Anger has rightly resurfaced on bankers’ bonuses in a week when two of the US banks with a significant presence in the UK announced they would be paying bonuses to their staff of over $30 billion for 2010.UK banks are estimated to be making £7 billion in bonus payments for 2010 when they are only paying £5.7bn in corporation tax for the same period. Ironically they were able to reduce their tax bill by writing off losses that they made in 2007, 2008 and 2009 when they were bailed out by us.
That gets to one of the bones of contention on bankers bonuses. How can an industry that by the estimates of the International Monetary Fund has lost $2.5 trillion since the financial crisis broke, that has been bailed out by governments worldwide, and read the general population for governments, pay these ridiculous sums of money for what is a socially useless function that has caused and willcause so much destruction?
You can add to their bill of destruction the economic recession that resulted from their credit crunch, the worst since the 1930s, which has seen governments spend additional trillions of dollars to prop up depressed industries such as cars and housing. At the same time government tax revenues have collapsed and social security expenditure on the tens of millions who have been made unemployed by this recession rocketed. If you ever wondered why governments are trying to make cuts to public services, jobs, pensions and wages this explains why.
These banks would not be around today if it was not for the austerity that we are being asked to take. On top of the bailouts governments have been printing money (quantitative easing) and buying bonds from the banks. Where has all this money gone? Well not much has gone into the real economy through loans to individuals, small businesses or corporations. It is in the banks coffers to prop up their ailing businesses or being used for speculation on the financial markets.
These banks are now gigantic monsters that emerged in the 1990s as hybrid banks that do everything from current accounts to dealing in the most complex financial products with an underlying notional value of trillions of dollars. It was this second wave of financial deregulation which followed on from the first one started by the Thatcher and Reagan that saw the barriers between Investment banking, retail and corporate banking broken down. Barriers that had been erected after the 1929 Wall Street crash and 1930s depression to avoid a repeat of those events. The architects of this new banking system were the Wall Street and City of London bankers ably assisted by Clinton, Bush, Blair and Brown.
These new banks role was to allow the easy movement of capital around the world to fuel the neo liberal globalisation project. But they act like leeches on the financial system. If you imagine the world’s assets as a massive cake made up trillions of dollars. If you cut that cake into enough slices and resell it round the world all you have to do is brush up the crumbs and you become very rich. In this giant financial cake there are about $ 82 trillion of bonds and $50 trillion of shares in public quoted companies. Each day the currency markets turn over $4 trillion of transactions.If I tell you that 60% of these assets are held by us through our pension and insurance funds then you’ll know whose crumbs the banks are picking up.
At the same time there are insurance policies on $600 trillion of assets, a multiple of the real assets that exist. The value of these insurance policies is about $30 trillion. They are issued by banks to insure the risks of our pension and insurance funds. But they are also used as a trading tool by all sorts of speculators such as the banks themselves and hedge funds.
The banks as well as making money by brushing up our crumbs have privileged access to the flows of money that they see going across the global financial markets and they employ the tens of thousands of analysts to scrutinize everything from companies, to currencies and economies. Take for instance Goldman Sachs, their analysts had identified the worst loans they could find on poor American peoples’ homes, they packaged them together as a “high quality” bond and sold them to pension and insurance funds on behalf of one of their hedge fund clients. The client made money as the bond price collapsed and Goldman’s picked up a big fat commission of several billion dollars.
There is no wealth creation in what they do. If they make money someone else has lost an equivalent amount. It is a zero sum game. Some of the losers are banks and other speculators but the losses are mainly borne by us through our pension and insurance funds. This is the money that we have paid in from the salaries and wages which we have received from creating real wealth and providing valuable social services.In other words what is going on is the biggest theft in world history.
For this they are paid in one year bonuses that someone on average wage would take 20 years to earn. For decades these bonuses in many cases attracted no tax and the banks avoided paying national insurance on them. This is because they were widely paid in shares, insurance policies or gold bullion that could be exchanged a few weeks later for the cash equivalent with no tax and national insurance liable. These practices may have finished as the banks come under closer scrutiny after the financial crash and bailouts. But they can get round a lot of the regulation by increasing salaries and making deferred payment in shares that will only attract capital gains tax on any increase in the shares value.
We have every right to be angry with this giant scam.The best way to use this anger is to fight for a different banking system. One that is under common ownership and control and that pays sensible salaries and one that helps fund socially useful projects that benefit all of society.