Royal Bank's bonuses: What's the least it can pay?

Well perhaps there is some hope.

It was previously noted that the NHS was short of money.
And an example was given that the average cost of heart by pass surgery in the UK is around £20,000.
And
If RBS bonus payments were £1,500,000,000.
£1,500,000,000 (£1.5 billion) = 75,000 heart by pass surgeries.

Now if RBS bonus payments were £1,000,000,000.
£1,000,000,000 (£1.0 billion) = 50,000 heart by pass surgeries.

Well that’s a net saving of 25,000 people, not bad when you think about it.

Still the example given does leave the other 50,000 who have to perish.

I think we could we do better.

I don’t think anyone should have to die to fund a bonus at a state bank.

"the goal remains to pay the minimum consistent with long-term shareholder value"

Well, if they were doing anything other than this before they were breaking the law. But particularly given that RBS is owned by us via the state, they should be paying the minimum consistent with long-term social benefit. See

https://www.diarmidweirphotography.co.uk/wealth_without_money/2009/12/the-truth-of-unequal-pay

for some more thoughts on this topic.

It is the economic interest, at at 84%, which really matters.

Basically, we own it, and we tell the board what to do.

They already know this, but just to make it crystal clear to Hestor: _small_ bonuses for hard working, lowly paid staff members are OK, i.e. 1 or 2K.

Any bonus for "supergreedy" investment bankers is out of the question. They must get nought. That's what the shareholders say.

Well, the Traders losses on badly rated products caused the Shareholders to lose nearly every penny of the value of their Shares, and then the Taxpayer to lose Billions bailing them out.

It is only Justice that ALL profits from the Investment Banking side should go towards paying off the Taxpayers, and then restoring Shareholder Equity to an approximation of where it would have been had the Traders and wheeler dealers messed up so badly in the first place.

Of course, none of this helps Shareholders of Bradford and Bingley or Northern Rock, who at present would appear to have lost every penny of their investments.

Remember a considerable proportion of the Shares were owned by pension Funds and Insurance Companies on behalf of ordinary working people.

Anyway, because of the greed and irresponsibility of Bankers, ordinary people will suffer due to public spending cuts, reductions in services, lower pensions (if they are lucky enough to even have a pension) whilst Bankers will bleat how unfair it is that they should be held to account for losing other peoples money whilst skimming money off the top as commission and bonuses for themselves.

Robert, something I haven't grasped - can you explain? Why don't the banks simply repay what they've been bailed out by using their bonus pool instead of giving it away as bonuses? Presumably the bail out was by new share subscription and purchase by the govt. Can't the banks buy back the shares issued and return the dough to the taxpayer? isn't that their first duty? If not why not? Surely they haven't made a profit at all if it's on the basis of a huge debt to the exchequer? And then there's the second point - if the banks do pay bonuses, but by shares instead of cash - doesn't that mean the issuance of new shares and doesn't that dilute the ownership of the state? What am I missing here?

Vincent Cable has the right answer, as usual- nothing is just the number I had in mind myself. And when all these "heroes" who dragged their bank to ruin resign and go elsewhere, I'm sure a perfectly adequate bunch of replacements can be recruited on a salary only basis. Except, of course, it won't actually happen, because although they were stupid enough to bring down their employer, most of them are at least clever enough to know what side their bread is buttered.
Can I have Mr Cable as chancellor, please?

They've got their salaries, and at a rate significantly higher than jobseekers allowance.

They should be grateful they aren't paying visits to the Job Centre where, I hear, advisers cheerfully advise most folk regardless of ability that one of the best things they can do to help with finding work is to volunteer at a local charity, yes, working for a fantastic sum of £64 a week.
£64 a week is far higher than I'd pay them!

Good piece R.P.
With some good thoughts from both yourself and V. Cable.
If you want to see the extent of the disaster that the "masters of the universe" have placed on this country.......go to Wickipedia, then "government debt", then see "list of countries by external debt".
It's there in black and white, and it's not pretty.
"...some would say there is systematic over-payment".....the understatement of the year, Robert?
These financial types are sitting in their fancy pads counting their millions whilst the people of the UK have been enslaved to the rest of the world by these culprits' hopeless squandering of all that international cash.
Well-paid, responsible, considerate, sensible bankers?....no objection.
Farcicle, squandering, greedy, plundering, multi-millionaire fools?....no way.

Ok Great shareholder value, in this case for the taxpayer, comes out ahead hopefully but if you apply the same argument to private banks it's up to the private shareholders to protect their interests and the taxpayer has no say.

The fact is that these banks produce monopolistic profits. We used to attempt to control monopolies to stop them using their power to rip people off. It is this principle which is still being ignored.

I'm not sure this gets us any further down the line.

There shouldn't be any bonus for any RBS employee until every penny of taxpayer's money is paid back, with sky-high interest and rip-off arrangement fee. It's high time we treated these arrogant bankers with the same contempt that they treat us. Caledonian Comment

This comment was removed because the moderators found it broke the house rules. Explain.

# 7. At 10:51am on 03 Feb 2010, copperDolomite wrote:

> £64 a week is far higher than I'd pay them!

Oh, I don't know. I need a new roof putting on the garage, and I need a new fence at the side. If any of those guys need money, I can pay them £50 a day, tax-free (for non-doms), as long as they are hard workers. Else, they can try thier luck in Australia or some other, far flung place. I couldn't care less.

Knocked down by a 50 quid note ? Come off it Sir ! You are playing with the disturbed emotions and living standards of others. Albeit not intentionally.

The trouble with Mr Cable's view of RBS is that it neglects the Ordinary Shareholders...who were perhaps duped by a Right's Issue, misled by the Investor Realtions Dept.of RBS, let down by the Treasury, BoE, and the FSA....to say nothing of the apparent negelect of Accountants, Auditors, and Rating Agencies.

I have heard of some pensioners who have lost half their capital and had only wanted a safe investment vehicle protected by the Regulation and Oversight Apparatus of the State. One I know about has a privately- built- up and modest Investment Pot : half RBS and half NSI.
Lives in great difficulty now.

Other new pensioners have had their Annuity rates slashed well below their expectations ! Because the Institutional Investor were also duped. No respite for Pension Houses either ?

Does Mr Cable wish those over 50 to languish without hope. Why does he not say to such current and future pensioners that Parliament, Government, and Public Servants are blame free. And then Sir he could kick them in the lower regions shouting : 'Pick up the tab of disappointment, you GREEDY BEGGARS.'

The issue of bonuses in the financial services sector is a farce. Bankers keep on posturing by way of testing the political mood yet none of the politicians are prepared to do what's necessary and bring a halt to bonuses as part of the remuneration package. I don't deny an exceptionally gifted employee an appropriate pay rise but shelling out one off bonus payments given the massive scale on which governments have underpinned the global banking sector is a complete nonsense. Investors are getting virtually zero per cent on hard earned savings deposits yet the pin stripe Canary Wharf brigade expect six or seven figure bonus payments. We're on the wrong planet.

I do so enjoy the diatribe. It remains bash a banker week.

Now I appreciate that little details such as what is legal and what is good for the economy in the long run should never get in the way of a good spleen venting but....

All directors are basically legally obliged to run the company for long term shareholder value and value is a simple function of share price for these purposes.

Sure as 84% shareholder if we do not like the directors views on how to create long term value we always have the option to sack them - but that involves paying them off, which would set off another round of diatribe here.

Day to day management is set by the directors and how much they pay the staff is and always has been the directors responsibility not the shareholders.

Think about your own position - if your employer said he was only going to pay you you 50% of what you get down the road at a competitor how long would you stay in your current job?

That is exactly the calculation RBS has to make. If they believe that some types of business are vital to the long term success of RBS then they have to decide to pay staff something close to market rate. Whether bankers are worth the "market rate" is in fact irrelevant, if to acquire someone who can deliver £50 million of revenue to the bank they have to pay him £5 million that may still be a good deal

Not sure whether you meant systemic or systematic overpayment - but it makes little difference, as both are true.
For example, the latest 'sop' to our feelings: huge bonuses to be given in shares...redeemed for cash a month later. This transparent wheeze gives away just how dumb the average financial institution thinks ordinary Brits are.
We are effectively getting nowhere in this banking-sector Dance of Madness. I was tickled to read that banks may be split into two types, sane retail and mad investment. Nobody seems to have pondered the mould-breaking idea of BOTH sectors being rational.
I presume therefore the regulatory assumption is that richer bankers are by definition mad, and thus uncontrollable. This is fine by me, and reflects the widely-held anthropological finding that money bends reality, and huge amounts of money obliterate it.
If the approach is to legislate for their madness (and mass executions have unfortunately been rejected) dare I therefore suggest that by law, no bonkers investment bank can be bailed out using either public or shareholder money?
This would, I fancy, concentrate their minds on perhaps seeking out medical help: medication can do wonderful things these days.
None of this is very encouraging in the light of US jobs data, S&P warnings, IMF warnings on the one hand, and those surrounded in the Banker Bunker swilling champagne as the Globalist Reich collapses all around them.
Perhaps what we need is Ben Bernanke in the banker bunker to make things better. Maybe not....latest grim tidings at
https://nbyslog.blogspot.com/

13. At 11:36am on 03 Feb 2010, Amused2Death wrote:

The trouble with Mr Cable's view of RBS is that it neglects the Ordinary Shareholders...who were perhaps duped by a Right's Issue, misled by the Investor Realtions Dept.of RBS, let down by the Treasury, BoE, and the FSA....to say nothing of the apparent negelect of Accountants, Auditors, and Rating Agencies.

Amen brother ! The Accountants & Auditors have got off scot free in this mess. What value would any reasonable person place on the statutory accounts they produced for the banks and the audit work carried out on those accounts ?

It makes a mockery of the word 'professional'. These people are a joke yet they are the real tax collectors and the State needs to keep them happy.

#5 Scribbler - excellent points that I have been harping on about for ages.

No bonuses at all - UKFI - am I the public clear on this?

All this is predicated on the supposition that what a banker is paid correlates strongly with the shareholder value they produce. BUT I've yet to see any hard evidence that this is so.

In a related area - investment fund performance - it's well documented that many/most investment companies produce returns little or no better than simply tracking the market.

It might be interesting (particulalrly given the surplus of bankers which now presumeably exists) to pay them nil bonuses and see what happens ...

#8. stevewo
'go to Wickipedia, then "government debt", then see "list of countries by external debt".'

I wouldn't place too much reliance on this entry. The definition of external debt is wrong for a start. The figures for other countries than the UK are up to 3 years out of date! And a big chunk of the UK private debt here will be of little significance to the UK economy. You might think this entry had been compiled to make a point!

There's a surprisingly sensible and balanced report on debt from McKinsey: https://www.mckinsey.com/mgi/reports/freepass_pdfs/debt_and_deleveraging/debt_and_deleveraging_full_report.pdf

@haufdeed - vote LibDem..

I suggest that we declare the moon to be a tax haven. In this way, we motivate the 'highly mobile' banking industry to provide the funds necessary to establish a moon base and the rest of can get on with the business of producing stuff that people actually want instead of refining the gambling industry to a level that nobody needs.

Hold the front page... can it really be true that bankers have discovered for themselves "there is no great logic to the disproportionate share of investment banks' revenues that go to staff rather than to shareholders or to customers"? Excuse me, but I rather think most people outside their industry already new that. But it's simply too convenient for these guys to ignore it and bleat on about how they will lose staff to other members of this great banking cartel.

Perhaps if they weren't so greedily obsessed with lining their pockets at the expense of everyone else, and more often took an interest in the insurance premiums paid by the rest of us to prevent them from failure, maybe these guys would garner a little more respect.

Incidentally, a major Swedish bank has determined not to pay any bonuses this year. Evidently someone (at least) has decided that ethical behaviour is also a relevant requirement, rather than hiding behind the specious "legal obligation" argument.
[Unsuitable/Broken URL removed by Moderator]

16. At 11:49am on 03 Feb 2010, John Ward wrote:
Nobody seems to have pondered the mould-breaking idea of BOTH sectors being rational.

Probably because they've realised it isn't possible. Retail will be sensible, the mad investment banks will be the Bedlam of asylums. They're so mad, they won't realise they've been admitted in the interests of public safety.
If nothing else, that thought will keep me amused for the rest of the afternoon!

12. At 11:13am on 03 Feb 2010, Jacques Cartier wrote:

Oh, I don't know. I need a new roof putting on the garage, and I need a new fence at the side. If any of those guys need money, I can pay them £50 a day, tax-free (for non-doms), as long as they are hard workers. Else, they can try thier luck in Australia or some other, far flung place. I couldn't care less.

Better make that payment per completed chore - otherwise, bankers being bankers will have found a way to let that run up into a bill for a few squillion...you know, project management costs, need for bespoke software, solid gold ladders and hammers, titanium nails, helicopter to take them to extended lunch meetings down the local...

"By the way, there is a systemic issue here, in that many bankers would agree there is no great logic to the disproportionate share of investment banks' revenues that go to staff rather than to shareholders or to customers (in the form of cheaper products)."

Quite so. Obviously competition in the banking sector is completely inadequate. We could start to address this by breaking up the big banks and encouraging the mutual sector. However I think what's really needed is for a public sector bank aggressively competing with the private sector.

Provision of basic current account features (bank transfers, debit cards, access to cash machines) just requires a few bits of data moving round a computer network. It must cost virtually nothing to run. The Government should gear up NSI (with help from RBS etc) to provide free current accounts for everyone, with a full guarantee of savings, even offering interest up to say a percent or so below the inflation rate - ie essentially to provide the basic financial framework of the economy as it used to do with notes and coins.

That would give the private sector banks some real competition to worry about. And it would provide the Government with a cheap supply of money to finance the Public Sector Debt.

Royal Bank's bonuses: What's the least it can pay?

Morally and ethically: Negative what its members of staff had for the last decade!!!!!

Once again we are treated to a blog entry on the fine details of how the cartel operates.

Mr Peston seems to have some knowledge of banking, but I wonder if he has ever dug a little deeper.

Why is economic growth good?
Why do we have an inflation target of 2%? Why not 0%?
Could currencies be supplied and regulated better by private companies operating in competition with eachother?

By answering these questions wouldn't the readers (and the viewers) be better informed about how our money is being systematically stolen by the cartel?

As a public servant, and a journalist to boot, isn't it a duty to expose this sort of thing so that the public can at least be informed?

I would love to hear Gordon Brown explain to Mr Peston and the country why annual devaluation of our currency by 2% is a good thing. He talks of rising prices as the enemy when he is either complicit in (or ignorant of) the fraud that is systematic inflation of the money supply.

So come on Mr Peston: man up and give us some hope that in 20 years time we will have some sort of a standard of living and some freedom, because the way its going I'm not too hopeful.

FSA FINALLY GROWS SOME CAJONES!

‘Banks told to comply on bonuses or lose UK banking licences in shock FSA ultimatum’
https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7141221/Banks-told-to-comply-on-bonuses-or-lose-UK-banking-licences-in-shock-FSA-ultimatum.html

Turner could lose some dubious friends in the City over this...but he would make many new friends (with integrity) elsewhere.

Could this story be related to Robert's RBS blog story???

Forsooth fellow bloggers ! What is this talk of Bedlam ?

Nay suffiently capacious , I'd conjecture betimes again !

The two projected aircraft carriers pronounced upon by our Gracious Gov't yesterday...should be turned into a Narrenschiff of Dubai proportions. Either Kingdoms of Ulster or Scotland would be a fine location for such a build.

I would hestiate to say who would travel First Class, but Steerage for the likes of Baron Mandelson of Foy would at least meet with the approval of the Mayor of London.

15. At 11:42am on 03 Feb 2010, Justin150 wrote:

> If they believe that some types of business are vital to
> the long term success of RBS then they have to decide
> to pay staff something close to market rate. Whether
> bankers are worth the "market rate" is in fact irrelevant,
> if to acquire someone who can deliver £50 million of revenue
> to the bank they have to pay him £5 million that may still
> be a good deal

This daft argument is repeatedly trotted out to justify obscene wages. It fails to address the central concern: that the people who caused the crash _were_ on superhigh wages, and it made things much worse, not better (check out the Applegarths, Hornbys and Goodwins of this world).

If the board of RBS still believes that "high wages = high profits", then we must accept thier resignation.

The principle point is that, if you pay a group of people (say) £5 million each, and they deliver minus £850 billion of revenue, which is the reality, then that group must suffer. That's called "moral hazard", and we are in the middle of a round of it. The bankers _must_ get nought, for the sake of future bankers. It's better for all concerned to bite the bullet on this occasion, than to defer strong action until the next, worse meltdown.

# 25. At 12:25pm on 03 Feb 2010, copperDolomite wrote:

>> I can pay them £50 a day, tax-free (for non-doms), as
>> long as they are hard workers.

> Better make that payment per completed chore - otherwise, bankers
> being bankers will have found a way to let that run up into a bill
> for a few squillion...you know, project management costs, need
> for bespoke software, solid gold ladders and hammers, titanium
> nails, helicopter to take them to extended lunch meetings down
> the local...

I was just joking - I'd never hire an ex-banker. Lord Turner told me
they can't do much "socially useful" work.

@ 15, Justin150 wrote:

"... if to acquire someone who can deliver £50 million of revenue to the bank they have to pay him £5 million that may still be a good deal."

True, but surely, if this employee can deliver £ 50M all by himself, he or she's an idiot to work for £ 5M.

The fact is that this employee needs a load of other people's cash to deliver anything. He is not, therefore, working by himself.

I suggest that this employee leave his job, go to a bank and ask them for a loan to use for his trading and, presumably, do very well for himself.

Not sure I hear the sound of doors slamming behind bankers exiting off to their new jobs.....(so the amount of any bonus needs to be negotiated from £0.00, not somewhere higher.)

I don't buy into this idea that bankers bonus terms can't be changed for legal reasons. Maybe their 2009 bonus terms were written in stone, I don't see that being the case for 2010. Banks change the terms and conditions of their staff all the time. How else do they make staff redundant? Perhaps what this really highlights is sacking staff, there is little legal protection. But to stop an executive's bonus? Legal minefield? Priorities all wrong? I think so!

It's one of the completely perverse situations in many western countries that executives can assume they will get a bonus even though their company has made a huge great LOSS! Yet less senior or clerical staff, (in the same company!) CAN be fobbed off with the excuse that a bonus canNOT be paid because the company has made a loss...This type of corporate lunacy is, at the very least, just blatantly unfair and needs to be LEGISLATED against!

Bankers...Still not getting it!

I believe the answer is surprisingly simple: Make the global banking industry less profitable.

Decreasing margins through increased taxation, capital ratios, and funding a 'bail-out' fund would all serve to decrease the profitability of these businesses and so with it the ludicrous practices on remuneration.

The benefits would be myriad: A more resilient banking system; more social equality on pay; and more tax revenue for social services.

Oh yes, and give Tesco a banking licence today please - that'll put the cat amongst a cosy club of pigeons.

There is something drastically wrong with an accounting system that says that this and any other bank so heavily indebted to the tax payer can make any profit.... as the bonus's are supposed to be based on profit,they didnt make any , so they dont get any bonus .

This card they play about losing so called experts, is rubbish, let them go and we will be no worse off , many competant and trustworthy people are unemployed because of these so called experts,they want to be thankful they have a job at all, and no amount of moaning will convince the good people of this country any different.

The government are dithering over this hoping something will turn up well hopefully we will soon have a change of face over this,for good or for bad , the same people who led us into this mess will never inspire the correct decisions to get us out of it.

28. Wardy29

'I would love to hear Gordon Brown explain to Mr Peston and the country why annual devaluation of our currency by 2% is a good thing. He talks of rising prices as the enemy when he is either complicit in (or ignorant of) the fraud that is systematic inflation of the money supply.'

There are two main reasons why 2% inflation is a better target than 0%. Firstly it's better to err on the side of a slight rise in prices than of restricting economic activity that might otherwise have taken place. Secondly, a positive inflation rate should theoretically encourage productive investment over the holding of fixed return financial assets.

Don't forget that for most of the population their income will tend to go up as prices rise. As long as the inflation rate is low, fairly constant and expected this process isn't particularly costly in relation to the theoretical advantages.

Re 20 diarmidwp....
You're right, the Jan 2010 McKinsey Global Institute report does show a more up-to-date situation than Wickipedia.
However, it also states that UK debt/GDP is greater than every country except Japan. (Ireland and Iceland are not in the study).
These McKinsey Global Institute people seem mighty clever, but did they see the train-wreck coming?
And did they warn anyone about it?
It would be interesting to know the answers to that, as a lot of these financial folk seem very good at being "wise after the event".

#28. Wardy29 wrote:

"Mr Peston seems to have some knowledge of banking, but I wonder if he has ever dug a little deeper.

Why is economic growth good?
Why do we have an inflation target of 2%? Why not 0%?"

This is not "digging deeper" - this is basic economic theory. Low inflation helps to encourage sustainable economic growth in a way that zero inflation does not. As for whether economic growth is good... does that really require an answer?

Dear Dempster,

The number of Heart Bypass surgeries performed in the UK every year is 28,000 (NHS website).

RBS bonuses will be taxed at over 50% (the effective tax rate will actually be considerably over 50%).

£1,500,000,000 * 50% = £750,000,000
£750,000,000 / £20,000 = 37,500 Heart Bypass operations

However
£1,000,000,000 * 50% = £500,000,000
£500,000,000 / £20,000 = 25,000 Heart Bypass operations

I don't think 3,000 people should have to die for the sake of a Labour election play?

Just who will have the kind of money needed to buy RBS at a time to suit Darling (well, it won't be on special offer for a fiver will it)?

It couldn't only be the bonus-filled bankers could it? Would China step in to rescue us from that possibility?

Thats me being cynical again.

38. stevewo
'However, it also states that UK debt/GDP is greater than every country except Japan.'

True, but what does this really mean? Only one third of this is external debt. The rest is owed by UK residents or the govt to other UK residents.

More interesting is that despite the Tory posturing, UK government debt/GDP in 2008 was lower than the US, France, Italy, Japan, Germany and Canada. Less than one-third of this debt was external, a smaller proportion than all of the above countries except Japan and Canada. Interestingly the average maturity of UK govt debt was 14 years, twice as long as any other country.

Of course things have changed a bit since then, because the UK was badly exposed to a private sector banking crisis that neither McKinsey nor anyone else who was in a position to do anything about it foresaw. The moral to be drawn here is that the wrong people were in charge! But who were/are the right people?

Re 42 diarmidwp
Sir, I bow to your greater financial knowledge.
Please cheer me up some more.
P.S. I also agree with your last line.

My understanding is that we are the biggest shareholders. I did not receive a letter. Did anyone else?

This comment was removed because the moderators found it broke the house rules. Explain.

37. At 1:42pm on 03 Feb 2010, diarmidwp wrote:

"There are two main reasons why 2% inflation is a better target than 0%. Firstly it's better to err on the side of a slight rise in prices than of restricting economic activity that might otherwise have taken place."

Are you suggesting that 2% annual deflation would restrict economic activity? I don't see how it restricts economic activity any more than 2% annual inflation promotes it. Please explain.

"Secondly, a positive inflation rate should theoretically encourage productive investment over the holding of fixed return financial assets."

But don't we have over-priced real estate and stock prices? How does this make sense?

"Don't forget that for most of the population their income will tend to go up as prices rise. As long as the inflation rate is low, fairly constant and expected this process isn't particularly costly in relation to the theoretical advantages."

1. Theoretical advantages? Super, shall I use these to pay for my groceries?
2. Whilst rising prices and rising wages balance out to the extent that income is spent, savings are still being eroded. Is this acceptable?

"39. At 1:57pm on 03 Feb 2010, rbs_temp wrote:

This is not "digging deeper" - this is basic economic theory. Low inflation helps to encourage sustainable economic growth in a way that zero inflation does not."

Basic economic theory based on a monopoly-controlled money supply? This sustainable growth you talk about sure looks unsustainable to me.

"As for whether economic growth is good... does that really require an answer?"

Yes, it does. What's yours?

Just because there is a correlation between (a) GDP and (b) standard of living, it doesn't mean that any increase in a causes an increase in b. What about the impact of waste? Cash for clunkers et al is just an attempt to fiddle the wealth figures without actually adding any wealth. Its wasting resources, and I just wonder how much of the GDP increase of the last 30 years has been caused by increased waste, including buying things we subsequently throw away unused or buying things we don't get full value from.

-----

Inflation is downward movement in the value of money: if stability is what we are after then I don't see how a constant draining of value can be described as stability. The US dollar has lost 95% of its value since the Federal Reserve was created less than 100 years ago.

-----

As far as bankers' bonuses are concerned, we wouldn't have to worry about this too much if we had a competitive banking sector: they wouldn't be making the excessive profits that they do. Again, this is something that could be brought out into the public domain as a discussion topic.

Gaze Upon my Words, Ye Silent ones… https://tinyurl.com/ykapsuv

39. At 1:57pm on 03 Feb 2010, rbs_temp wrote:

#28. Wardy29 wrote:

"Mr Peston seems to have some knowledge of banking, but I wonder if he has ever dug a little deeper.

Why is economic growth good?
Why do we have an inflation target of 2%? Why not 0%?"

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Beacuse the structure of our economy financial system and use of a primitive GDP measure tends towards inflation rather than deflation.

Banks/markets do not like deflation - beacuse the money lenders make less money

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
This is not "digging deeper" - this is basic economic theory.
>>>>>>>>>>>>>
Which theory? By whom - Please tell us?

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Low inflation helps to encourage sustainable economic growth in a way that zero inflation does not. As for whether economic growth is good... does that really require an answer?

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Low inflation is the only thing a moderm macro economic management policy can realistically try and achieve and confuses the electorate on GDP and growth figures in terms of explaining GDP and prices growth.

This sounds like 'Yes man' spin to me?

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Growth is good?

The pursuit of growth in primitve GDP targets is destroying the UK economy at the moment and diverting precious capital and resources from the 'sustainable economy'?

40. At 1:59pm on 03 Feb 2010, Baylos

Well OK then, if one must pick up on the tax issue:

Why not build a few modest hospitals.
£2,250 per sqm x 20,000 sqm = £45,000,000 each

For £1.5 billion, you could in fact build 33 and still have £15,000,000 spare.

All I’m trying to suggest, is there's an awful lot of things that the country could spend £1,500,000,000.00 on, which the majority would likely consider to be more useful than bonuses to State owned company employees.

37. At 1:42pm on 03 Feb 2010, diarmidwp wrote:

> There are two main reasons why 2% inflation is a better target
> than 0%. Firstly it's better to err on the side of a slight
> rise in prices than of restricting economic activity that
> might otherwise have taken place.

No. We need to stop "socially-useless" economic activity. Not
all economic activity is desirable. Only activity that does
more good than harm is useful. We need to stop the other kinds,
for all manner of reasons.

> Secondly, a positive inflation rate should theoretically encourage
> productive investment over the holding of fixed return financial assets.

No. The holding of fixed return financial assets also encourages productive
investment (by the person one buys the bonds from - they buy your money
because they need to spend it on something).

> Don't forget that for most of the population their income will tend
> to go up as prices rise.

No. The days of unions are over, for the time being. People slip
behind now; look at pension erosion.

> As long as the inflation rate is low, fairly constant and
> expected this process isn't particularly costly in
> relation to the theoretical advantages.

No. We (i.e. most people) don't want inflation. It's just a
communist way of eating up our hard earned cash, and giving
it away to the scroungers.

I can only repost what I posted last week.

If this recession becomes a double dipper (as I believe it will) it would be interesting to know how big a dip would need to occur before the banks' liquidity returned to crisis levels?

How much bad debt can they afford?

How big a dip in asset prices?

Against this analysis it would then be interesting to consider whether these bonuses were prudent protection of their most important asset (staff/customers) or reckless payouts that endanger their future?

Of course their ultimate protection is us (the taxpayer/government) but I wonder if we (as a country) can afford to repeat the bail outs again?

[Please note that I abhor these pay levels anyhow I'm just trying to look at it from another more business based viewpoint - in much the same way as a normal company would consider the payment of bonuses]

This comment was removed because the moderators found it broke the house rules. Explain.

51. At 3:19pm on 03 Feb 2010, GRIMUPNORTH77 wrote:
I can only repost what I posted last week.
If this recession becomes a double dipper (as I believe it will) it would be interesting to know how big a dip would need to occur before the banks' liquidity returned to crisis levels?
How much bad debt can they afford?

Lots, providing they write off over a very long period.

The only real problem is paying back money borrowed from abroad.

Unfortunately that can't be delayed.

# 49. At 3:17pm on 03 Feb 2010, Dempster wrote:

> All I’m trying to suggest, is there's an awful lot of things that
> the country could spend £1,500,000,000.00 on, which the majority
> would likely consider to be more useful than bonuses to State owned
> company employees.

What is the delay? When will the cuts to public sector wages
be announced?

I would like to call the bluff of these overpaid so called expert in their field bankers. There are very few people in this world that cannot be replaced and these people are nothing special. They should receive no bonuses or very small ones and I suspect very few will leave, being that they may find it harder to get a job elsewhere than they think. This government has gambled allot of the taxpayers money on the badly run companies which all things being equal should not really exist anymore. Take another gamble and insist that they are paid nothing in bonuses and watch how it plays out.

#46. Wardy29

'Are you suggesting that 2% annual deflation would restrict economic activity? I don't see how it restricts economic activity any more than 2% annual inflation promotes it. Please explain.

Inflation and deflation are symptoms, not causes. The interest-rate level needed to keep inflation at an average 0% would obviously be higher than that for 2%. These high interest rates would (according to theory) suppress economic activity in various ways.

'But don't we have over-priced real estate and stock prices? How does this make sense?'

The inflation target is a consumer price target. Rightly or (more probably) wrongly it doesn't take these into account.

'Whilst rising prices and rising wages balance out to the extent that income is spent, savings are still being eroded. Is this acceptable?'

It depends! Your savings are only eroded if your return on them takes no account of inflation. Normally interest rates do go up to take account of it. But if your bonds or pension are not index-linked then you will lose out, true. It's swings and roundabouts, some win, some lose. But that's a monetary economy for you!

'Basic economic theory based on a monopoly-controlled money supply?'

It's not monopoly-controlled. All commercial banks create their own deposits. The real problem is that this process is opaque and self-serving, with little account taken of externalities. Which is why I agree with you that GDP is largely nonsense!

Royal Bank's bonuses: What's the least it can pay?

1p ?

Sorry - but that's too much!

#50. JacquesCartier

'We need to stop "socially-useless" economic activity.'

I agree. But targetting a 0% inflation rate would not discriminate between useful and useless activity.

'The holding of fixed return financial assets also encourages productive
investment (by the person one buys the bonds from - they buy your money
because they need to spend it on something).'

Not always true. They may be selling bonds to pay off debt. In which case money disappears from the economy. Or they may use it to speculate on other financial assets. But, hey, it's not my theory anyway!

> Don't forget that for most of the population their income will tend
> to go up as prices rise.

'No. The days of unions are over, for the time being. People slip
behind now; look at pension erosion.'

Oh indeed. That's a redistribution issue, of course. Total purchasing power in the economy doesn't normally go down, because the rise in inflation is matched (at least) by an increase in money.

'We (i.e. most people) don't want inflation. It's just a
communist way of eating up our hard earned cash, and giving
it away to the scroungers.'

I don't know about communist! After all, its those that have big fixed-price financial assets that have most to lose from inflation. I just think the inflation issue is overstated compared to other more fundamental issues.

The powerful just don't care what the people think. This is a downward adjustment but for most will exceed the average worker annual income by times over. Tells you something about their fee system and lack of commitment to national well-being. Might as well be called the royal court as it is not much different than older times as it is the serfs that always suffer. The straving is always outside the castle walls. They destroyed your crops while hunting for sport..my, my..too bad..tally-ho...

7 billion people in world and growing

Estimate of proper jobs in world 2 billion (maybe less) - most of us are just pushing paper around and the fact we receive money for doing it which we can exchange for things makes it seem like a useful function.

There are too many people in the world - Asia, India, Africa, South America, USA, Australasia and Europe can not all be busy building and producing things for people to consume because the planet does not have enough resources.

Conclusion - there are a few options.

1) Some people in the world need to live in desperate poverty - the Africans, some Indians, some Asians and some South americans fulfil this requirement quite nicely at the moment.
2) We need to equalise standard of living so that those of us in the West become what we would consider to be extreemely poor by today's standards to enable other areas of the world to raise their standard of living. I think this is happening but by running at a deficit every year USA and Europe are being able to maintain their standard of living at an artificially high level - this won't last much longer.
3) Everybody gets rich at the same time and then the world collapses spectacularly as we consume the worlds resources far too fast - everybody then gets spectacularly poor - so that we all live in the equivalent of Ethiopia or similar.

At the moment all three options seem possible but I would aim for somewhere between 2 and 3 as most likely outcome.

How many generations will this take is probably the question my children would be most concerned with.

More populist piffle from Peston. Spare a thought for the may ways that RBS staff (ordinary Jacks and Jills) have already suffered.

1) Many had huge amounts of money (life savings) invested in RBS shares. As employees they were locked in, and couldn't sell. Now most folks have lost 90% of their money.

- The SAYE schemes which were in the money until the crash - all underwater.

- The BAYE schemes - same as SAYE.

- Many staff took their bonus as shares. Again, lost.

- Many took their profit sharing in shares. Gone.

2) RBS just kicked the feet out from under the final salary pension - it is capped at the lesser of inflation or 2.5%. You'd be better off saving it under your mattress now.

3) Salary rises have been poor, a couple of percent for a lucky few. Inflation is eating the value away.

4) Many staff have mortgages with the bank. For some reason, any rate below 4.75% is taxed as a benefit in kind - yet other mortgages on the open market which have a similar rate carry no tax.

5) Many departments have been brutally downsized to save money. Those who remain are doing the work of 2 or more people.

6) Finally, RBS staff are members of the public too and bear their share of the credit crunch pain through higher tax and reduced public spending just like everyone else.

Bonuses are an integral part of compensation. If they are zero or tiny, the brightly coloured birds at RBS will fly the nest and HMG will be left holding a line of worthless stock.

HMG needs RBS to succeed and it needs good people to do that. All this brouhaha about bonuses is destroying shareholder value and winding people up unneccesarily.

The point about the bonuses is that the Exchequer gains from the tax tax on these bonuses. As the percentage is higher than the corporation tax it is of little concern to Government.

However, the real question is - are these guys worth the money? Since it has been proven that school children can perform as well the answer is no.

Indeed do we really think that someone paid £1m does better than one paid £100k - in most cases the answer having seen the high paid operate is again No. Most are lucky to keep their jobs and struggle at the limits of their competencies.

Unfortunately the description points also to many Bank directors who simply are not worth the money. However as all their simmilarly paid colleagues are on the boards and remuneration commitees no one will vote against a pay rise.

Better that these people have a statutory requirement to be paid as a multiple of the average in their business and make more profit for distribution to shareholders.

Babychunder:

No one is suggesting that the banking lords treat their employees any better than their depositors but one would think that the employees with so much at risk might have seen what the outcome of the scheme would be. Unfunded risky loans on a large scale. There must have been an internal committee to follow such investments by the employees. Now either the bankers were acting in a criminal fashion or are very stupid, in either case they should have been removed. It was about greed..no other explanation is necessary or truthful. Interestingly, the government has done nothing to change the rules...so those employees may wish to look to other investments as their employers are sure to betray them and everyone else again.

61. At 4:40pm on 03 Feb 2010, babychunder

Anyone working in a bank just couldn't have failed to understand that the stockmarket is a posh bookies! That's all. It might have seemed like a tree with money growing out of the upper branches. That was and is a mirage.
Mortgage with the company taxed as benefit - well do what everyone else did and move to a more competitive supplier.

Maybe I'm being simplistic but surely the govt's positive inflation policy exists to justify the expansion of the money supply on the premise that this is needed because of perpetual economic growth.

Ha Ha !

Vince Cable is, as usual, absolutely right, there is an easy solution to force RBS not to pay bonuses, everybody with an account at RBS should close it, queues of people withdrawing their saving would soon change the RBS and governments minds.

@63 - ghostofsichuan

No employee could have foreseen the fall in RBS' share price from nearly 7 quid down to 9p as quick as it did. Even when the price was still in decline, we all ante'd up for the rights issue at 2 quid.

The point is, if the board knew the bank was sitting on all that bad debt, and that is was risky, then their statutory duty was to disclose that to the market as it is information that affects the stock price. The fact that they did not disclose anything, and asked us to ante up again at 2 quid, suggests that they were either unaware of the risk, or failed in their duty to disclose it?

nautonier NUMBER 48 has embarrassed himself horribly. Perhaps he should have worked harder at school during Economics and listened?
If you borrow and there is an inflationary pulse, you get richer as a result. Ergo buying expensive houses in 1970s and paying back a mars bar 25 years later. This wealth effect of inflation is zero sum as the lender's repayment is inflated away to nothing.
Lenders obviously love deflation, what are you thinking? It is borrowers who get killed by it.
Why do you think the bank of England is printing bank notes and pretending it is a generous act of monetary policy? - Because they are huge borrowers and the government has been as profligate as the sub prime borrowers.

68. At 5:29pm on 03 Feb 2010, HSMcWookie wrote:

nautonier NUMBER 48 has embarrassed himself horribly. Perhaps he should have worked harder at school during Economics and listened?
If you borrow and there is an inflationary pulse, you get richer as a result. Ergo buying expensive houses in 1970s and paying back a mars bar 25 years later. This wealth effect of inflation is zero sum as the lender's repayment is inflated away to nothing.
Lenders obviously love deflation, what are you thinking? It is borrowers who get killed by it.
Why do you think the bank of England is printing bank notes and pretending it is a generous act of monetary policy? - Because they are huge borrowers and the government has been as profligate as the sub prime borrowers.

>>>>>>>>>>>>>>>>>>>>>>>

Actaully, I think that you are muddled up - the money made in the 1970's by borrowers with mortages with e.g. a 25 year mortage term was made because the rate of inflation was higher than the rate of borrowing/ mortage interest rate. So the real rate of interest on borrowing on the loan was actually negative.

On a repayment mortgage, if I borrow a £100,000 to buy a house with a negative rate of inflation, then again it depends on the mortage interest rate as to whether the bank is losing or making money on the loan.

One of the reasons that the BoE?tresury have put billions of pounds of stimulus into the bankings sector into the economy is so that the banks avoid monetary and asset price deflation i.e negative price change/ devaluation.

In terms of deflation - it does not make sense for the lenders to lend because if the borrower defaults and the lender re-possess's the property, generally the asset will be worth less in terms of asset prices.

I'm sorry - I think you're getting muddled up here - no one wants deflation that's a fact of economic life!

Hi Robert

Having just read an article about Codes of Conduct on QFINANCE:https://www.qfinance.com/corporate-governance-key-concepts/codes-of-conduct and the the response from the Bankers Association in the Netherlands as well as the response from governments in France and Germany, I would be interested in your views.

so you wrote
"So it would be no great concern to him if Royal Bank's investment banking and trading businesses were damaged by a policy of paying their people considerably less than the market rate."

so what about the Royal Banks investment banking and trading policy were damaged by the people they were paying considerably more than the market rate ????

No matter how you dress this up Robert and you know it, the banks have run amok have been bailed out of their gamble and are still doing it here and the US, I have yet to see a convincing argument backed up with figures of letting the banks fail as they should do in a pure Capitalist system.

you also mention go on to say

"Now in the good years, investment banks tended to pay out around 50% of revenues to staff."

this was not always the case though was it when banks were run reasonably well, if we disregard the influence and reach of the Rothschilds, Lizards, Morgans et al

I am still trying to find out what it is that these people do exactly, that makes them worth so much.
What do they do on a daily basis?

Is there no one banker who is getting these large bonuses who is willing to come forward and say "I earn this and I deserve it because...."

By the way where were all the people working when things went wrong, we are being told that all the people who caused the mess have left and all new people brought in, which makes the arguement that these people are special and not easy to find a bit strange - they managed to replace all the "bad" people in 6 months

The limp-wristedness of our Government on this point is quite incredible. As Robert says we - the British taxpayer - OWN 70% of the shares in RBS. That is an absolute, dicatatorial controlling holding. The British Government is chosen by us to manage our affairs, and our money: it works for us. UKFI works for it, and UKFI holds the 70% stake in RBS on our behalf.

Unequivocally, therefore, the Board of Directors at RBS do not need to be "encouraged".. or ".. to have pressure put upon them" to constrain bonuses.

They simply need to be summarily called to attend UKFI, where they should be made to stand in a row and stand up straight (in what the Army would call 'an audience without coffee') : they should then be INSTRUCTED, in words of not very many syllables, precisely what they are required to do, in detailed numerical terms and told also that if they do not conform then disciplinary action on them individually will follow. Why our limp government cannot grasp this is beyond comprehension.

Mike H
Surrey

#73 You clearly cannot be bothered with little details like what the law is. Shareholders do not instruct directors about day to day management, if shareholders want to then they should sack the board and become directors themselves.

Of course when the govt sacks the board (or they resign because they are being told by govt, who is only an 84% shareholder not 100%, to take actions which breach directors duties under law) are you then going to be happy for RBS to pay very large redundancy packages to the board or are you going to post further diatribes about how unfair this is?

You cannot have it both ways

Justin150 - re my comment (at 73.) which you commented on, since you ask (or rather did not), I am actually a past director of a public company myself.

Directors most certainly must do what 70% of shareholders tell them to do: formally speaking that would entail the calling of an EGM, but when one stakeholder owns 70%, it is entirely impossible for any outcome of such EGM to be other than that one shareholder wishes: since he can carry any vote. That's why it is called a controlling holding.

So if UKFI expressed its wishes as I suggest, and the current Board demurred for even a moment then an EGM could remove the entire board and appoint a new one - take my word for it.

Mike H

Another thing which has come out of this wreck is that we have all discovered that bankers can be really dangerous.
Bankers? Dangerous?
Absolutely.
If they get it right, the economy can push forward quite happily.
But if they get it seriously wrong, they can destroy countries and wreck their economies for years.
And all the evidence shows that the more money they are paid, the more dangerous they get.
That professional, reliable little chap in the bowler hat has become a lethally reckless monster, who can send us all to the junkyard, no matter how hard we work.

The whole argument that we should let banks have the upper hand on the grounds that they know better is simply oligarchic terrorism that has absolutely no intellectual grounds.

The balancing of the proceeds between bankers, shareholders and more significantly customers needs to be completely reviewed. Only regulators/government can do that and they should!!!!!

These 'bankers' are not as clever as they try to make us believe... Let's not be fooled.

The argument that corporate gamblers need to get competitive bonuses commensurate of their competitors otherwise we gonna suffer Armaggeddon is pure rhetoric and is a completely fallacy.

Vince Cable is spot on is his analysis. A ten year plan where more ethical and reasonable bankers are trained and hired weeding out all the ones who have placed us in the current situation is a very valid option.

Let the bankers go wherever they decide New York, Hong Kong or Zimbabwe, who cares.
Bankers are already rich enough to go wherever they want whenever they want anyway...

Less bonus for bankers means more profits for shareholders and better deals for customers.

# 39. At 1:57pm on 03 Feb 2010, rbs_temp wrote:

>> 28. Wardy29 wrote:

>>"Mr Peston seems to have some knowledge of banking, but
>> I wonder if he has ever dug a little deeper.

>> Why is economic growth good?
>> Why do we have an inflation target of 2%? Why not 0%?"

> This is not "digging deeper" - this is basic economic theory.

That's what I think Wardy29 means, rbs_temp. Economic theory is basic, and we are only at the start of learning more. Soon, we will change all our assumptions, to deal with externalities. That will turn (what you think of as) economic theory on its head.

> inflation helps to encourage sustainable economic growth
> in a way that zero inflation does not.

That assumes an ignorant population that is not empowered to devise its own currencies on the Internet, and dispense with "planned inflation" All that centralised stuff has to go. We can all invent money (aka "trust relationships") now.

> As for whether economic growth is good... does
> that really require an answer?

Although it seems obvious that economic growth is very harmful to
the prospects for mankind (wiki Malthus), I think you should at
least attempt to answer the question.

"...we had the slightly surreal prospect yesterday of the Treasury's City minister writing to shareholders urging them to put pressure on the big banks to limit bonuses: some would say that, in view of the Treasury's controlling holding in RBS, he was writing to himself."

Robert Peston's blog somehow manages to make me laugh in spite of the endless war of attrition waged by bankers to keep their obscene bonuses. How we can continue to be bothered to say another word on this subject is beyond me.

I see nothing to convince me that bankers are shaking in their shoes about the new tough climate, the wording by RBS of a "downwards adjustment of the bonus pool" is like listening to a dalek programmed to repeat itself till the end of time, just one big nightmare. I have absolutely no faith in the FSA or UKFI, it's a case of too many cooks, just as before, and lack of real policing.

Good luck to Vince Cable in his efforts to get a rational banking system for this country. The current banking system isn't a science or a business or a profession, it's a religion. The fanatics at the top are obsessed with power, money is their means of depriving other people of equality and that really must change!

Surely the issue here is what is best for the UK citizen

Long-term which means divesting ourselves of the burden of our 'investment' in RBS/LLoyds-HBOS

Short term, which means maximising the tax take from these outfits.

It is possible that the two ends converge

Right now the 'investment' is looking pretty sick - down by about 40%. What would reverse this decline - long-term?

I haven't done the calculations but maybe paying bonuses at a higher level is better for UK citizens in the short term because it maximises the tax take. Heaven knows the treasury needs every last pound it can lay its hands on.

Perhaps some one has done the calculations.

If so, I'd be interested to see them.

Without those facts and data its opinion going from gut to mouth without passing the cerebral cortex.

78. At 10:48pm on 03 Feb 2010, Jacques Cartier wrote:

That's what I think Wardy29 means, rbs_temp. Economic theory is basic, and we are only at the start of learning more. Soon, we will change all our assumptions, to deal with externalities. That will turn (what you think of as) economic theory on its head

I think you will find that applies to just about everything in Life.
Surely the question is whether we use what we learn to make our society more equal, more just, moree fulfilling for its citizens and to get rid of inbuilt greed and jealousy in the individual.

It comes back to what the politicians always say but never mean,
Education, Education Education.

Speaking as an RBS back office employee I find it quite amusing when I hear of big bonuses. In real terms my salary has been cut by about 14% over the last two years and there has been a large scale movement of jobs from the UK employee base to offshore based employees, primarily in India. The UK public ought to understand that when they demand cuts from public owned banks it's not the 'bankers' who suffer but the rest of the british working public. Morale is at an all time low within the rank and file of RBS whilst the executive and accountants slash millions off the cost base of the company preparing it for re-privatisation. Thanks Alastair.

Easy one to answer.
Nothing (zero, zilch, none, nought) is the least they can pay.
Another question please.

72. At 6:33pm on 03 Feb 2010, smallgraycat wrote:
' am still trying to find out what it is that these people do exactly, that makes them worth so much.
What do they do on a daily basis?'

They have a licence to create money as debt and trade it.


82. At 08:13am on 04 Feb 2010, wjrh62 wrote:
'speaking as an RBS back office employee'

You’re not the target of the criticism here.

We are shareholders and must act as shareholders.

If you invest in a company you demand that the board take whatever steps are necessary to increase either a. dividends income or b. the capital value of your shares.

Many of the comments above do not reflect an appreciation of their own financial interest (as shareholders) in ensuring that the shares retain/recover their value.

If we take the passionate emotion out of the equation we want/need to see a return on our investment and we should let the board get on with it. If we don't trust the board to make that happen then that is a separate issue.

If the bankers receive significant reward but are not successful in achieving b. above then we should be entitled to recover any bonus payment from them over years if necessary. Radical but effective.

RBS pay is not to be confused with funding of the NHS or systemic failure in the entire sector. Again, these are separate issues and attempting to deal with them together is flawed. RBS is just a bank, and a bank we all have a vested financial interest in allowing and assisting it to make money. RBS did not ask for our help, we offered it and to an extent forced it.

More generally there is inequality in our society, and there is also poverty. Both are unacceptable and need to be addressed. However many would do well to realise and appreciate just how lucky we are, even in a recession. Those who have travelled to developing countries, countries without any healthcare system and/or those who have witnessed the effect of having no social protection framework will know what i'm talking about. The rest will bemoan the failings of our capitalist system and will harp on about how we need to take to the streets en mass. The reality is a bit more dull, but a bit more realistic.

"12. At 11:13am on 03 Feb 2010, Jacques Cartier wrote:
# 7. At 10:51am on 03 Feb 2010, copperDolomite wrote:

> £64 a week is far higher than I'd pay them!

Oh, I don't know. I need a new roof putting on the garage, and I need a new fence at the side. If any of those guys need money, I can pay them £50 a day, tax-free (for non-doms), as long as they are hard workers."

Sorry Jacques you are no longer allowed to use the term "hard worker" in job adverts!

85. At 08:45am on 04 Feb 2010, pawns_or_players wrote:
'We are shareholders and must act as shareholders'

I agree to some extent with that.

85. At 08:45am on 04 Feb 2010, pawns_or_players also wrote:
'The rest will bemoan the failings of our capitalist system and will harp on about how we need to take to the streets en mass. The reality is a bit more dull, but a bit more realistic'

And I fully agree with that.

But the middle bit I'm not too sure about.

If we own the RBS, I think it's not unreasonable to voice objection to a bonus system which does nothing to address the needs of the country, but sustains the very incentive driven trading which was in part responsible for the problem in the first place.

# 85. At 08:45am on 04 Feb 2010, pawns_or_players wrote:

> We are shareholders and must act as shareholders.
> If we take the passionate emotion out of the equation we want/need to
> see a return on our investment and we should let the board get on with
> it. If we don't trust the board to make that happen then that is a
> separate issue.

What's more important – a futile attempt to turn around an obsolete, bloated and busted bank, or stopping financial earthquakes from happening over and over again?

Although taxpayers have an interest in RBS, the process is being driven by bigger forces. There is a “settling of accounts” going on at the moment. The basis of our financial system is being re-engineered. Normal “shareholder behaviour” is out of date, and it's useless to hark back to the past. Banks like RBS would dearly love to do as you suggest, but it's not going to work that way until the banks have settled the matter of the £849,999,999,999.99 bailout!

If we are stupid enough to let bankers pocket any of that money, then there is no useful moral hazard to prevent more iterations further down the line. Maybe they can return to “business as usual” someday, but that's a long way off.

# 82. At 08:13am on 04 Feb 2010, wjrh62 wrote:

> Speaking as an RBS back office employee I find it quite amusing when I hear of
> big bonuses. ... Morale is at an all time low within the rank and file of RBS
> whilst the executive and accountants slash millions off the cost base of the
> company preparing it for re-privatisation. Thanks Alastair.

I seem to recall that Alastair propped up your employer with _my_ money.
Without that money, you'd be drawing £60 a week on the dole. Keep
that in mind when you think about the help you have received from the rest of us.

As we all repeatedly agree this whole bonus scenario in banking is totally unjustifiable and corrupt; it spread to the industrial sector where captains of industry all sit on each other's remuneration committees; and it has now spread to the public sector as well. It is tantamount to legalised fraud but is so open to scrutiny that it has become accepted. It is no longer acceptable!

Would it be fair to assume that to pay the minimum possible means that the workers can get away with working the minimum possible too? Sounds like a fair deal to me.

Next time i'm asked to work every weekend for no extra guess what the answer will be!

Good luck

85. At 08:45am on 04 Feb 2010, pawns_or_players wrote:
RBS did not ask for our help, we offered it and to an extent forced it.


The BBC produced a documentary that went out on Radio and TV early last year. Described was a major meeting between the banks and the government officials, including Darling. The bank bosses were all told what was going to have to happen if the ATMs were to have any money in them - we were facing the loss of our financial system in about 2 days. Fred, he of RBS was the only man in the room who failed to recognise that his bank was in a poor state. If I remember right, the room was in stunned silence as all the top men glared at him.
Think it was called 'The Crash'

So no, you are right, RBS didn't ask for it, but because they had no idea what a shocking, frightening mess they were in.

#75 MikeHSurrey wrote:

"I am actually a past director of a public company myself.

Directors most certainly must do what 70% of shareholders tell them to do: formally speaking that would entail the calling of an EGM, but when one stakeholder owns 70%, it is entirely impossible for any outcome of such EGM to be other than that one shareholder wishes: since he can carry any vote. That's why it is called a controlling holding.

So if UKFI expressed its wishes as I suggest, and the current Board demurred for even a moment then an EGM could remove the entire board and appoint a new one - take my word for it.

Mike H"

----------------------------------------

Mike has raised an interesting point above that may appear to now be taking shape in reality.

Namely that HMG, UKFI and the Treasury need to start getting a lot tougher. This is also eveidenced in article in todays Times newspaper.

'Finance big guns fire furious broadside at Myners'
https://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7014213.ece

It states that Lord Myners is demanding that the institutional investor shareholders start 'pulling their weight' at the banks over bonus payment restraint. They are now beginning to kick back however. By demanding that the institutional shareholders should start performing their duties in the correct manner means upsetting the cosy relationships they have both benifitted from over the years (at the expense of the plebs).

They obviously don't like being told what to do or haow to behave!

Turkeys and Christmas....

# 73. At 6:58pm on 03 Feb 2010, MikeHSurrey wrote:

> They simply need to be summarily called to attend UKFI, where they should
> be made to stand in a row and stand up straight (in what the Army would
> call 'an audience without coffee') : they should then be INSTRUCTED, in
> words of not very many syllables, precisely what they are required to
> do, in detailed numerical terms and told also that if they do not
> conform then disciplinary action on them individually will follow. Why
> our limp government cannot grasp this is beyond comprehension.

It's amazing, isn't it? Every voter/taxpayer in Britain (bankers aside) has made up their mind – no bonuses. There's no “interpretation” required. Yet we have these lame twits lolling about like drunks, talking about “persuasion” etc. No wonder we are loosing the war when we have these turkeys in charge.

This is a fight to the end, and the bankers _must_ loose. We must win because we own them, we are the taxpayers, we are the voters, and we are in charge of our own money. If the bankers win, all of that will be wasted. We will become slaves.

https://ftalphaville.ft.com/blog/2009/12/15/112331/moodys-sees-sovereign-states-a-suffering/

The next UK financial crisis?

Will it be:
banking/finance again?
and/or massive infra-structural costs of both private and public infrastructure as the population soars to 70-80m?
sovereign debt

How and why should(not 'can' - we know they 'can' and 'will' until they are stopped) any bank keep paying out these bonuses when the next crisis or multiple crises are looming large?

I think that Labour are incapable of solving these issues and leading the UK out of 'recession'.

Why is there no mention about Deutsche Bank on the BBC website? They just smashed analyst' estimates... and even announced what they paid in the Bank Bonus Tax (oh wait did GS say anything?).

We just hear about the doom and gloom...snore.

# 91. At 10:32am on 04 Feb 2010, longmot wrote:

> Would it be fair to assume that to pay the minimum possible means that
> the workers can get away with working the minimum possible too?

The problem is that, say a bomb defuser in Afghanistan figured out that some “investment banker” twit in some glass office in London was being paid 50 or 100 times as much as they are! How do we think that would go down? Or say some trooper figures that, while he's being showered with shrapnel from IEDs, some insignificant “chief executive” in a retail company is making 200 times what he makes! Would he appreciate that, especially if he is paying proportionately more tax that the manager is? Or say some lifeboat man goes out in a breeches-buoy to save some sailors, and one of them turns out to be a yachtie from London, who works for some paltry finance firm and makes millions for pressing keys on a computer, would that be well received!?!

The people of Britain have woken to find that these “manager” types are far too big for their boots, and now the accounts must be settled. Sorry, but we can't have the tail wagging the dog any longer.

The bankers' bonuses story seems set to run although. To date, I have seen it as a red herring: a useful political distraction to channel public anger away from other much larger questions..

Now I see it as a lightning rod: and the question people should be asking concerns how the static charge (ie the huge sums of money posted as profits by the banks) builds up - not how it is discharged.

The real issue here is the way paper profits are generated by circulating paper: the whole edifice being build on loans which, at bottom are our (homeowners) promise to repay. The higher the house price the larger the loan, and the profit, and the longer we remain in bondage. All (exaggeration?) the so called profits and bonuses are derived from our future income: and they are so large because we have been persuaded to mortgage an ever increasing share of that income to them.

This money has not been earned, so much as conned out of people who thought house price inflation was enriching them: not their banks.

Almost every single post here - including Peston's - smacks of braindead idiocy and seething jealousy.

Clearly if an individual is capable of generating $50mn of profit for your company per year, and you can keep him employed by paying him a bonus of $1mn a year, it would be in the shareholder's best interests to keep him attached to your company. Of course this is assuming there isn't someone else out there who can do as good a job for less - but generally speaking, bankers are more than clever enough to distinguish between the individual value that someone adds over the franchise value itself.

There are few who are capable of generating these sorts of returns consistently. Bankers are usually exceptionally clever people, recruited almost solely from the top 5 universities and mostly having done degrees along the lines of Maths, Economics or Engineering. I'll refrain from claiming that 100% of the roles in investment banking require massive intellect, but the majority of them do call for sharpness well beyond what the average UK denizen can provide. And that's just a necessary condition, not a sufficient one - they've also got to have all the soft skills relevant to their job (e.g. relationship skills in sales, emotional control in trading) tuned to a fine degree.

Furthermore traders/bankers have very little job security - one underperforming year and they're out the door. Compare and contrast with most companies where you can toil away in mediocrity providing diddly squat shareholder value and be safe for decades.

Bankers provide a real service to the economy. Just because they don't produce a tangible product you can pick up does not mean they don't benefit the country. By the same rationale, neither do accountants or auditors or actuaries or research professors. For example, they help the big multinationals like Asda to hedge out all the currency risk involved with operating in different markets - thereby reducing volatility and increasing value. They also help the average Briton by providing financial services for UK pension funds, without which the pension crisis would be a lot more severe than it is right now. It's also a misnomer to say that bankers are gamblers - traders will usually have a large sample size since they will be making many trades a day.

Now I suppose the question that most people ask is why, if bankers are indeed so clever, did they not foresee the impending credit crisis? The fact is that the credit crisis was FAR more a result of the age-old issue of overlending and cheap credit than it was caused by actual investment banking. So the vast majority of bankers had little to no direct connection to the credit meltdown - they were carrying on with business as usual in their own area, equities, say. This is also why some banks/bankers made outsize returns last year - they were operating in areas totally independent of credit.

I can understand why people might be upset at RBS in particular since it is after all state-owned, although hopefully my illustration of shareholder value above allows people to understand why some 'obscene' payments are necessary and beneficial. However, I really don't see any reason for people to show any ire towards perfectly competent banks that didn't take a penny in government help nor were anywhere close to collapse - JPM, Deutsche Bank, Barclays, etc. Any hubris about the bonuses going to employees of these banks is very difficult to interpret as anything but jealousy.

Finally, I only read the first few comments here, but there was enough ignorance there to make me want to puke. Gems such as claiming that the external debt of the UK is caused by bankers, and that bankers 'steal our money', are incomprehensible. Please, people, turn down your incandescent resentment and learn a little bit about the topic at hand. Bullshitting about things you don't know would get you fired very fast at a bank.

PS: I'm not a banker.

#75 Mike H. I am a lawyer with several decades of experience advising corporates and directors (in other words I am a sad old man). Shareholders have the right to tell directors many things but the day to day mangement decisions must, as a matter of law, remain the directors responsibility. The payment of staff (directors pay is a different matter) is a day to day management decision.

If you as shareholders takeover the day to day management and require the directors to ban bonuses even where the director consider that those are necessary to retain staff for the long term benefit of the company, the directors would be entitled to resign, successful claim constructive dismissal because as shareholders you were requiring them to do something that was contrary to the law (directors have duty to act in best interests of shareholders as a whole not merely the biggest shareholder - so requiring them to do something which they considered would actually reduce long term value would be a breach of their legal duties).

My point stands, if you turn round as a shareholder and require the directors to ban bonuses are you prepared to pay the directors very large termination packages or would you also complain about that