Oh how the mighty have fallen... well not exactly. The EU's latest proposal to cap banker's bonuses at base rate wasn't exactly the Cleansing of the Temple, despite what Mayor of London Boris Johnson might think. However, it may have been one of the first attempts to curb a venomous banking culture that preceded the financial crisis- its painful effects which are all but prescient throughout Britain and mainland Europe today.
This week, Johnson called for the chancellor George Osborne to fight against the EU's supposedly soviet-esque meddling at a meeting in Brussels. To the Mayor, tougher regulation against banks serves only as a piece of extravagant populism, designed merely to distract. Further, such legislation will either encourage clever bankers to break the rules or, in an Ayn Rand induced nightmare, collectively exile themselves to a new promised land somewhere n the far east, where they can enjoy milk and honey while London delves into chaos.
How, at a time when major banks propped up by public ownership are making considerable losses, have they managed to induce fear into our politicians? Though it might be argued that the Conservative Party have always had a close relationship with bankers- particularly since the Thatcher years, even a Labour party apparently removed from Blair-Brown still finds itself arguing for an economy with a strong financial district at its core. And despite of all the chancellor's talk on curbing the 'culture of greed', the Royal Bank of Scotland has rewarded its employees with a bonus pool of £607 million despite recorded losses of £5.2 billion. More audacious, HSBC has announced a bonus pool of over £5 billion, despite scandals over money laundering and disingenuous interest rate swaps.
Osborne argues that the proposal fails on practical grounds. Despite the thirst for banker's blood remaining rife, imposing caps on bonuses will only encourage them to exploit loopholes- in this case, through increasing fixed pay. Under this mechanism, around 5,000 or so bankers would substantially benefit, while superficially capitulating to public demand.
Yet, even this gesture seems to illustrate how little power our political institutions have in administering justice to the financial sector. In fact, its not all that surprising, considering how many favours our government has conducted for failing banks- all thanks to the tax payers who have thus far received next to nothing in return.
David Cameron used a speech this week to justify the path of austerity, arguing that there was 'no magic money tree' to protect public services or invest in the economy. Yet ironically, he seems to forget about the beanstalk in Downing Street that just keeps on giving- most notably in the form of quantitative easing. This allowed failing banks to be propped up by a substantial influx of cash, under a gentleman's agreement that it would be lent to small businesses and home owners. Instead, it was used to trade equities and bonds- instruments of speculation that have pushed up the values of assets and commodities across the board. Far from the Bank of England's expectations, this act has done little to protect the most vulnerable in society- particularly those with low and fixed incomes- while demanding considerably more of them in tax increases and service cutbacks. At the same time, its seen those banks with significant holdings becoming far more wealthy, and their senior employees receiving rather healthy remunerations in return.
So despite the continued corruption and government tough talk, why have the banks been relatively unscathed? The answer might be found in the structure of Osborne's past economic strategies. For the most part, these have been predicated on old notions of 'trickle down' theory- one which suggests that cutting taxes for big businesses and reducing government services would initiate a private sector led recovery. Yet, by simultaneously cutting public sector services, there seems no vision of a different 'type' of economy, more accommodating of social enterprises, co-operatives and community-driven projects. Nor does there seem to be much encouragement for these ventures, particularly in the UK's most deprived economies. Instead, the rather insidious belief remains- as long as big bankers are okay, they'll eventually help out those beneath them. Rather than smashing the pyramid of social hierarchy, the government has provided it more support than ever, in the hope that one day the 'masters of the universe' will come and save the day.
Ultimately, the defence of bonuses derives from fear- not simply of a mass exodus of bankers, but a more profound anxiety of an economy without the foundations of financial services. It is this scaremongering that seems not only to have held the government hostage, but also discouraged the creative thinking needed for real long term growth.Suggest a correction