UK Not Backing Down in Row Over Banker Pay

Bankers ’round the world howled when the UK imposed a one-time 50% bonus supertax. The levy was meant as a shot across the bow, to warn the firms that were posting generous earnings in large measure thanks to government assistance (particularly super low interest rates) to act sensibly. The officialdom’s message was that financial firms needed to give higher priority to building up their equity bases, which in turn meant paying out less to staff

But the mistake was in assuming that the banksters would do anything other than act predictably. Capital markets firms over the last decade have engaged in large-scale looting: run their businesses with less and less in the way of buffers for losses, while simultaneously taking more risks (which should dictate even larger reserves), knowing that that was the course of maximum income for staff, no matter what it meant for the enterprise.

A Financial Times survey determined that the banks are thumbing their noses at the British authorities, which means they have decided (in effect) to pay out even more in earnings, and retain even less in equity. The FT editorial today spelled out the implications:

The UK government’s tax on bankers’ bonuses was supposed to claw back some of the financial sector’s gains accrued thanks to taxpayer largesse during the crisis. The measure was flawed: it did not target fixed compensation in any way. But it was expected that this measure would encourage banks to refrain from handing out super-generous bonuses this year….

So rather than raising £550m, as the Treasury predicted, banks expect the levy to bring in between £4bn and £6bn. If only other government errors could yield such handsome returns.

The tax windfall highlights a chronic problem in banking. Shareholders, not bonus recipients, are expected to bear the cost of paying it, so turning the tax on bankers’ pay into a levy on bank equity. This would be evidence that big City institutions put management ahead of shareholders.

The problem is that the normally savvy FT offers a very unrealistic solution:

Bank investors need to assert much tighter control of their possessions….The size of bonuses, however, is a matter that should be left to shareholders. After all, once the rescue measures are withdrawn, it will be investors’ money that the bankers are taking home.

Yves here. This is simply impossible in publicly-held companies. We have a system with INHERENTLY DEFECTIVE corporate governance. Amusingly, Amar Bhide wrote an article in 1994 in the Harvard Business Review, that the very measures that promoted liquidity in the stock markets came at the expense of effective oversight. No one wanted to hear it then because it went against our mythology of the virtues of public shareholding.

Corporate executives have erected the equivalent of fortresses against outside influence: no shareholder say on corporate pay, corporate budgets or capital expenditures, routine fundraisings. They implement staggered boards. So how hard is it to exert influence? How much impact has activist shareholder Calpers had, which unlike most shareholders, has large positions, deep pockets, and staying power? Perilously little, if any.

Unlike America, which seems to have no historical memory, the Brits do recall what proper regulation looked like, and recall that sound regulations and fair play helped make England a leading financial center. So they are not prepared to let this banker intransigence go unnoticed. The FSA had announced initial details of a new pay code last August. One of its provisions was to require anyone in the adminisphere earning more than £500,000 a year to take 60% of it on a three year deferred basis, preferably in stock.

Apparently, some bankers were coming up with ways to evade those requirements through clever job reclassifications. The FSA got wind of it and tightened its rules. While the changes have yet to be announced, the Independent reports that all UK employees earning £1 million and up will be covered.

Bankers are threatening to decamp, but the fact is no other city in Europe has the office space (particularly the big open dealing rooms) that London has, and there are network effects to being in a financial hub. And bankers angrily planning their exodus have found, for instance, that slots in the premier local private schools abroad are scarce. That does not mean that individuals and operations won’t leave, but it would not be as fast or as broad-scale as the chest-beating would leave you to believe.

The New York Times gives (predictably) an unduly sympathetic reading of the banksters’ side of this staredown in “U.S. Bankers Are Fed Up With British Regulations“:

Their taxes are on the rise, they have become political piñatas and now, just as one of the richer bonus seasons in recent years gets under way, they are being told by regulators how to pay — or not to pay, to be precise — their employees.

Yves here. How many material omissions are there in that short statement? There would be NO earnings, NO bonuses, NO firms at all were it not for massive government handouts. Even in normal circumstances, banks run state charted franchises and are subject to oversight and regulation. That’s fundamental to this business. Want less regulation? Go write software and see how easy it is to get rich quickly. All those lovely barriers to entry (and regulations account for some of them) and concentrated capital flows (most assuredly the result of industry-friendly policies) produce large, concentrated capital flows. Bankers fish in a stream that is richly stocked as a result of government action. And the big profits this year are the direct result of the industry rescue programs, and comparatively little with the supposed “talent” of the incumbents.

But no, we get more drivel industry PR from the Times:

But, coming as it does after a wildly unpopular move by the British government to impose a 50 percent tax on banker bonuses, this new intervention is being considered by some as a final straw of sorts.

Yves here. Wildly unpopular with whom? The bankers, of course. Did the Times bother polling a broader, more representative audience? And this “final straw” talk perpetuates the banker world-view, that they are entitled to deal with the government as an equal party. Earth to base: the government can put you out of business in a nanosecond if it wants to by revoking licenses, or it may find it necessary to do things that inconvenience you more than a tad (Jim Rogers would remind his students that the US has a history of imposing capital controls).

A post at FireDogLake takes aim at what passes for banker logic:

Here’s the policy chairman of the City of London:

“You can only push people so far.”

And the Lord of JPMorgan, Jamie Dimon….made a phone call to Britain’s Chancellor of the Exchequer complaining about the 50% tax. While everyone reports that the call was civil if not quite friendly, there was a subtext:

…There is a limit to what banks will accept as the price of doing business in Europe’s premier financial center. …the City of London was losing a bit of its luster.

Of course, what really loses its luster is the cardboard box some folks live in when they lose their homes to these criminals. The food pantry generic labels when your kids want Skippy — that’s some luster lost. Or waiting for your mailman to deliver the unemployment check, and he doesn’t — so you can’t actually make the trip to visit family for the holidays: lustrous? Not so much.

As the bankers are wont to say: there is a limit!

You know what else loses its luster? Answering the phone when the fifth bill collector calls that day, knowing there’s no money to pay any of them. Scraping change out of your kids’ piggybanks to pay the light bill.

Hoping no one gets sick this winter, since your health care ran out and the free clinic closed. That’s some luster gone from everyday living.

You can only push people so far…

Join them sometime, rich banker fatcats, if you dare. You haven’t any concept of what it’s like to actually be “pushed.” Your multi-million-dollar, many-home, luxury yacht, multiple Mercedes, Gucci-shod, mistress-bedecked cosseted lifestyle hasn’t even been dented — yet. But keep up your silly mewling, bankster pirates, and you may very well find out how bad it really is at the bottom. The least you can do before we arrive with the torches and pitchforks is pay your fucking taxes to fix the economy you destroyed and repair the lives ruined in your wake.

Yves here. So far, in the US, all we have had is empty gestures to appease the masses, and shocking tolerance of banker intransigence (it is breathtaking that Obama allowed bank CEOs to reject his summons to meet with him. Cheney Bush would not have tolerated it, and neither would Rubin Clinton). Obama is looking more and more like the Manchurian Candidate with every passing day.

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  1. Sud

    PK, so if the bankers bail out on London, where will they go next? Switzerland looks appealing especially since banking is the country’s #1 industry and revenue generator – they would be loath to mess with it. Or so the bankers will hope.

    1. Yves Smith Post author

      A Blomberg story points out that this idea is not terribly realistic:

      Geneva, touted as a haven for London bankers facing heavier U.K. taxes, may lure fewer than predicted thanks to a housing shortage, crowded schools and a 44 percent income-tax rate…..

      The numbers choosing Switzerland will be small, and banks with Swiss roots, such as Credit Suisse Group AG and UBS AG, will probably find it easiest to move workers, said Stefan Schuermann, an analyst at Zurich-based Vontobel Holding AG….

      “Some of the German-speaking cantons around Zurich are able to offer tax rates that never exceed 20 percent, but people don’t want to move there, they prefer the lifestyle around Geneva,” said Thierry Boitelle, a partner specializing in tax at law firm Altenburger. “From a tax point of view it doesn’t make sense to locate 100 people here.”

      1. Petra Gajdosikova

        If the country is so unappealing a destination, I wonder why many hedge funds and other financial firms have already left London for Switzerland this year. It’s not inconceivable that some investment banks could follow. There’s also HK, Singapore, NYC etc. Frankfurt also has plenty of suitable office space to accommodate new banks. More importantly, all those destinations offer lower taxes and a more business friendly environment than the UK today.

        “…the Brits do recall what proper regulation looked like, and recall that sound regulations and fair play helped make England a leading financial center.”

        What are you talking about?? The UK had a competitive advantage thanks to its fairly light regulation and reasonable (while not low) taxation. The City of London also benefited hugely from the Sarbox effects on NYC. That competitive advantage is now being ruined at light-speed by our short-sighted, inept, semi-socialist government.

        Banker-bashing is an easy vote winner but the long term effect of these idiotic, populist policies will be billions in lost taxes and investment. The financial services industry pays 25% of UK’s corporation taxes, employs over 6 mil people (22% of all UK employed) directly and another few millions indirectly. Bankers and other higher earners also contribute the vast majority of UK’s income taxes (top 1% pay 24% and top 10% pay 54% of all income taxes).

        The bankers (and other high earners and entrepreneurs – all of whom are being vilified in UK’s raging class war) need this country far less than it needs them. Indeed for many people enough is enough – there are increasing numbers of wealthy individuals moving abroad each week now.

        Of course that’s fine with our government – a fast way to achieve a society where everyone is equal – equally unproductive and on welfare benefits.

        1. Yves Smith Post author


          Your comments re light regulation in the UK, with Sarbox as your frame of reference, are a perfect illustration of my very point regarding lack of historical memory. I suggest you bone up a bit on London’s history as a banking center. The world did not begin with London’s Big Bang, as you seem to think it did, and the UK also did just fine in the stone ages when it was less dependent on finance. For instance, England’s last bank run pre Northern Rock was Overend Guerney, in 1866.

          1. Petra Gajdosikova

            Yves, I think it’s a bit unrealistic to compare today’s world, economies and financial sector with those of the 19th century. Let’s not forget that the UK and London had been in decline for decades, and the City’s position as a major (modern times) financial centre only began some 20 years ago. As for whether the UK was fine before it became reliant on the financial sector revenues – sure, but the situation is much different now. What industries exactly are you proposing will replace the City? Sheep farming?

          2. Petra Gajdosikova

            Further to my earlier post below:
            Are you saying that driving away the country’s biggest cash cow at the time when the UK is on the verge of bankruptcy and with a deficit of approx 12% (and growing) is not economic suicide? This is not a debate on whether we think it would have been more prudent to have a more diversified economy or not. The fact is, the country relies on the financial sector for a huge share of its revenues. And those revenues are now needed more than ever.

          3. Yves Smith Post author

            You continue to display a remarkable lack of knowledge. The UK was a major financial center prior to the Big Bang. All the major US bank had their main trading operations in the UK/European time zones located in the UK. The Big Bang consolidated equity trading that had been more broadly conducted across Europe in the UK (Frankfurt was a loser, for instance), but FX and fixed income trading and Eurobond origination were concentrated in London WELL before then.

            The UK has also lost a great deal due to its overly lax regulation. It has lost its shine as a hedge fund center due to the mess of the Lehman bankruptcy, in particular, the lack of regulation of the broker-dealer, particularly regarding rehypothecation.

            What good is having a large financial center if it requires massive taxpayer funded bailouts on a scale that put the currency at risk? No less than Willem Buiter has warned that England could be the next Iceland, based on the fiscal costs of the banking industry. You sneer about welfare recipients, yet that is precisely what the banksters are. Sheep farming does not look bad by comparison.

            And as I pointed out, no European center has the office space or private schools to absorb a large-scale banker exodus in the UK/Euro time zone. There are powerful advantages to being in single location. Any reconfiguration will be far more gradual that the financial firms would lead you to believe.

            Your argument ultimately is that the banking industry is so valuable that the UK must cater to its demands the state itself has and will continue to backstop the industry. That course of action, before the guarantees were made explicit, led to large scale looting and a global economic crisis. Your catering to the industry will result in a rinse and repeat, but with a bigger wipeout as a greater result. The end result is a loss of collective wealth in either event. I’d rather have greater control over my destiny and less pillaging by the banksters in the meantime.

          4. Petra Gajdosikova

            Interestingly, you have avoided answering my questions.

            1. What industry shall replace the revenues from financial services? Realistically, please, not some wishful thinking.

            2. How exactly did ‘proper regulation’ make London a world financial centre?

            Nobody’s disputing that London was a major financial centre in the 19th century and up to WWI, however, it had later lost much of that importance. Only in the 60s had London’s revival started thanks to the euro-dollar markets. London gradually attracted a large number of foreign/US banks, offering them an escape from tough US regulation and capital controls. The fact that the UK allowed foreign currency business to be done almost free from any regulation largely contributed to London becoming a centre of intl money markets by the 80s. (And, a huge expansion of the financial services industry that cemented London’s position as a global fin. centre happened in the last two decades, as I said above, in a relatively light regulatory environment.)

            So, care to explain where exactly was the tough regulation you were referring to, that apparently helped London become a leading fin. centre?

          5. Richard Smith

            “Interestingly, you have avoided answering my questions.”

            Err, Petra, I’ve looked and looked, but I can’t find anywhere in this thread where you actually ask the questions you now accuse Yves of not answering. But oddly, I do seem to find the answers that you say you haven’t been given. So, when I stand back a little, I begin to suspect you are being a bit unfair, or at least careless.

            Question 1. “1. What industry shall replace the revenues from financial services?”. Well, those revenues aren’t going to be replaced, by banks or by anyone else. The banks can’t generate those revenues without taking unsustainable risks with balance sheets that make them too large to rescue. Or as Yves puts it “Your argument ultimately is that the banking industry is so valuable that the UK must cater to its demands the state itself has and will continue to backstop the industry. That course of action, before the guarantees were made explicit, led to large scale looting and a global economic crisis… The end result is a loss of collective wealth in either event. I’d rather have greater control over my destiny and less pillaging by the banksters in the meantime.”

            Seems like an answer to me.

            Question 2. “How exactly did ‘proper regulation’ make London a world financial centre?” Oh, you’d have to go a way back for positive examples of that. Instead, I’ll illustrate this by a recent example of how inadequate UK regs have impaired the UK’s standing as a financial centre. Things like knowing your assets are safe if your bank goes bankrupt do count for something, y’know. This is especially important if you trade on margin, and have the Lehman London bankruptcy debacle burned into your mind. That is what has really hurt the UK’s hedge fund industry. Not taxes. The players will go to the US, I reckon (where the segregation rules are much better), not Switzerland. 20 (twenty) new hedge funds were set up in Switzerland this year. That’s pretty much in line with what you’d expect Geneva (pop 200,000) to digest. I suppose other centres could take a few more but I really can’t see it turning into a torrent. Can you? Some sort of hedgie tent city springing up on the shores of Lac Leman, perhaps?

            But Yves has said all this and more already in the article and comments. I think your unasked questions were answered.

          6. Marshall Auerback


            Some paint a morbid picture of the UK being “Reykjavik on the Thames”. This is nonsense, as is the notion that Her Majesty’s government needs to tax the bankers more heavily in order to fund its expenditures (we make the same mistake here in the US as well, so it’s not a uniquely “British disease”). In a country with a currency that is not convertible upon demand into anything other than itself (no gold “backing”, no fixed exchange rate), the government can never run out of money to spend, nor does it need to acquire money from the private sector in order to spend.

            This does not mean the government doesn’t face the risk of inflation, currency depreciation, or capital flight as a result of shifting private sector portfolio preferences, but the budget constraint on the government, the monopoly supplier of currency, may be different than we have been taught from classical economics, which is largely predicated on the notion of a now non-existent gold standard.

            The UK Treasury cuts you a benefits cheque, your cheque account gets credited, and then some reserves get moved around on the Bank of England’s balance sheet and on bank balance sheets to enable the central bank (in this case, the Bank of England) to hit its interest rate target.

            If anything, some inflation would probably be a good thing right now, given the prevailing high levels of private sector debt and the deflationary risk that PRIVATE debt represents because of the natural constraints against income and assets which operate in the absence of the ability to tax and create currency. The taxation of the bankers might well have excellent social justification underlying it (i.e. the “polluter pays” principle), but “funding” the UK’s fiscal expenditures is not one of them.

            In addition to ideological opposition to high levels of government spending, many critics of the UK government’s approach display an ignorance of simple financial balances accounting. A high level of private sector debt delinquencies and defaults suggests private debt burdens got too high relative to private income flows. Liquidating or restructuring existing private debt then makes more sense than getting banks to loan more money to the private sector. Private debt liquidation, which is the Austrian solution, can take the whole system down if enough people try to do it at the same time, or if a large enough institution does it in a disorderly fashion. As Irving Fisher noted, attempts to pay down debt can lead to higher real debt burdens as forced asset and product sales drive prices into the ground. We had a taste of that with the Lehman bankruptcy. Debt liquidation might form some part of the solution when seeking to eliminate private sector indebtedness, but it cannot be the main course.

            If not, then the private sector needs to be in a position to net save and pay down debt. That cannot happen unless some other sector is willing and able to deficit spend. Some of this can be achieved through increased exports, although if every country sought to depreciate their currency in the manner of sterling, the result would likely be a further collapse in trade, since “beggar thy neighbour” devaluations mark protectionism by another name: two potential candidates, the government sector or the foreign sector.

            Given the contraction in foreign demand and rapidly diminishing trade flows, that leaves government to deficit spend if the private sector is going to net save. This is not high Keynesian theory – it is double entry book keeping, which we have been doing for 7 centuries now. Think T accounts, 2, sides to every transaction, rather than micro household behavior, and you will avoid the more obvious fallacies of composition. At the lowest level of manufacturing capacity utilization in post WWII history, and a rapidly rising employment rate of 8% and the “hyperinflation” perspective doesn’t seem very relevant now, does it?

  2. attempter

    I hope that each incident like this proves to more and more people that these banksters are existential criminals who will never, for as long as they’re allowed to exist, behave in any way other than as parasitic gangsters.

    Like any psychopath embarked upon a killing spree, their behavior will only get worse and worse, more and more psychotic. Anyone in Britain with eyes to see can see that a “shot across the bow” like this has failed; the criminals have only doubled down on their crimes.

    (I certainly hope the one-off nature of the restitution payment, er, “tax”, was really meant to be more than just appeasing the masses.)

    And now another Ayn Randian toddler tantrum. I’d to to see this scum get its “we’ll take our talent and go elsewhere” bluff called.

    But of course as they go, as they explicitly declare themselves to be enemies of the community and traitors to the country, they should go only with the clothes on their backs, with citizenship and passports revoked, and none of their “innovations” elsewhere should ever have any legal validity whatsoever in the real country, among the real people. (Which idea also contains my solution to the alleged problem of how to “regulate” cross-border finance gambling. Simply consider it the same way you would any other illegal gambling. I don’t see what’s so hard to solve there.)

  3. craazyman

    For the first time in my life, I’m beginning to sympathize with Che Guevera.

    And I have been a Wall Streeter to varying degrees and know the securities business fairly well. Which only makes me sympathize with Che even more, right now.

    These individuals, these banksters, are loathsome morally criminal scum bags. The only thing that makes their bonuses, and the life of their employing institutions, possible is the existence of a broad and widely shared societal prosperity that supports a wealth base in need of financial services.

    They are systematically destroying that wealth base and that prosperity.

    The fact that what they do is even legal is an atrocity perpetrated on society as a whole.

  4. Ancient Brit

    To use that phrase from the British T.V. comedy “Dad’s Army” they (the bankers) “Don’t like it up ’em.”
    Well they need it up ’em repeatedly until they have been cowed. I applaud my government on this tax and, god knows, there is little else about them to applaud.
    The pussyfooting and cowardly attitude of Anglo Saxon politicians to what is happening is disgusting.
    Bring on the gilt strike and the bond strike! Then see what our politicians and bankers will face.
    You are correct that the Brits have a memeory. They remember decent regultaion. They remember when capitalism was about building real enterprises (and is still is in continental Europe) and had not become “Americanised” with an “S”.
    On a long term view we Brits would do well to well to reduce the influence of the City, embrace some austerity (which we have done previously when necessary) and produce some real goods.
    Oh yes! I am a retired City fund manager and live pretty well. When I was around we invested. We were not “Traders”. Maybe the next tax should be a “Tobin Tax.” That might bring Rapesville into line.

  5. killben


    All this brow beating will not help. The best way to ensure these banksters listen is bring them to their knees on a scale that they will be lying on their backside even with all government help. This can be done by WALKING AWAY ENMASSE FROM UNDERWATER HOMES!!


    1. Vinny G.

      Good point. And, if I may add, max out your credit cards and walk away from those too.

      As they say down South, “That’ll learn ’em!”


  6. RebelEconomist

    If the UK government really wanted the banks to use their profits to increase their capital, it might have been better to have simply ordered bonuses to be paid entirely in shares, and then left it up to negotiation between employees and shareholders to decide the size of bonuses. I believe UK shareholders have more influence over remuneration than US shareholders. In my view, the highest legislative priority should be on developing a regime that allows for shareholders, then junior debtholders and so on, to be written down to zero without closing the bank. When shareholders and debtholders know that they can be disposessed with minimal collateral damage, they will probably approach their responsibilities and powers more rigorously. As far as I know, such a resolution regime has yet to be introduced in the UK or US, more than two years after Northern Rock raised this problem.

  7. Vinny G.

    Sounds like corporate governance and national political governance have this in common: those elected are robbing the chumps that elected them.


  8. Franklin D. Roosevelt

    We had to struggle with the old enemies of peace — business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

    They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me — and I welcome their hatred.

    1. DownSouth

      The Founding Fathers were very much students of classical history, and in the new democratic experiment called America were thus leery of “an excess of democracy” or “the tyranny of the majority.” This fear of the majority or of democracy has ancient roots, coming down to us from political theory developed during the Greek city states–and we see it manifest in Federalist No. 51, written by James Madison:

      …it is of great importance in a republic, not only to guard the society against the oppression of its rulers; but to guard one part of the society against the injustice of the other part, to save the rights of individuals, or of the minority…from interested combinations of the majority.

      Madison was correct in his call for a powerful federal government to protect one segment of the population from the other. However, if experience has taught us anything over the last 220+ years, it is that he was mistaken, almost spectacularly so, as to where that threat was to come from. Madison thought the threat would come from the economic majority, that is the poor masses, trampling the rights of the economic minority—that is the rich.

      The concerns of Madison and other colonial elites in this regard, however, were misplaced. Through a plethora of devices—outright graft and corruption, campaign finance, political parties, voluntary associations (such as lobbyist groups), control of the press, Madison Avenue propaganda, buying off and promotion of prominent religious, cultural and academic figures so as to give their control moral and intellectual cover, etc.—wealthy minorities have proved extremely effective in gaining inordinate influence, not only in policy making, but public opinion as well. (For a wonderful historical overview of this, see Kevin Phllips’ Wealth and Democracy.

      The doctrines of the Libertarian-Austrian-Neoliberal axis of course play right into the hands of the wealthy elites. They canonize the individual. But the notion that the lone ordinary individual has a fighting chance when pitted against the wealthy individual or corporation is so nonsensical as to border on insanity. So in order to match strength with wealthy individuals or corporations, the ordinary citizen must organize himself into groups, labor unions historically being one of the most prominent of these. Those in the Libertarian-Austrian-Neoliberal axis deride these groups by calling them “socialistic,” if not outright “communistic.”

      FDR was in essence acknowledging that Madison and the other colonial elites were mistaken, and that he, a wealthy elite just like them, is pointing out just how wrong history has proven them to be. As Madison believed, a strong central government is indeed necessary. But FDR is pointing out that government must be responsive to a majority of the people, while still protecting the rights of minorities. The key is not to do away with strong government, but to make it more responsive to the majority.

      FDR is also I believe telling us that these conflicts are natural, inevitable and perennial. FDR did not demur from the conflict, but even seemed to relish it. He was truly a Nietzsche kind of guy. The spirit is wonderfully captured here by the WWII fighting ace Fred C. (“Boots”) Blesse:

      No guts, not glory. If you are going to shoot him down, you have to get in there and mix it up with him..

      Tragically, the elite-network style of antipolitics that predominates in the US, as Peter Skerry observed, “teaches those without political power that it can and should be bestowed on them by elite benefactors.”

  9. DoctoRx

    If we took the Taleb (and Volcker?) suggestion and put plain vanilla deposit-taking commercial banking as its own governmental function, or quasi-governmental w old-fashioned plain vanilaa regulated electric or water utilities as the model,management would be paid fairly for not taking risks or making much money (or, making no “profit” if government ran the banks). Then the investment bankers and prop traders could do whatever they wanted without fear of bank runs; assuming of course that other horrible things such as credit default swaps against which there are no reserves and no regulation are not allowed.

    London should have lots and lots of high-paid financial types if they can justify their existence. Just please keep them and their American compatriots away from my FDIC-insured money. Free to get rich in this scheme means free to go bust.

  10. Cynthia

    I think that as long as the US is thought of as the world’s leader in finance, we’ll keep our bankers rolling in the dough, if even the vast majority of them are lousy at investing. If we don’t, we’ll be sending a message to the world that our banking system is no longer up to snuff, forcing us to hand some of our financial power over to one or several of the BRIC countries. Something similar can be said about our military. As long as the US is thought of as having the most powerful military on the planet, we’ll continue to keep our generals in power, even if none of them can win a war against an enemy whose firepower is far beneath ours. If we don’t, we’ll be sending a message to the world that having a military that dwarfs all others by a long shot is not what it’s cracked up to be, forcing us to give up many our military (mis)adventures around the globe.

  11. Captain Teeb

    As to public shareholders keeping ‘their’ companies in check, I refer you to a book I read in the late 1970s: The New Industrial State by J.K. Galbraith, in which he argued that large public corporations had become indistinguishable from large bureaucracies.

    These are answerable to no one but their own hierarchy. Their goals are to make themselves comfortable (natch) and to provide upward mobility for themselves and their protegés. That the FT would dare to float such a suggestion more than 30 years later is akin to saying “this article is garbage, stop reading now”.

  12. Doug Terpstra

    Merci…er Mercy, Ives! I bypassed two prior posts when this seemed to promise a hint of banster comeuppance on Monday morning, but nooo!

    Speaking of Monday blues and rage, I just watched a tape of Moyers with David Corn and Kevin Drum, MoJo author of “Too Big to Fail.”

    “As the bankers are wont to say: there is a limit!” I wonder just where that is, really. I am rather surprised by the lack of vigilantism. Early vigilantes are likely to become folk heroes.

  13. joe

    It seems to me the useful and justified anger would be best directed at the source of the problem.

    The problel lies with the lobbyists allowed to write the laws. So no matter what the politians say, or how much you beat on bankers. It is all within the law. The lobbysists write the laws, and bingo.

    1. immaterialMind69

      But the bloodlines should answer to the Divine Law in a few days about this subject.

      What regard will they have then for their work? Heavens know, I can not see it.

      Without being religious but as a spiritual gentleman I can say that, people who have heroic but poisoned, violent, ambitions and lifestyle, those who oppose human law, prisons plus punishment for their crimes – will be punished by the Divine, read the Iliad, read the Odyssey. I speak spiritually because the bankers are cunning and manipulative and can outwit any earthly thunderous charges brought against them, but this one time, they will be helpless fish calling others what they really are.

      The Bankers are the Greeks who conquered and stole everything from Troy/me and you – their punishment shall be ten thousand times more than what Odysseus had to pay in the current market place. Or mark the Bard’s, Shakespeare’s, Hamlet, what will happen do anyone, to almost all, who will benefit from the knavish thievery of the bankers.

      Trees will give my release and revenge, Adieu, for your part I know not what will be of satisfaction. In any case – may the peaceful, non-violent Taara be help for me and you

      1. craazyman

        I guess I’m not the only lunatic on this board. How many drinks did it take you to come up with that observation? I could probably do it with 2 and 1/2. he he he. Let’s see some charges brought against them first, before we give them too much credit for their wits. I think they’d fold like a cheap tent at the first subpeenie.

    1. Petra Gajdosikova

      People like you will only wake up when their welfare cheques start arriving. Whose taxes do you think have been paying for the vast expansion of the public sector in the last 10+ years? If not for the City and the higher earners, how would the government have gotten its dirty hands on the billions to squander?

      1. dgalbraith


        “Whose taxes do you think have been paying for the vast expansion of the public sector in the last 10+ years? If not for the City and the higher earners, how would the government have gotten its dirty hands on the billions to squander?”

        Your logic is all over that place, but this nugget is choice. Squandering billions is not a good thing,neither was the evaporation of fictitious billions that were never made, or the disease-like property asset bubble.

        But ultimately, what is not good at all, is the fact that millions of unfortunate people are suffering much more than they benefited. Spare a though for them and perhaps go back to school.

  14. doc holiday

    A sleeper agent is a spy who is placed in a target country or organization, not to undertake an immediate mission, but rather to act as a potential asset if activated.

    Re: “Obama is looking more and more like the Manchurian Candidate with every passing day.”

    Should read: Obama is looking more and more like the Manchurian Candidate with every passing minute and blog post.

  15. K Ackermann

    As a writing exercise, I recently wrote a short story about a serial killer with a raft of problems. He finds he’s incapable of violence, and he passes out at the sight of blood. He never quite manages to get the job done. What could be worse than a serial killer? This is how the story ends:

    I’ve had it to here with this serial killer work. The clients I have make me berserk. All this hiding in the shadows, and slinking around… I need something more evilly profound. I need wholesale destruction, and worldwide suffering. I need vile deeds on the grandest scale. On my leverage and power, you’ll be impaled. I’ll be a banker, a broker, an economist too. My need will be greed; I’ll bite the hands that feed me. I won’t ask for a thing, but I’ll take what I want. Don’t sneeze your nose at me… I’ll foreclose on you easily.

    Open a 401k with me today, tomorrow you’ll pay, and the day after that. I’ll cry before congress and they’ll pass the hat. I’m doing God’s work now, I’m sorry to say. I left the devil at 666 Saint Gacy Way. You’ll come to think of him as quaint and cute. That you will, when I steal your loot. I’ll look down on you from my tower of power. When you look up, I’ll piss on your face. I’ll tell you it’s raining at 666 Saint Goldman Sachs Place.

  16. MichaelC

    Have you considered that the winner banks major shareholders, rather than sitting impotently on the sidelines wringing their hands over the ‘shocking’ comp levels of their stewards are actually ok with the bonuses right now?
    The stock prices of the winners have risen by multiples of their improved earnings, thanks to the govt, so from their perspective their employees have managed their capital very well, post crash, thank you. They are in on the looting.
    Buffet is the poster boy for this view, in my mind. He’s been deafeningly silent on the topic of excessive bonuses. Does he lack the influence to reign in the bonuses at his holdings on behalf of the other shareholders? Is he hampered by fortresslike board structures? He could single handedly slash industry bonus payments simply by advocating publicaly that bonuses at his holdings should be retained.

    The UK governments approach, targeting the shareholders is exactly right, I think. That major shareholders at the winners can’t (or choose not to) rein in management when management is vulnerable, indicates to me its not in their interest to demand bonus reductions, not that management has the upper hand. The shareholder’s of the losers don’t dare demand bonus reductions for fear their people really will abandon ship.
    Our ire is directed at the greedy guys who get to walk away with fat paychecks, but it needs also be directed at the major shareholders who are benefiting from the looting as well.
    The UK government seems to understand the corporate governance impediments argument is bunk, and that management actually does serve at the pleasure of the owners. If that’s not the case now, tough shit. Large shareholder’s DO have enough influence at these institutions to ensure they are managed properly. The UK govt apparently has a spine.

    1. Yves Smith Post author

      The idea that shareholders approve of this (ex the shareholders that are also employees) is counterfactual. Goldman had to meet with shareholders to try to appease them. And they are supposedly best of breed. If you are a Citi shareholder, and bought at $45 on the way down, as a friend of mine did, you most assuredly are not happy.

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