There's a very simply answer to the problem of banker bonuses. Give them to everybody. No, I'm serious. The banks are only in existence because of the hundreds of billions in state support. Had it not been for the guarantee of public money to back up their dodgy asset base, not just direct capital injections but liquidity, asset swaps and loans, even the nominally private banks like Barclays would have gone under in 2008 because the entire financial system would have collapsed and their assets would have been valueless.
Very well then. In future, when the banks hand themselves bonuses, the public should get equal, if not greater bonuses for having underwritten their profits in teh first place. It's only what the banks would do were the situation reversed, and they were lending to government. They call it interest. So seven billion in bonuses to investment bankers? Seven billion to us. Twenty billion in City salaries? Twenty to us.
Such would be the condition for any future public support for banks. If some banks reject this they can reject this arrangement and go out on their own, but they would really be on their own. Then we would see what the state guarantee is really worth in the market where it counts. Can you imagine anyone putting their money in a bank today that would have no future access to any public support? Exactly. They would be out of business tomorrow.
It is the sheer scale of this on-going plunder by bankers, who remember owe their financial existence to public subsidy, that is so astounding, so outrageous. According to the BBC’s business editor, Robert Peston, bankers have already awarded themselves salary increases of 20-40% in the past year. This was supposed to compensate them for losing or reducing their bonuses - but they went ahead and awarded the bonuses anyway. These people have no shame, no conception of what real work is worth.
Of course banks like Barclays insist that they are private companies and should be allowed to pay themselves whatever they wish. ‘We’re like premiership footballers’ say the men in suits. They they go, bending it like Beckham in the commodities market; the Wayne Rooneys of wealth creation. But they would all be in the dressing rooms nursing P45s had it not been for he extraordinary generosity of the British tax payer, who allowed more than £1 trillion, according to the Bank of England, of public money to be used to rescue the banks from insolvency.
At this time of austerity, it is astonishing that we allow these people to profit from the chaos they created. These bonuses are an insult to every employee outside the financial sector, who will see their pay fall in real terms in 2011 even as their taxes are raised by VAT. Investment bankers sniff at anyone earning less than a million pounds a year. The top men in the City expect remuneration packages of tens of millions a year or they threaten to go abroad. But how many houses do they need? How many Bentleys, swimming pools, polo ponies, private schools? The answer is that they are not buying things with their wealth, but influence.
The sheer scale of the bankers greed is itself a political statement: a demonstration that they are an untouchable elite, beyond any civil constraint. Their economic power has thwarted government attempts to claw back some of the bonuses in tax, and left them to increase VAT instead, which hits middle and lower income families hardest. VAT is not only regressive - ask the Institute for Fiscal Studies - it is also deflationary, because it hits spending power in the high street. It is economically more rational to tax the wealthy because they tend to funnel their excess cash into static investments like houses, rather than products that create employment.
But this really isn’t an economic issue; it is a political one - about who runs the country. Once upon a time, we said that the trades union barons were running the country, because of their ability to withdraw labour. The right to strike may indeed have been overused back in the 70s, when millions of days were lost through industrial action. But the power of organised labour was as nothing compared to the power of organised finance. Bankers don’t have to strike to secure leapfrogging pay claims. They just get their remuneration committees to add a few noughts to their salaries and add a big bonus on top. Like some plutocratic shop stewards they insist that it’s the ‘rate for the job’ and that they have to have parity with fellow bankers.
Governments took on the unions; but who will take on the banks? Bankers clearly care nothing for public opinion, and have treated with contempt politicians’ calls for voluntary restraint. This raises the awkward question of whether our enfeebled democracy is still capable of disciplining this unique special interest group. Or has power already slipped out of our grasp? Are we perhaps moving to a kind of financial feudalism, in which immensely wealthy robber barons command a disproportionate share of society’s wealth and subject the people to a kind of debt peonage? Financiers have succeeded in chaining an ever larger proportion of the population to mortgages and other forms of debt that now amounts to £1.5 trillion.. This binds millions of people into a kind of servitude - working an ever larger part of their day for the banks. Soon, students - in England at least - will be emerging from university with mortgage sized debts even before they try to buy their first flat. Governments have been brought low by sovereign debt crises that have undermined their authority and forced them to introduce deflationary policies to please bond holders.
The new financial elite that bonded with the state during the New Labour years, and grew immensely powerful under Gordon Brown’s ‘light touch regulation’, captured the new Liberal Conservative government within six months. I’m sure the Business Secretary, Vince Cable, and even the Chancellor, George Osborne, were sincere when they promised in their coalition agreement last summer to take “robust action” to curb “unacceptable bonuses”. Many Conservatives have run companies themselves, and probably understand better than Labour, the difficulties of dealing with the “banksters”. Banks have few friends in manufacturing industry or the media or among home owners. But at the first hurdle, they have fallen on their faces, as the banks race off with the loot.
The only way to rein in the banks is to target the source of their power, their immense wealth, through taxation. Let the investment bankers go abroad, if they wish. We can survive well enough without their speculative frenzies. Now that British manufacturing is getting on its feet again, it tis time to start the job of rebalancing the British economy to rely less on financial services. It is a democratic imperative as well as an economic one. As someone said recently: we really can’t go on like this.