Giles, are you actually an idiot or do you just play one in the newspapers?

We cap benefits but not bonuses. How on earth are we \’all in this together\’?

Benefits are paisd from taxation. Bonuses are paid from the income of a private company.

Benefits are paid from the money forcibly removed from the pockets of the populace through State power. Bonuses are freely given by shareholders to their employees.

If you\’re not capable of working out why one can indeed be usefully limited by a legal cap, the other not, then please, could you find yourself a job that doesn\’t depend upon a knowledge of either logic or morals?

31 thoughts on “Giles, are you actually an idiot or do you just play one in the newspapers?”

  1. You are of course right. But the public see the end result as a moral issue, without necessarily studying how it was arrived at. When they study how it was arrived at, they ask why shouldn’t we all give up our dull low paying jobs doing stuff that society actually needs, and just gamble instead.

    …Which of course could lead to problems.

  2. No-one needs to live in London. If you’re going to sit on your arse all day watching Jeremy Kyle, you can do it in Lincolnshire.

  3. ….why shouldnt we all give up our dull low paying jobs doing stuff that society actually needs, and just gamble instead…..

    Probably because
    A) Those doing the gambling are probably not actually gambling (or they wouldnt win on average)
    B) The average Joe would not be capable of doing the job that the bankers do.

    Having raised 3 Billion dollars for my employer in the last two years, for a project that is currently employing thousands, I can see the value that banks and capital markets create.

  4. Bonuses are paid from the income of a private company.

    Like Lloyds and RBS? Which are both publicly owned and loss making, so don’t have a net income?

    OK, a cheap point and doesn’t apply to genuinely profitable and private companies.

    But on a slightly more serious point, banks are, righty or wrongly, heavily regulated. What is special about bonuses that makes it immoral to regulate them rather than, say, capital ratios?

    (You raise it as a moral issue, not just an economic one – so I’m ignoring all the good economic arguments as to why the great and the good like Giles shouldn’t decide who should get paid what. )

  5. Luke,

    That was not only a cheap point, it was wrong. Both RBS and Lloyds posted operating profits, which were then wiped out by exceptional costs.

    In RBS’s case £4.6bn of its headline £5.2bn loss was from marking its own debt to market: its bonds price has risen because it really is in better shape. The rest was made up of provisioning against regulatory fines and compensation, continuing restructuring costs and a goodwill writedown on the flotation of Direct Line.

    Lloyds’ loss is almost entirely due to very high provisioning against PPI and IRHP claims. And both banks are still suffering impairment charges from their portfolios of legacy assets.

    Perhaps the Government should have done the same with Lloyds and RBS as it did with Northern Rock – create a “bad bank” for those legacy assets. Then the fact that both banks are actually turning in a good performance in their core business might be more visible.

    Having looked at both sets of results, I think Lloyds’ is weaker than RBS, and I don’t think the Lloyd’s CEO’s bonus is justified by performance. But I think RBS is justified in paying some bonuses this year. Is that a surprise?

  6. Well yes. And no. The problem from a libertarian rather than socialist perspective is that there is an extremely good argument that the financial sector as it stands is not a free market but a consequence of government policy and subsidy. The Central Banks. The government debt underpinning it all. The continued expansion of the monetary base.

    Von Mises argued (hardly a commie) that this creates a ratchet effect, ratcheting money from the poor to the rich. He who stands closest to the money creation gets wealthier, those further away get poorer.

    So while banking and other financial services would undoubtedly be an important part of a free market, we don’t live in a free market. If those in the financial sector were prepared to stand on their own two feet, they could reasonable argue against State interference. But they aren’t prepared to do that.

    If the South East Bubble is a creation of the State, it becomes less unreasonable to argue for State intervention; and to argue as in the article that the ultimate consequence of this will be to turn London and its environs into a playground for oligarchs, who owe their fortunes, ultimately, not to free market production but to the State.

  7. Sometimes you need to pay a bonus to a “star player” who individually makes the bank a lot of money even if the bank loses money, to stop them from being poached by another bank which has made an overall profit.

  8. Right, because none of these banks paying huge bonuses are owned by the taxpayer. At all. Any of them.

  9. Frances, with my limited knowledge of both banking and accounting, it is probably unwise for me to get into an argument with you, but hey…

    To an outsider, it seems they have been having exceptional items ever since 2007 (there would be quote marks there if I was allowed them). I don’t think you can say – we are profitable apart from loans that have gone bad. That is like insurers saying – we are making profits apart from the claims we have to pay. (And yes, insurance underwriters do try a version of that line – they call it legacy issues too, with various degrees of justification.)

    So when the good stuff (a well known GAAP term) for any one year outweighs the bad stuff/legacy issues for that year (further technical terms) I will accept they are profitable. I’m not saying those running them aren’t currently doing a good job – what insurers call run-off is a perfectly respectable line of work.

    Btw, I have no moral issue with bankers getting bonuses. Equally I have no moral issue with bonuses in a heavily regulated and protected (and arguably subsidised) industry being capped. As to whether bankers bonuses and high pay have caused (or will cause) increased or decreased overall utility, I don’t know.

  10. Yes he is an idiot.But being one has allowed the fat fool to carve out a nice niche as the idiot cleric opinion maker the Guardian go to in time of need.

  11. This quite obviously isn’t about government owned banks as those banks are err … Owned by government which means that government can control bonuses in those banks without the need for regulation. If they did not do that appropriately then it was a failure of government for which inly leftist logic would prescribe more goveremt as a solution

  12. Luke,

    I don’t think that the people tasked with turning round two deeply damaged financial institutions should suffer from the inconsistent and illogical decisions of their Treasury lords and masters. The decision not to segregate legacy assets but to wind them down within the existing organisations was always bound to clobber profits for years and years. And it has had two effects:

    1) it makes it highly unlikely that either bank will be able to be sold at breakeven or profit to the taxpayer for the foreseeable future. If either is sold, it will be at a loss

    2) refusing to recognise the dead weight of legacy assets when determining staff remuneration packages is demoralising and ultimately counter-productive, since staff who know their pay packages will be squeezed for years to come aren’t likely to stay if they are any good.

    Add to that the idiotic effects of fair value accounting rules on RBS’s results, and trying to tie staff remuneration to headline profit/loss looks totally ridiculous. Bonuses are supposed to be a reward for individual above-target performance, not a mere profit share. It is particularly harsh to refuse to reward a hard-working and highly effective individual because the company’s profits have been clobbered by fallout from historical problems, bad political decisions and stupid accounting standards.

  13. since staff who know their pay packages will be squeezed for years to come arent likely to stay if they are any good.

    Where will they go?

  14. Ian B,

    “The problem from a libertarian rather than socialist perspective is that there is an extremely good argument that the financial sector as it stands is not a free market but a consequence of government policy and subsidy. The Central Banks. The government debt underpinning it all. The continued expansion of the monetary base.”

    I agree, but the problem is that the questions over bonuses cannot be answered with “I wouldn’t start from here”. I don’t know whether these bonuses are reasonable or not, but I do object to the thinking that individuals shouldn’t get bonuses because an organisation is losing money.

  15. I agree, but the problem is that the questions over bonuses cannot be answered with “I wouldnt start from here”.

    True, but it’s not quite that point that’s at issue. To me, at least, it’s about whether people whose (private) profits are dependent on massive quantities of State patronage can use arguments for non-intervention based on free market principles.

  16. Frances, I agree that there may be some practical merit in current bank employees being well paid or having bonuses. What I was reacting to was Tim’s moral outrage that bankers bonuses could be limited. They are paid from the profits of private companies, he spluttered. I was just pointing out that at least two of those companies are neither private nor profitable. No one has really taken up my query as to why regulating capital ratios is morally OK, but regulating bonuses is the work of Satan.

    I was in your neck of the woods last week btw. Not sure that the sign in the cab office sends our the right message. Fixed price to prison

  17. ” I was just pointing out that at least two of those companies are neither private nor profitable”

    As I said above, regulation would not be needed for government owned banks (if we were to believe that the government knew what it was doing, in reality government owned companies are typically far worse managed than non-government owned ones but that is an argument against regulation, not for it). Whether they are profitable or not does not matter (you are still allowed to pay salaries even if you are making a loss)

    “No one has really taken up my query as to why regulating capital ratios is morally OK, but regulating bonuses is the work of Satan.”

    It could be because one is sort of fixing a problem whereas the other one is just buying votes through bank bashing.

  18. It could be because one is sort of fixing a problem whereas the other one is just buying votes through bank bashing.

    Emil, I am impressed by your self confidence. You know for certain that regulating capital ratios will work, and will have no unintended consequences and is a demonstration of wise selfless regulators acting in the public interest. At the same time, you know for certain that if those same all-knowing and wise regulators tamper with bankers pay and incentives that is just banker bashing.

  19. “The problem from a libertarian rather than socialist perspective is that there is an extremely good argument that the financial sector as it stands is not a free market but a consequence of government policy and subsidy.”

    Absolutely.

    But when government interference has buggered something up, the solution is not to interfere even more, but to get the government out of the way. Let banks stand on their own feet and go bust if they screw up, like any other business. If savers want insured deposits, let them pay for it, not taxpayers; that will inevitably push them toward the safest banks rather than those who take the biggest risks knowing they’ll be bailed out if they lose.

  20. As I keep repeating, I have no problem with bankers or civil servants like mr Hester getting well paid. I just reacted to Tim’s moral outrage.

    I look forward to the following addition to the Kippers manifesto:-

    Bigger Bonuses for Bankers. Or Hands off our bankers bonuses.

  21. Edward-

    I entirely agree. There seems to be a deafening silence from the “hands off our bonuses” mob on the matters you raise, though. I think from my (“libertarian”) perspective, the problem is that the banks aren’t suffering unwelcome impositions by the State, but are willing partners with the State. And the basic thing is, once you’ve willingly got into bed with the State, you can’t really complain about it fondling you.

  22. “Emil, I am impressed by your self confidence. You know for certain that regulating capital ratios will work, and will have no unintended consequences and is a demonstration of wise selfless regulators acting in the public interest.”

    No, I don’t. That’s why I included “sort of”.

  23. Emil, that ‘s why you included sort of (who knows where apostrophe police will leave us). What is your point?

    If you think regulations on capital ratios are well meaning and/or a good thing, why are regulations on wankers bonuses malevolent and/or a bad thing?

  24. Luke; because there is no logic reason why they would work. Economic theory says that variable pay is good if the incentives are correct

  25. “But when government interference has buggered something up, the solution is not to interfere even more, but to get the government out of the way. Let banks stand on their own feet and go bust if they screw up, like any other business. If savers want insured deposits, let them pay for it, not taxpayers; that will inevitably push them toward the safest banks rather than those who take the biggest risks knowing they

  26. But when government interference has buggered something up, the solution is not to ll be bailed out if they lose.

    Hallelujah!

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