By Vince Cable
Last updated at 10:45 AM on 09th February 2009
CABLE: 'The unfettered greed and rewards for stupidity and failure which have been exposed in the City leave a very bad taste in everyone's mouth'
The crass behaviour of Britain’s financial aristocracy rivals the last of the Bourbons. Marie Antoinette famously patronised the Parisian mob with her ‘let them eat cake’, while dining in luxury in the Tuileries.
The City bankers who ruined their banks but have been kept in employment by the taxpayer now demand we pay them their bonuses to maintain the aristocratic lifestyle to which they have become accustomed. They know no shame and take no blame. They are lucky the British have no guillotines in stock.
Is the public outrage simply the politics of envy? I think not. Most of us have no problem with successful entrepreneurs earning lots of money. They rightly command respect, as the backbone of a healthy, private enterprise system.
The bonus-hunting bankers, by contrast, stand charged with destroying wealth on an epic scale. Foolish, greedy, irresponsible behaviour and excessive risk-taking led to massive losses and the crisis in the banking system which is now costing millions their jobs and many their homes. Why should such failure be rewarded?
The banks were deemed ‘too big to fail’. Otherwise, the bankers would be on the dole. The Royal Bank of Scotland/NatWest has a balance sheet – assets and liabilities – much bigger than the British economy. It is one of the biggest banks in the world.
Had it been allowed to go bankrupt, it would have caused massive destruction: the financial equivalent of detonating an H-bomb.
So the Government had to step in, using taxpayers’ money to buy shares.
The chief culprit, the bank’s former chief executive Sir Fred ‘The Shred’ Goodwin, has disappeared with his millions. But most senior executives and the whizzkids in the investment banking arm whose trading activities with billions of pounds of ‘toxic’ paper lie at the heart of the present crisis, have remained.
Managers now seek their ‘bonuses’, arguing that their unique skills are needed to dig the bank out of the hole they created. This is a little like the managers of a hospital with a terrible record of poor hygiene and premature deaths surviving the sack, then demanding more money as an incentive to improve.
Other banks, less in the spotlight, incubate the same culture of excessive pay. It was revealed last week that Barclays pays a man £40million to legally avoid British taxes – the ultimate insult to taxpayers who have to underwrite the bank.
When I debated these issues with a leading hedge fund manager on Newsnight, he argued that there is a ‘market’ rate and we have to pay it to attract the best people to clean up the mess. I understand the pragmatic approach, but it is wrong.
There are more bankers than banking jobs. Large numbers are being laid off. Those who remain are lucky to be in work. Nor are there easy pickings overseas. The Obama Administration is cracking down on bonuses in the US. Even the banker-friendly Swiss government has now slashed bonuses in the banks it had to rescue.
Sir Fred 'The Shred' Goodwin, the former head of Royal Bank Of Scotland, presided over the company as it plunged to losses of £28bn
In this new world, those running the Government-subsidised or guaranteed banks are public servants, in the same position as the top managers of the NHS or the immigration service or the prison service.
The head of the NHS, the fourth-biggest employer in the world, is paid £220,000 a year, an extremely good salary but way below what the City bankers have come to expect.
The Government will have to be firm and stop dithering on the sidelines appealing plaintively to them to behave, like a weak teacher struggling to control an unruly class.
First, the pay and benefits of all employees in publicly supported institutions should be fully declared. Anyone paid over, say, £100,000, should have their remuneration made public. Just as MPs are being called to account on careless policing of expenses and generous pension arrangements, so should others who benefit from the taxpayers’ support.
Now is also the time to set the rules for bonuses in future contracts. Many good companies have incentive schemes which motivate their employees. The banks, by contrast, have incentivised their employees, particularly in investment banks, to take extreme risks with depositors’ money, then walk away from their deals with fat commission payments.
In future, any bonuses must be in company shares, properly priced, which can only be cashed in after five years or more. In other words, cash bonuses should be banned.
The future of High Street banking will also be very different. The old-fashioned clearing banks should be stripped of their high-risk, gambling operations and be required to operate as the safe, reliable, stable institutions they once were.
Britain will continue to need bright, enterprising people and to reward success. But the unfettered greed, and rewards for stupidity and failure which have been exposed in the City, leave a very bad taste in everyone’s mouth. The financial aristocracy has to learn to respect the public who pay their wages. Otherwise we shall soon be importing French guillotines.
Vince Cable is the Liberal Democrat Treasury Spokesman.
Billion pound bonus prompts outrage 09 Feb 2009 Reports that the Royal Bank of Scotland (RBS) was about to award its staff a billion pounds in bonuses prompted outrage on Sunday at a time of soaring unemployment and with a deep recession looming. Chancellor Alistair Darling vowed that bankers who had lost money would not get big cash bonuses, though he said it was too early to follow U.S. President Barack Obama's lead and put a mandatory cap on bankers' pay.
US Treasury to pump billions more into banks 08 Feb 2009 Timothy Geithner, the US Treasury secretary, will tomorrow set out the American government’s plan to inject billions of [taxpayer] dollars into the country’s troubled banks and ringfence their toxic assets. The announcement is seen in the markets as key to steering the global economy out of its deepest postwar recession, along with President Barack Obama’s $820 billion (£555 billion) fiscal-stimulus plan.