Monday, 17 August 2009

on profit, bonuses and the banks

You know what I think? This whole 'greedy bankers yerrr lets nab em!' Is getting a tad tedious and somewhat symbolic of the speed at which the public sector solves problems.

Sure the bankers f'd up and we poured tons of cash their way to sort them out, but any Dragon from the Den will tell you, you don't invest in a business if you're not going to make a good return on your investment.

So now we want a High Pay Commission, I’m sorry what? One week the political elite speak about a bonfire of quango's the next they want to set one up, and I'm sorry Dr. Cable as much as I respect you and what you have to say, one thing worse than a developing country is a Soviet era one.

Rather than comment on a case by case basis, here is what I believe should happen:

Those banks where the government is a majority shareholder should be run like the government is a majority shareholder (usual inefficiencies and public sector malaise aside). This means the government sets pay and bonus policies, returns the bank to profit, makes a nice sum on its investment, regulate properly and get the hell out.

Those banks where the government is not a majority shareholder should be run like the government is not a majority shareholder. This means they get regulated well to ensure their capital ratio remains at a sensible level (and I mean a sensible level) and if we want to remove 'high street' from 'investment' banking as Nick Clegg and Vince Cable have suggested, then so be it, let's have that debate. Once these two are separated, in my view, excessive risk taking (I have come to love that phrase) will then become an issue for investment banks and as a result any losses, an issue for those who invested.

This might come as a shock to some out there, but investing is all about the risk, you are being compensated for the risk you are taking, the higher the risk the higher the return, that is Economics 101. Conversely the lower the risk, the lower the return, so I’ll open my current account with this lovely boring bank over here. If you want to invest go for it, but don’t come complaining when the bubble bursts, investing is just a polite way of saying “let’s hit the slots”.

Let's not institute a 21st Century Committee of Public Safety and try not pandering to the News of the World. There may be a reason France and Germany are out of recession and it could be something to do with their apathy to a bonus culture, they don't love it, but nor do they hate it.

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