Sunday, 29 January 2012

Banker's bonuses: why we are being screwed

In September 2008 after the collapse of Lehman Bros bank it became obvious to economists and senior government officials that the world financial system was in danger of collapse, and that banks would be wiped out in the process. In the UK Gordon Brown's Labour government took action and bailed out Royal Bank of Scotland (RBS) and Halifax Bank of Scotland and pushed through a merger between HBoS and Lloyds TSB. In the process the taxpayer acquired 84% of RBS and 47% of Lloyds TSB. The full cost of the UK bailout taking into account Northern Rock and other banks was a whopping £1.2 trillion. The bailout was repeated in other countries, with the TARP, for example, in the USA, and lead to the stabilisation of the global banking system.

What is critical about this is that if the bailout hadn't happened all the banks would have gone bust - not just those who were directly bailed out by the taxpayer. Since 2008 'free' market apologists have tried to claim that banks such as Barclays and HSBC were always OK, as if they would not have crashed, but this is not the case, the fact is that the global banking system was saved by taxpayers.

Lehman Bros HQ
Up to the collapse of Lehmans a culture of huge bonus payouts had become the norm in banking, and in fact when Lehman's collapsed they were still trying to pay out $6 billion in bonuses. After the bailout the culture of huge bonuses continued even at taxpayer 'owned' banks, much to the dismay of the taxpayers themselves. The banking collapse lead directly to an economic collapse which in turn has lead to a sovereign debt crisis.In the process, the UK economy has contracted by 7%. Having paid for the bailout we are now paying for the crisis with the Coalition government's austerity programme. The cost is increasing unemployment, pay freezes, pension cuts  and an attack on the living standards of all but the wealthiest. Bad as things are in the UK, they are far worse in countries like Greece and Ireland, and the Eurozone is itself in danger of collapse.

What does all this tell us? It shows the power of financial capitalism and that our democracies are dominated not just by financial capitalism but also the other big corporations. In the West, which has been hardest hit, politicians have put the interests of financial capitalism above the rights and interests of their own people. The aim has been to preserve the capitalist system and to continue 'business as usual' at all costs, even though it is obvious that the austerity programme in the UK and elsewhere isn't working, at that it will probably make things worse rather than better.

The latest manifestation of the row about bankers bonuses centres around Stephen Hester who is the CEO of taxpayer 'owned' RBS. He was awarded £963,000 in shares as a bonus this year, despite the fact that RBS is still struggling and 33,000 employees have lost their jobs. David Cameron claims there is nothing the government can do about this but that is clearly not true. The Independent revealed that there is nothing in Hester's contract that would prevent the government denying him a bonus. There have been claims that the RBS board would have resigned but so what? They are not the only people who can run a bank. The fact is that the government is taking sides and its not our side, its the bankers side. They are putting the interests of capitalists above our interests. RBS is clearly not being run in the national interest. The bank should be fully nationalised and turned into a green national investment bank to make the loans that  businesses need to help create jobs. That is something that RBS and the other private sector banks are failing to do.

1 comment:

Anonymous said...

He decided to Turn Down the bonus.

best I heard last week was that its ok to say one million bonus because public sector workers get bonuses anyway!