When I heard that the City bonuses are going to amount to £7 billion this morning, I sincerely wished that someone somewhere would start a revolution

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Coming as it does after yesterday's Child Benefit announcement, I am beginning to feel positively anarchic.

I think there should be a General Strike over this, or at least a protest march in London.

that was to larrygrylls BTW

Smallwhite,

The banking crisis and bloated public sector are two sides of the same coin. New Labour loved casino capitalism as the taxes paid by the financial sector paid for them to build their shining camelot and quangocracy.

When they realised that the banks had merely borrowed revenues from the future to pay their employees, the entire population had to pay for the bailout for years to come. RBS was invested in just about every bubble available!

Banning bonuses is ridiculous. However, so are multi year guarantees to very average individuals. Either the financial sector is private and allowed to fail or has a government guarantee and, in return for that, the gvt can regulate it. That is the conundrum no-one has found a solution to.

Abso,

To which bit would you like an explanation?

But - the German labour laws can cause a big problems.

For e.g., at one of the German banks, they were not allowed to let anyone go during the crisis - most cuts came from London as the labour laws aren't as restrictive, even though there are/were people in Germany who were much much less productive/qualified.

London will always have an appeal because of the excellent legal system (enforceability of contracts for e.g.) and the time zone (you can get catch Asian, European and American markets in the working day). But, Switzerland could offer the same.

And as for people I know and work with in London, who work in finance, a lot would very happily relocate (crap weather being a major drawback to the city

The whole thing. I really don't get what you thought I said.

Abso,

The whole thing is rather tough. However the bit that is little talked about is the "repo" facility. A repo is where you lend an asset that you own and borrow money against it. The BOE allowed the banks to pledge very dodgy assets versus cheap cash. These assets were typically securitisations such as bonds backed by mortgages (including U.s mortgages). For instance RBS could pledge a U.S mortgage backed bond to the BOE and borrow money at the bank rate + some small spread. They could not have pledged that bond anywhere else as people did not trust that it would be repaid. They could reinvest the money they borrowed from the BOE in new high paying assets.

This is a strand of the bailout that banks invariably fail to mention.

Ah, okay. I get you.

I was talking about bailouts in general - over the long term (10/15 years post crisis) rather than the initial TARP arrangements or the UK government's acquisition of shares.

Claig, is that you getting a bit social democratic on us?

Agree Germany seems to manage to run a successful economy with decent standards for workers and without indulging high finance too much. I'm sure these things are linked.

The banks are guaranteed by government, hence they should be subject to firm regulation as part of a social contract with the public who bailed them out. And their employees - especially the fattest of fat cats - should realise they are public servants employed in a quasi-nationalised industry.

I'd quite like that git who used to run RBS to give us our money back, too. Rotten, colluding board who let him run away with OUR millions and rotten colluding ministers who had previous in the City too.

Re "where do high rollers want to go?"

You are missing the point entirely. It is not where the employees would like to live. It is where the corporation will have the most favorable business environment.

The decision is not in the hands of "high rollers" in their thirties, who might prefer a vibrant city like London. It comes from the board of directors, whose members will not end up living in the city the bank relocates to.

edam, yes I am not an out and out Tory. I disagree with some of the things they believe in. I'm not a fan of globalisation (which all parties believe in) and I am in favour of nationalisation for key strategic industries. I don't believe that the private banks are any better than nationalised banks. At least with nationalised banks, the country would keep the profits. The country already bails them out and foots the bill, why shouldn't we keep all the profits?

CoteDAzur, you are right, that the high rollers don't make the decisions. But the company needs to attract high quality staff and high quality staff prefer to live in certain cities. In general they prefer to live in London than in Luxembourg. However, Luxembourg is a stunningly beautiful place.
Companies have to locate in areas where they will be able to attract the calibre of staff that they need. Also, the large EU countries can make laws which would make it unattractive for banks to locate their HQs outside of the large countries. Governments are not powerless and can influence banks.

I used to work in the City as did DW. Here are three facts you need to know about City bonuses:

1. People who work in the City do work very hard but the ones who earn the big bonuses are not that good and mostly it is just a massive stroke of luck they were in the right place at the right time.

1. They would do the same job for a lot less money and most will not leave the country if taxed more.

1. None of them would be earning any of their bonuses if we the taxpayer had not bailed out the banks two years ago - they would and should all have lost their jobs.

AbsofCroissant, I don't know of any specific banks that may need bailing out again. I was just making a joke, that banks who choose to leave the UK, will relieve the British taxpayer of possibly having to bail them out in the future. They will be the responsibility of the country to which they relocate.

There have been a lot of press reports saying that we may have to bail the banks out yet again. Nothing surprises me when it comes to bankers.

Banks will need more cash

Can't argue with that, Beta.

larrygrylls - yes I agree with your point that up until the point that banks took public money (and are still doing so via various repo facilities) they were free to hand out whatever bonuses they wished. Now they are dependent on Govt and central banks support they should be limiting pay and bonus until they restore their capital. That should be a condition of receiving the support.

If they were forced to mark to market all losses and did not have central bank support most banks would still be in serious financial difficulty yet bonuses are flowing as free as ever.

LadyBlahBlah - Taleb is absolutley right.

The trick of investment banking is to hide the future losses from Black Swan events, leverage up capital as high as possible and walk away with as many annual bonuses as possible paid out of temporary highly leveraged winfall profits before the market crashes. Then leave shareholders, bondholders and Govt with the mess. They are already beginning to repeat the same trick even before we have finished cleaning up the last mess.

We should have only bailed out the basic banking system, protected customer deposits and let the Casino rest of the system go to the wall. High rolling bankers/traders would have lost their jobs and no bonuses would be being paid now. Instead, we have created a monster that has to be fed gold coins. A system of moral hazard so big that bankers can take enormous risks, threaten the entire basic financial system and even entire national economies yet know they will always be bailed out. Its sickening.

Very sensible posts BeenBeta.

Blimey Claig and Beenbeta

I agree with your every word on a political based thread.

So why oh why, in the name of Diddly Moses, did Brown not place restrictions and conditions on the bailout?

What getorf said.

Been, great point about only bailing out the parts that affect ordinary depositors and businesses (and pension funds and so on) and letting the greedy gamblers go to the wall.

Given we are where we are, I think the government ought to insist on reform of the banking system that actually addresses the culture and practices that got us into this mess, and make it very clear they are essentially a nationalised industry and will have to act accordingly. Including heavy regulation to make sure they don't get out of control again.

Completely agree BeenBeta. 'Revenue' can be a subjective term.

Beenbeta,

Basically, I agree with you, particularly about the last part. If they had allowed the banks to go bankrupt and then bought the assets out of bankruptcy, made good the savers etc, then they could have employed who they want and not been bound by the guaranteed bonuses.

On the other hand, if you remember the period, everyone was in full panic, and, had they done the "right" thing, even a couple of weeks delay in making the savers good could have caused a full scale run on the banks.

Having worked in investment banks for over 20 years, they certainly started being client focused. Over the years they lost their way, becoming more like tacky supermarkets, forever giving special offers on highly processed products which were very unhealthy for the consumers.

However, I still believe that, if the banks ever fully repay the government, cease to be dependent on special facilities and the "too big to fail" concept is somehow dealt with, they should be free to pay what they like. Why shareholders allow them to could be an interesting subject for a whole new thread!

"So why oh why, in the name of Diddly Moses, did Brown not place restrictions and conditions on the bailout?"

Who really calls the shots? Brown or the bankers. I

They really are starting to go elsewhere you know. We are being moved to Asia.

The words 'Rats' and 'Sinking Ships' come to mind.

key word there is 'if', Larry... and whether, given their massive impact on every other man, woman and child in the country, the banks should ever be able to operate without a social contract.

I see Ireland has just had its debt downgraded - basically the country has effectively destroyed itself attempting to rescue its banking system.

The people of Ireland will surely not accept austerity in the form of benefit cuts and tax rises if the bankers and the elite continue to be bailed out with public money.

There would be social unrest.

So a credit downgrade means the effective destruction of a country, does it?

I didn't know that