Wednesday, 5 August 2009

10 Trillion Reasons Why there Should be No Bank Bonuses

After the impassioned plea by bank CEOs for our understanding as to why investment bankers and the like should be awarded unfeasible bonuses in likening them to star performers on the football field or in movies, sobering reality arrives in the form of a report prepared by the IMF for the G20 Summit in September.

The IMF says that the cost to Governments globally for the Credit Crunch - remember not taxpayers but investment bankers caused this - has been $10 trillion so far. Think about that - it 10,000 times $1bn. The bulk has been coughed up by rich countries, 92% of it, but a large chunk has fallen on developing nations who can least afford it, as their clever little bankers wanted to share in the bonus bonanzas too.

The profits that banks are whining about bonuses on are just a few 10s of $billions and fail to make any, even minor, dent in the incredible losses they have drummed up.

There have been $1.1tn of capital injections, $1.9tn of asset purchasing, $4.6tn of guarantees and $2.5tn of liquidity provision - numbers which defy belief and the ability of most calculators to comprehend. It seems bankers can't either.

You see, they would have us believe that we should forget all that cost that has to be met by us, even though a chunk will be reclaimed when the economies recover, supposedly. They would also have us believe that the clever people who created this mess really deserve our largesse in the form of vast bonuses and that we should kneel at their feet, kiss their backsides and not get uppity when they pay hundreds of thousands and millions to themselves for the risks they take.

Another taste of reality from the IMF, whether you believe the actuals or not is neither here nor there, the fact is they say there are more problems ahead. The IMF reckons that government debt will be 239% of GDP by 2014 in Japan, it will be 132% in Italy, 112% in the USA and 99.7% in the UK - slightly out from Darling's estimates. While this may seem excessive as it means a doubling of the current debt situation in the UK, but Darling hasn't got a prediction right so far, horribly undercalling debt at every try to date.

The IMF bemoans a 'lack of policy credibility' which is making fiscal expansion less effective and is increasing interest rates and risk. I would say that by instigating largely the same fiscal policies as before seriously increases risks - but what do I know?

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