Monday, 30 January 2012

Bankers Bonuses, Pave the streets with carpet?

Bankers bonuses have surfaced again. We are justified to get angry. Bankers have been too comfortable in their risk taking and left nothing in reserve. As the saying goes "there are  none as blind as those who don't want to see". And this perfectly describes the slow motion car crash of the financial merry-go-round we've seen since the Credit Crunch kicked off in 2007. The truth, though, is that banks are now performing well and better than expected in many instances. RBS has turned a thumping loss into a profit and started contributing Corporation Tax which it hasn't done since its near collapse. Other banks, too, instead of record losses and collapse we are now seeing profits and in some cases huge profits. These profits have been made by doing exactly the opposite of what they did to cause the credit crunch. Cautious lending, retaining funds and steady growth. Yes, some would argue that lending is too cautious and growth too steady but, nonetheless, their fingers were burned and there seems to be an overwhelming desire from them to keep cool. What does this have to do with paving the streets with carpet? I'll explain. As I am not (yet) in political office I still have the luxury of courting unpopularity. Let's pay the bonuses in full and be glad about it. In fact let's encourage the banks to pay more! Many years ago I asked my Dad what he would give to charity if he won the pools. He said he would give nothing but would carpet all the streets in town. He was obviously being metaphorical but this was his attempt to explain economic dynamics. The carpet fitters would get a huge amount of trade, they would have to employ extra people, they would all be paid and they would spend their new found wealth. The shopkeepers would have to buy more stock to fuel demand and factories fill their order books to supply the retailers, etc., etc. I was gobsmacked, all this because some lunatic wants to carpet the streets. With Bankers being paid huge bonuses we get double bubble. They increase their spending power and, however frivolous, the money they spend stimulates the economy. As most of these recipients will be on the highest rate of tax, we, the taxpayer, get half the bonus as PAYE. Their frivolous spending will account for another 20% to the taxpayer in VAT. If the banks continue to refuse to be persuaded to lend more money then keeping the bonuses in the bank will add to their profits and we only get 28% of that as Corporation Tax, Capital Gains Tax or Stamp Duty Reserve Tax. So withhold the bonuses and we get a smaller cut. The unpalatable truth is that the Banks MUST pay big bonuses, in cash they are the only businesses that can.