Tuesday, February 10, 2009
The chairman of Barclays Capital, Bob Diamond, a masked man seemingly devoid of affect, defended City bonuses to Jeff Randall last night. Meanwhile, Guido puts his case for the defence. I suspect there's an illusion abroad among bonus defenders to the effect that this is all the usual grievance politics - the poor whining about the rich - and that, by some magic. the market they call free will soon assert itself. This is a grave miscalculation. What has emerged about bonuses indicates that they were a fundamental social injustice and a cynical rigging of the market.
Diamond and Guido either evade or miss the only point that matters - the structural point. As everybody, me included, has pointed out bonuses are a one way bet. You can win but you can't lose. Diamond kept droning affectlessly about Barclays bonuses being performance related. Well, large parts of them aren't and, anyway, they're not truly performance related in that traders don't have to pay if they fail. This makes it logical for traders to take short terms risks that may - actually, will - in the medium and long term hurt both the bank and society. The case is overwhelming for a compulsory split between investment and retail banking. Diamond, I notice, kept going on about the virtues of the 'universal' bank, but then he makes £20 million a year out of this grand scam. Furthermore, why do banks in particular have such stratospherically generous schemes? Chris Dillow suggests they are bribes to stop traders plundering the firm - the banks are, in fact, being blackmailed. This, if true - and Dillow, for me, is the best at this stuff - makes matters much worse and would provide further evidence for the conclusion that is finally sinking into the popular imagination - the banks were run as market-rigging machines for rewarding traders and executives and ripping off shareholders, depositors and taxpayers. The truth is that no other conclusion is now possible. Sorry, Guido, this is real politics; sorry, Affectless, these are real feelings. It's over. Or should be - your best hope is Brown's dithering and his tendency to grovel to the City, which, I admit, could yet prove to be your salvation.
Posted by Bryan Appleyard at 7:13 am