Banks: the chickens are coming home to roost

Bankers’ bonuses are going to be capped. The poor dears who rely on their bonuses to maintain their life styles will, in the European Union, have their bonuses capped to the equivalent of their annual salaries. It will be a small step on the right path and in the right direction, but it fails to deal with the underlying problem that the banks have caused and still cause for our economies. The second small step will be to separate the traditional banking business for taking deposits and lending from the highly speculative activities which involve what is in effect gambling with other banks.

The “help yourself” bank

The Royal Bank of Scotland is one of the United Kingdom’s largest banks. A few years ago it became insolvent and by any normal rule of business, if the shareholders were unable or unwilling to support it, the bank should have gone into insolvent liquidation. However, irony of ironies, the government deemed the bank too large to fail and supported it with so much cash that the government (or taxpayers more accurately) now owns 81% of the bank.

The great unanswered question of the banking crisis

The problems that banks are causing to economies around the world are continuing and we shall hear more of them as time goes by. The latest news is that regulatory authorities have fined UBS one billion US dollars for manipulating LIBOR rates. Other banks have already been fined and more banks will be fined in future. Using a fine as a means of punishing a corporation for what is clearly criminal behaviour is a soft option. However the regulatory authorities and prosecutors have little choice.

Another Fine Mess the Banks have got us into

By foolish speculation with the money of their customers banks have caused many problems for most people in most economies. It seems that the bankers cannot resist a free gamble with other people’s money. Also, whilst insisting and monitoring prudence in their customers who borrow, the banks manage to borrow recklessly, leveraging their deposits into realms of what should be fantasy but is unfortunately reality. As though this damage was not enough we find that banks are not paying sufficient attention to their core business, of getting and looking after the money of the poor mugs who have to use banks. For the past week NatWest, the Royal Bank of Scotland and other banks in that group have managed to mess up what should be a simple business of recording money going in and going out of the accounts of their customers.

The disreputable honours system

Mr Fred Goodwin (as I have assiduously called him on these pages for the past three years) has now found that he should not place his trust in “princes” – influential or powerful people. When Mr Goodwin had power those with power honoured him; those without power were cowered by him. Those with power invited him to bear the mark of the powerful – a knighthood – not for any great act of valour or courage or charity although these are the qualities of a very perfect knight. He was awarded this mark of honour for apparently making a great deal of money for his employer. In addition to a massive share of the talents, Mr Goodwin was considered deserving of an honour.

Mr Hester Takes a Haircut

After a great deal of pressure on Mr Hester and the board of RBS to avoid taking or paying a bonus of just under a million pounds (a bargain) Mr Hester has caved in to the pressure and agreed to forgo the bonus.
I find it odd that Mr Hester should have been awarded a contract under which bonuses are payable in terms where he gets a substantial bonus (a) before he has succeeded in returning RBS into private ownership thereby finishing the task that he undertook when he was appointed and (b) he gets a substantial bonus when the bank he runs is still making heavy losses and where its share price has reduced since he was last awarded the bonus.

It strikes me as an odd contract for the government of the day (it was the last government) to have awarded. Mr Hester is supposed to be a talented manager,   and if he is he is entitled to a good salary (his present salary of £1.2 million strikes me as a little over the top) but the bonus terms seem to me to be no more than salary disguised as a bonus.

It is quite right that Mr Hester has taken a haircut, and perhaps there should be more haircuts taken by city gents of this ilk.

Yet another fine start – but we are all in it together

Leaders of the western world have explained to their electorates that when it comes to the credit crunch “we are all in this together”. Of course that is simply not true. When it comes to economic wealth and economic turbulence we are not all in it together. No one for a single moment believes that Mr Fred Goodwin, former Chief Executive of the Royal Bank of Scotland is really suffering as much as a family whose breadwinner has lost his or her job, or

Why some promises are more equal than others

It seems that all the United States Banks that received US Government tax dollars have repaid the money or will shortly repay the money in full. These banks needed what proved to be a relatively short term loan to help them get back on their feet an help the American economy on its way to recovery. The United Kingdom lent tax pounds to several banks but these banks have no chance of repaying the UK government in the short or even medium term.

Banker’s bonus – don’t just stop them, get old bonuses repaid

“I have spoken to the chief executive of RBS, and made it quite clear – and he agrees – that no-one associated with these huge losses should be allowed to walk away with large cash bonuses,” said Alistair Darling Chancellor of the Exchequer. He has pumped billions of pounds of our money, and that of our children and grandchildren into failed banks because (a) the banks have behaved very irresponsibly and run up losses that they could not afford and (b) the country cannot manage without a banking system.