Friday 8 March 2013

There's more to bankers than bonuses

Bashing bankers is always good fun, and usually something which the victims richly deserve.  The EU proposals to cap their bonuses are hardly likely to prove anything other than popular with the majority of us.  The only surprising reaction to date has been the extent to which senior Conservative politicians have been willing to take the unpopular stance of opposing any cap on bonuses.

I can’t help feeling, though, that merely imposing a cap on bonuses is missing the point.  It’s not that I’m convinced by any of the arguments against a cap – far from it.  
The idea that they will take their banking elsewhere if they don’t get their own way sounds more like an argument in favour than an argument against.  And the suggestion that they are so uniquely talented and able that they need to be paid enormous rewards is surely a joke – these are the same people who thought that sub-prime loans were a jolly good idea, that credit default swaps were a good way out when it went wrong, and that gambling on derivatives with the money we put into our high street banks was perfectly acceptable.
No, none of that does anything to convince me.
Then we have the argument that the banks’ huge profits means that they pay a lot of tax, and we can’t afford to lose that money. That’s bringing us closer to my concern about whether a cap on bonuses is missing the point; because it’s not just the size of the bonuses which concerns me, it’s what they’re being paid for and how that profit is being made.  Capping bonuses doesn’t necessarily do anything to change that underlying activity.
Indeed; there’s a danger that the consequence might be quite the opposite.  If the total bonus available is less, does that mean that they’ll do less to earn it, or does it make them more determined than ever to earn the largest possible amount rather than settle for only half of what might be available?  Might it, in fact, incentivise them to take even more risks?
What few seem to be asking is where these massive profits on which we receive tax income actually come from.  Much of what the ‘investment’ bankers are doing bears as much relationship to the traditional meaning of ‘investment’ as does a fiver on the 3:30 at Newmarket.  It’s more to do with ‘taking a position’, to use their euphemism, on currency movements and ’trading’ in general.  It’s more like gambling than investment.  And if there’s one thing of which I’m certain when it comes to gambling it's that it doesn’t create any money; it merely recycles money.  Every profit is balanced by a loss somewhere else.
But, just like the lottery, the losses are usually spread in such a way as to be almost invisible.  Certainly, there’s an occasional ‘big loser’ to make up for the big winner; but generally speaking, as in most forms of gambling, there are a few big winners and a large number of small losers.  And the small losers from the banks’ casino approach to ‘investment’ are all of us.  That ‘profit’ is merely redistribution, from the many to the few.
It doesn’t even stop there though.  It’s clear that when they win, we lose; but it’s also become clear that when they get it wrong, they still win, and we still lose.  They’re gambling with our money, betting it against us, and doing it all with loaded dice.  And then they want us to be grateful that they give us some of our money back by paying as little tax as they can get away with on their profits and bonuses?  The amazing thing is that so many are falling for it.
The problem with banks isn’t that they’re paying bonuses; it’s what they’re paying them for.  And a cap on bonuses doesn’t even begin to scratch the surface of that issue.

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