Thursday, 13 August 2009

Hell's Teeth

The mighty FSA is showing its teeth and everyone is scared. Everyone, that is, except the high earning City types.

Once again, the FSA has backed off on its promises to get tougher on bonus schemes in the City and this, it claims, is in response to fears of an exodus of 'talent' from London. This is the talent that has directly caused the predicament which the taxpayer is lumbered that could see as much as £1.3trillion fly out of its pockets, so this in not just any talent. This is a talent that is exceptionally good at putting an enormous amount of money into its pockets, losing billions of pounds, getting us to foot the bill and then starting all over again. We have heard all the unconvincing arguments that all this 'talent' is good for the economy, even though they do not pay their full way in taxes, we just have to trust that the genius financiers are right and we, the mugs with the deepest of pockets, are the really stupid ones.

So the FSA has actually written into its regulatory rules that banks can even pay bonuses when they make losses. Amidst all the loudest and most plaintive of screams by the public in the face of bank bonuses and bail outs, it was the fact that obscene bonuses were being paid out when the banks lost incomprehensible amounts of money that most narked us - mainly as we paid for it.

And here we go again - only this time the FSA, the regulator, has written rules which allow such practice.

This once again opens the doors for others to pay the price of the bonuses when the banks make losses. Hopefully, the taxpayers will be the idiots of last resort in the next wave of losses but I dare say we will have another bash at it some time in the future, but it is more likely that it will be everyday, ancillary, administrative and customer-focused bank staff in the retail divisions who will pay with their jobs for such bonuses. Banking is, after all, nothing to do with the public any more.

Even better, the concept of bonuses being deferred over a period of time like 3 years to make sure the traders are not going for short term, high risk deals and losing the money soon after, has been thrown out of the window by making this part of the remuneration plans a mere 'objective' rather than a rule. On top of that, any part of the deferred bonus can be paid regardless of the banks' performance. So in our current scenario, even if, say RBS, had failed so badly as to have to be owned 70% by the taxpayer, any bonuses that have been deferred need to be paid. It is as non-sensical as you can get as such a scenario of losses would have been caused by the very trades the deferred bonuses are to be paid upon and should be the precise reason why you would want to defer them.
Utterly crazy.

Of course, the reason trooped out by the FSA is that it fears that Britain will be uncompetitive with the rest of the world if it were to limit or shackle the bonuses in this way. My memory often gets hazy but this history occurred close enough for me to remember that it was the fact that Britain avidly pursued, sheep like, the rest of the world's crazy financial schemes and deals that we suffered so hugely. Even if ministers could convince us that sub-prime caused the credit crunch, it was the fact that British banks had gorged itself on the deals that we had exposed our economy worse than any.

Today we learn that France and Germany have already emerged from the recession technically. Once again, our fearless PM's guff comes back to haunt him that our economy was more robust than others and so the recession would not hit us as hard and we would recover quicker. It simply wasn't true and it was the extent upon which our banks had over-traded in dubious products that made us more vulnerable than most.

Now we have the same regulatory authority, with the same people at the helm, whining that they cannot over-regulate because Britain would lose out. Once again, with investment bankers at the helm of advising Government and writing the regulatory rules, you will always get the same answer.

Once again, we have missed the opportunity to get to grips with the disease itself rather than treating its symptoms.

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