I have commented before at how stunning the greed of some many of the leading staff of businesses in Britain are, especially those in a monopoly or cartel position such as utility companies and banks. The risk of the collapse of banks in 2008 led the British government to take over chunks of a number in the largest round of nationalisation seen since the 1970s. Not wishing to be tarred with the New Right allegations against public sector business, the government has generally adopted an 'arm's length' model to running them. The largest bank it now effectively owns is RBS (formerly Royal Bank of Scotland) in which it has a 70% share, so not under total control but quite clearly a dominant majority. In addition, last month it was revealed that towards the end of 2008 the Bank of England made secret loans of £61.6 billion to RBS and HBOS (formerly Halifax Building Society and Bank of Scotland; subsequently merged with Lloyds-TSB). In total the UK banks benefited to a greater or lesser extent from a £500 billion rescue package. This was classic Keynesian economics with government deficit financing economic stimulus measures. It is clear that government action prevented RBS and HBOS collapsing leading to thousands of job losses and severe financial problems in the UK.
Are the current directors of RBS grateful for the fact that the government saved the bank for which they work? No. Do they feel even the slightest obligation to temper the greed which got British banks into the dire situation they encountered in 2008? No. Despite the difficult two years they have been through the directors of RBS have decided to pay themselves £1.5 billion (€1.65 billion/milliard; US$2.49 billion) in bonuses (so on top of their current high pay). Despite the ongoing difficulties with the recession these bonuses actually exceed those paid last year. Where is the vast improvement to warrant such payments? When the government suggested that they do not do this all the directors threatened to resign from their posts. Lord Mynors the government minister responsible for the banking sector has called their bluff pointing out how many unemployed bankers there are ready to step into the directors' shoes.
It is probably not surprising that others such as Barclays bank and the National Association of Insurers are backing RBS directors in paying large bonuses. However, as Lord Mynors has pointed out, it is not simply RBS which has benefited from government intervention. Not only did the government take over Northern Rock and the mortgage arm of Bradford and Bingley, it now holds a 40% share in HBOS-Lloyds TSB. In addition, all banks benefited from 'easing' of the credit availability by the government pumping money into the system. The government has only been able to fund such intervention which prevented large chunks of the banking sector collapsing, through borrowing. This borrowing is criticised by the very type of people who benefited from the intervention and risks the UK's credit rating. If RBS is in a position to pay £1.5 billion in bonuses then it is in a position to pay back many millions of pounds to reduce government debt.
The RBS argument, repeated by their allies in the sector, is that they have to pay such high bonuses in order to attract and retain capable staff. You can argue that even the bonuses they have paid have failed to do that as clearly as 2008 showed they only had incompetent staff able to wreck the bank they worked for. Apparently there are at least 5000 bankers in the UK currently earning over £1 million, so what incentive is there to work well if you offer them an additional £100,000 or even £250,000? As yet, I have to see evidence that we have any skilled or clever bankers in the UK, certainly ones worth the levels that have been allowed to become 'normal'. These directors can threaten to resign because they can live without pay for many years. It is particularly bitter when people whine about postal workers who are striking to try to keep their jobs and say that the unemployed are only out of work because they demand too high pay. There is no 'whip' to bring in line the bankers in the way that they and their kind have been so eager to use on people earning less per year than the cost of one of the bankers' cars; remember 80% of the UK population earns less than £25,000 per year.
I support Lord Mynors. The directors of RBS can resign if they like. It will actually do the banking sector a deal of good. I think then that the government should either dismember RBS or totally nationalise it. However, importantly, they must run it properly as a state-run bank. At the moment all the state is doing is pumping cash in and yielding complete control to people who simply want to make themselves even wealthier by funnelling that cash into their own pockets. That is the morality, the business model of a mafia-run casino, perhaps even an extortion racket, given the level of house reposessions, and bankers who behave this way should not be lauded they should be condemned as we would gangsters. The government should not be embarrassed at true nationalisation and they should do it on the French model rather than the half-hearted models the UK has had in the past that too often have simply given power to the privileged rather than making the industry benefit the nation as a whole. They should stop nationalising things on the verge of collapse and take over some businesses in a healthy state again so the UK economy and society can benefit.
Though the bulk of the population seems to make its assumptions from a Thatcherite economic perspective, with unemployment still high and pay frozen and hours cut back, there is both shock at the arrogance of the RBS bankers (as there was at the MPs fiddling their expenses) and sustained support for action to prevent such flagrant greed continuing unchecked. In such an atmosphere, the government has the backing to take the necessary action. It needs to be done before David Cameron and his upper class cronies have any chance to begin again to praise this kind of behaviour in order to benefits their friends in the financial sector. Gordon Brown, Alastair Darling, Lords Mandelson and Mynors, do not let the RBS directors resign, sack them and block the obscene greed which has done so much damage to the UK!
P.P. 7/12/2009: I was very pleased to hear that Alastair Darling intends to tax the bankers receiving bonuses. They have been given repeated (too many) chances to moderate their behaviour and yet have not only not done that but have whined on about the government daring even to criticise them. There was a stage during the MPs' expenses scandal when some MPs realised how genuinely upset the public were about it; the change in expression and response from Margaret Beckett when answering a question about the scandal on 'Question Time' was a physical expression of that shift. Of course, some MPs still have not really caught on and a couple have been deselected. However, it was clear that many at the start thought they were doing nothing wrong and even more arrogantly that the public would not take them to task. Now it is happening, if slowly and incrementally with bankers. Most of us have no control over what bankers do, it seems even large shareholders (including in some cases the government) have no influence either. Any, pretty mild criticism of their behaviour has a strong response attacking the critics and telling them to mind their own business. In many cases now, of course what the banks do is our own business. I really hope the bankers get hammered for their greed which is sickening when so many people are facing unemployment. If it compels them to resign, all the better for the UK. I fear, however, as with the windfall tax on the greedy utility companies promised a couple of years back the bankers will find some way to wriggle out of all of this and thumb their noses at all of us. Personally I have come now, in the face of sickening greed to favour ending any private banking in the UK and having either mutuals (I bank with the Nationwide, a very successful mutual) or state-owned banks. Let us get control of the economy back into the hands of the people who it actually effects. The millionaires are really exempt from economic troughs (though they benefit from the peaks) whereas it is us who lose our job and our house.