Last week the oldest advertising agency in the UK, and rival to my present employer, went bust. It had survived nearly two hundred years of wars, umpteen changes of government, recessions and even the Great Depression, but this was a crisis too far, and the company went into adminstration. One more tale among thousands from this recession, and unremarkable for all that.
Being closer to home, the winding up of Barkers seemed telling to me somehow, as at head of the queue to stake a claim over the assets were a number of banks, as the number one creditors. Once they have stripped the fittings and raided the safes, there will be nothing left for the 150 or so ex-employees who were laid off a few days before, despite promises made to the contrary. This may be normal practice, but I was interested to see that this doesn't seem to work in reverse.
This week, Goldman Sachs announced it was setting aside about £4bn for bonuses after a very health 2nd quarter of 2009. I thought it interesting that, when a bank goes bust (as all those who took government financing effectively did last autumn, including Goldman Sachs), first in the queue for payment is those bankers who caused the mess in the first place. The reasoning for this is that GS has paid back the money it borrowed, so is now entitled to do what it likes with the spoils. I realise that Goldman Sachs is a US bank that borrowed American government money, but where they lead British banks will surely follow, despite the promises this week of tough new reforms for the banking sector.
I guess my first question would be about how much interest Goldman Sachs paid on the £6.1bn it borrowed from the Fed? I'm guessing not very much (but have you tried to secure an interest-free loan recently from anyone, neve mind a bank?). So Sachs may have paid back the Principal, but it certainly has not remunerated the American taxpayer for the opportunity cost of bailing them out. In other words, what the government might have done with that money instead of loaning it to corporate incompetents - such as building schools, job creation schemes etc.
Second, even if it had, I wouldn't want the bank to pay it back at 2%, 10% or even 100%. I'd demand it paid back at 1000%, or more, like punitive damages for the tobacco industry. I'd demand the repayment terms be so personally painful for those running the bank that they would be totally focused upon ensuring that it NEVER happened again. Front of mind, top of the agenda - nothing so important as going back to the days of loans secured against assets, not bundles of other people's debt.
As the debate about bonuses hots up in the UK, and banking industry heads start to bleat about the need to properly incentivise its employees, I couldn't agree more.
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