Banking is too important to be left to greedy and reckless bankers

Published 25 June 2009

It is sickening to see our wretched bankers dusting themselves down with taxpayers' money. Labour has to act.

The financial crisis is, as everyone knows, far from over. Banks are still not lending; unemployment continues to rise. The threat of a protracted recession remains urgent. Why then are Britain’s bankers carrying on as if it were business as usual?

Salaries across the City are soaring in spite of the economic downturn and the ensuing bankruptcies, redundancies and repossessions. This past week it emerged that Goldman Sachs is planning to pay staff the biggest bonuses in its 140-year history.

Vince Cable argues in this week’s issue (see page 22) that the row over MPs’ expenses has diverted the public’s attention from the City, and that the disgrace of the political class has become the bankers’ salvation. Worse still, writes the Liberal Democrat Treasury spokesman and author of The Storm, the bestselling anatomy of the credit crunch, “the opportunity for renewal and reform is passing us by”.

It all seemed so different during the cataclysmic economic events of September and October. Then, the Labour government seemed to have rediscovered a long-dormant sense of moral and economic purpose, denouncing the excesses of the financial elite. Gordon Brown declared at the time that “the day of big bonuses is over”, to applause from many. As the financial system teetered on the brink of collapse, we argued that this was “a moment of opportunity and responsibility for Labour”.

Now, however, it seems that the opportunity has been squandered and the responsibility shrugged off. The near-£10m remuneration package announced on 22 June by the Royal Bank of Scotland for its new chief executive, Stephen Hester, is a case in point. RBS is a bailed-out bank, 70 per cent state-owned, making Hester – on his basic salary of £1.2m – the country’s best-paid public servant.

Whether they like it or not, those such as Hester, Northern Rock’s Gary Hoffman (basic pay: £700,000) and the Lloyds chief executive, Eric Daniels (£1.03m), are now state employees. Yet they refuse to be bound by any sense of public service.

The dilemma of New Labour is that Tony Blair and Gordon Brown struck a Faustian pact with the City, in which a lightly regulated financial sector delivered the high growth and tax revenues with which the Treasury funded public spending and its efforts at redistribution, mostly by stealth. Then came the crash, and everything changed – or, at least, that was what we were led to believe.

This past week, the government could have signalled to bankers and voters alike that it had learned the lessons from the worst financial crisis since the Great Depression. It could have insisted that RBS reconsider its plans to dismiss 11,700 members of its workforce, and ordered the bank to link any future bonuses for its chief executive to increased levels of lending in the long run, rather than to a ramped-up share price in the short run. It could also have used the row to launch a wide-ranging review of executive pay and consider proposals for restrictions on excessive bonuses.

Instead, the government remained predictably silent, and UK Financial Investments, the quango appointed by the Treasury to manage taxpayers’ stakes in the bailed-out banks, signed off on the Hester deal, sending the message that large pay packages across the City are once again acceptable.

In the United States, by contrast, Barack Obama employs the language of public service and the common good. The president has spoken repeatedly of the need for bankers to make “sacrifices” and has imposed a $500,000 annual pay limit on bailed-out bank executives. And on the European continent, centre-right governments in France and Germany have taken the lead in condemning bankers and their bonus culture, calling for greater financial regulation.

It is shameful that a Labour government should be outflanked on the issue of financial reform in this way. And it is sickening to see our wretched bankers dusting themselves down with taxpayers’ money not long after they dragged this country into the worst recession in living memory, brazenly carrying on as if nothing much had happened. The window of opportunity for reform is shutting. Labour has to act. The most important lesson of the financial crisis, which the government has yet to learn, is that banking is too important to be left to bankers.

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7 comments from readers

Greg
25 June 2009 at 16:29

How many more times are we going to read the oft-repeated and lazy statement that the Labour Party wished for a 'lightly regulated financial sector'? The tripartite committee, established by Brown and Balls at the Treasury failed the financial sector, and the country, because it failed in even its basic regulatory role, most especially by transferring the responsibility for banking oversight from the experienced hands at the Bank of England to the inexperienced FSA. Even if the government had nominally established a highly regulated banking sector, if the regulatory bodies themselves are understaffed and under qualified (as they were) we would still have ended up in the same place.

Halebard
25 June 2009 at 17:33

Yes, any effective regulatory system needs teeth.

But, 'He who pays the piper calls the tune...'

Gordon Brown, as Chancellor, encouraged the bubble and he was happy to watch it grow. Unfortunately, bubbles have the habit of bursting. Experience and common sense tell us this. Mr Brown was said to be 'the man of experience' and New Labour made much of this virtue when he was shooed-in as our PM following the resignation of Blair. But it is pretty clear now that plain old-fashioned common sense seems to be in short supply...As are a sense of justice, ordinary honesty, and idealism ...[the list goes on].

The bankers and their cronies are getting back into their old ways, snouts are sniffing out the biggest troughs, and telephone-number bonuses are being offered as incentives. The culture of obscene greed is becoming re-entrenched and this is seen as normal.

The architects of disaster are being rewarded with more of the same.

Politics in the UK is a new Augean Stables but there's nobody willing and capable of flushing out the accumulated mess. The old network is still in place.

No effective act of contrition has been demanded, protest has dissipated for want of direction and the guilty are surely shaking with silent chuckles.

john problem
25 June 2009 at 19:54

The amazing thing about all this is that the banks can do what they like to the taxpayer who has just saved them - while our government does nothing to protect us. Obama told the banks in the USA to behave (and even pay back their bonuses) and in France Sarkozy said - 'be responsible or I'll legislate.' What's the problem? Are British banks above the law? Or is our Great Leader - for reasons we don't know - too scared to say a word? Whichever it is Joe Public is being given the stiff arm once again. And again. and again. And again.

William
26 June 2009 at 09:04

So in the meantime the knives are out for the staff who work at the BBC. Shock-horror earnings that only junior bankers can earn are being hijacked by the public purse ethos.

Bankers are required to be seen to be corruptable, so as to bring forth NWO. Otherwise the Bilderbergers will not have a buffer to stop the glare upon their holy hides.

Camus
27 June 2009 at 19:44

What is this all about? The banks do a great job in financing our system, loaning out billions to the hard-

working entrepreneurs and acting very sensibly when things unravel. They go to the government and tell

them just how important they are. Free economy means freedom for all. If you don't like it, open a bank. Or rob one.

michaelpetek
01 July 2009 at 23:25

If it takes £700,000 to get Northern Rock’s Gary Hoffman out of bed in the morning, I'd say he was work-shy.

juneandon
31 July 2009 at 11:09

Please please please, let's not all pretend that we hate the bankers with a B. We love them when they help us buy our houses, cars, food and clothes.

The banks allow us to live the way we do and we think we should have control of them.

WAKE UP - THE BANKS ARE THE SYSTEM. We owe our jobs and homes and very existence to the banks.

The people who facilitate the existence of huge economies are run by very able people and they grossly overpaid - BUT like footballers, this is what the market has determined.

Wake up and accept the reality - your home, food and clothes are there as a result of a financial system created and controlled by banks.

I really don't care how much profit they make as long as I am able to function the way I choose, or should I say function the way banks have allowed me to choose to.