatively affect the economy, but they should be able to choose how and where to spend their profits as they chose, and if that was in the form of multi-million pound bonuses then that is and should be their choice.

    Banks shouldn’t be allowed to get so big in the first place that they cannot be left to fail.

    • I completely agree. It is not that I don’t want to see people in any industry have a bonus. The point is that they have to deserve them in a market place that works. The financial sector doesn’t, and therefore the bonuses are unjustified as well as the 20% to 40% increases in pay when the rest of the economy is sustaining itself on a pay freeze.

  3. Pingback: A WEEK IN POLITICS: From Davos to Egyptian emancipation | EXTRANEA

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