Bankers’ ‘talent’ is a burden for taxpayers

Taxpayers control Royal Bank of Scotland.
The liabilities heaped upon British taxpayers, just for the bank bailouts of 2008, are in £ billions, while the expenses of Members of Parliament, which have caused so much anger, are just in £ millions. £1 billion is one thousand times more than £1 million. So surely we should be a thousand time angrier over the financial collapse than over MPs’ expenses? Not a bit of it, maybe because we can grasp the concept of a million, but not of a billion. But grasp the concept we must because we will have to pay back the debts taken out in the name of ‘taxpayers’.
Meanwhile, the rampant greed in the City continues unabated. Big bonuses are back, allegedly to recruit and retain ‘talent’.
It’s precisely this ‘talent’ that got us into our present financial mess, by creating deals with no better purpose than to earn commission for their arrangers.
UK Financial Investments, which is supposed to look after taxpayers’ ‘investments’ in failed banks, approved a pay deal worth up to £9.6m for Stephen Hester, chief executive of Royal Bank of Scotland, if the bank’s share price reaches 70p.
This arrangement assumes that if the share price crosses the 70p threshold, it will be due entirely to Stephen Hester’s talent. This is not a valid assumption. Chance events might well propel the share price up, and then drive it down again. Why is it that bankers take the credit (and the money) when share prices rise, but demand to be rescued by taxpayers when the stock falls disastrously? Why is individual effort supposed to cause stock appreciation, but individual stupidity is rarely blamed for failure?
Answers please.

Pay Gap, Debt Cliff

Bankers and their suitcases stuffed with cash! HBOS – the bank that resulted from the merger between Halifax and Bank of Scotland – had 15 directors in 2007, and they sure took a lot of profits as ‘remuneration’. The directors shared a pot of £17.690 million, which if it had been distributed evenly, would have worked out at £1,179,333 each. The bank’s employees received an average of £31,584. Not a bad income, well over the national average – but each director got, on average, 37.3 times more. That is quite a gap.

We know now that HBOS was floundering. Government ‘rescued’ it by engineering a merger with Lloyds TSB to form Lloyds Banking Group, which opened its doors in January 2009. The government – us taxpayers, in the end – had to chip in a few billions of £s here and there to keep the whole show on the road.

Barclays’ directors raked in even more than their HBOS counterparts, a total of £29.273 million in 2007, a mean of £1,721,941. Barclays wasn’t treating the 17 directors at all meanly! Lots of the workers did quite well too, as their mean income was £54,251, but the directors were taking home 31.7 times more.

One of the more abstemious banks in 2007 was Northern Rock. Well, there was a run on it during the year and it was nationalised in February 2008, so it had to show a little restraint. The 13 directors received £3.376 million between them, an average of £259,692. The bank’s staff were not nearly so well paid as their fellows in Barclays, or HSBC, or even HBOS. Their average income was just £20,145 (well, it’s a northern bank, and everyone knows that northerners can live quite happily on scraps thrown from the London table). Northern Rock was verging on the egalitarian, though, as the gap between directors’ and workers’ income was only 12.9 times!

The UK government almost controls Lloyds Banking Group. It does control Royal Bank of Scotland Group, and it owns Northern Rock and the mortgage business of Bradford & Bingley. These banks were deemed too big to be allowed to fail. Their executives (OK, a few have moved on) remain very well paid.

Banks, and bankers, were allowed to get out of hand because government saw its job, its only real job, as helping the economy to get bigger and bigger. Society became the servant of the economy. Who was it who said that ‘Divitiae bona ancilla, pessima domina’ (Riches are a good handmaid, but the worst mistress)? Oh yes, it was the philosopher and scientist Sir Francis Bacon, 1561 to 1626, who died owing £22,000.

We owe rather a lot more than that now, as taxpayers. The UK’s national debt was £513 billion in June 2007. In just 18 months to January 2009 the national debt has quite possibly trebled to over £1,500 billion, or £1.5 trillion. We can’t put a definite figure on it because we don’t know exactly how much the bank bailouts and other economic ‘stimulae’ are going to cost us. In round figures, though, £1.5 trillion is £25,000 for every man, women and child in the UK.

Mission impossible?