Vince Cable was quite right on the Today programme this morning. The response to the RBS director’s threat to resign if they are not allowed to pay the bonuses they want to their failed, cash-strapped, state-owned bank should be to say: go ahead.
But we need to look a little more closely at the business of banking bonuses. They are paid out of a percentage of the profits of the investment divisions, sometimes up to fifty per cent. The money would otherwise go to the shareholders – the same ones who failed to exercise proper control over the bank they owned.
There are some, and Fortune magazine is among them, who say that they are better shared with the staff than shovelled at the owners – and that’s right as far as it goes.
But the real question is not why the bonuses are so high. It is why the profits are so high. They come, after all, out of all of our pension investments, or the debt that goes to build productive business, or capital investments in public infrastructure. The real scandal is that these bonuses are paid out of fees which ought rightly to stay with the small investors who are watching the value of their pensions falling.
The fact that the banks are able to award themselves such hefty fees is purely because we have allowed a semi-monopoly to build up in banking, both domestic and investment banking. So here is the real solution: slash the bonuses, accept the resignation of the directors, put in their place bankers who are prepared to do what is necessary to break up RBS into its constituent businesses and regions.
In the process, they can rebuild the competitiveness of RBS and their investment arm by massively slashing the fees they charge borrowers, individual pensioners and savers. That is a business model that might work: genuine competition.
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3 comments:
David, what is your opinion of the Green New Deal, there seems to be some common themes with Lib Dem policy.www.libdems.org.uk/siteFiles/resources/PDF/Pocket%20Guide%20July%202009.pdf
David, I am a big fan of the Green New Deal, but I have to declare an interest - it is run out of the think tank where I am a fellow (the New Economics Foundation). I also think there are important parallels with the Lib Dem policy on investment for sustainability, but I think it needs to go a great deal further. The new Green New Deal report (out last week) suggests that we will need more innovative financing to achieve this, and I would like to see the Lib Dems embracing 'green quantitative easing'. See http://www.neweconomics.org/publications/cuts-wont-work
The 1929 Liberal manifesto pointed out that this kind of investment, at least during a serious recession, will pay for itself by taking up the slack in the economy and providing extra tax revenues from the spending and its multiplier effect through the economy.
Thanks David, green quantitative easing seems to be the missing ingredient from our policy which is otherwise very close to the Green New Deal –in a small way the boiler scrappage scheme was green quantitative easing. I’m pleased that our local MP Richard Younger Ross put forward the EDM and my Council voted unanimously for my motion for boiler scrappage (had the government not introduced the scheme we were going to run our own). Liberal Democrats should support GQE as a policy and put it into action; as we control/have influence on councils we could use the government’s quantitative easing funds being distributed via RDAs for employment to create green jobs.
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