Thursday, February 28, 2013

We must be completely barking mad!

This is a blog about lies.

Not little 'white' lies, but bloody great big black ones. The sort of lies told by politicians and their bankster friends. The sort of huge lies that hurt and damage you and me, and keep this country in thrall to the rich and powerful interests in the City of London. The vested interests that don't give a damn about this country, about its ability to employ its people or encourage its small business enterprise model to flourish and thrive. The powerful interests that took this country to the brink of financial disaster in a welter of uncontrolled speculation on ill-understood derivative and securitised contracts, who manipulated the LIBOR market and turned it into a thieves kitchen, who are now doing the same thing with the Gas price-setting market, who laundered drug money for the Mexican Cartels, and who routinely flouted the international sanctions intended to deal with terrorists and rogue states.

These are the power groups who when they got caught, called on their friends in Government to rally round, to defuse the ticking scandals, lean on the regulators and prosecutors, issue downright lies as press releases, and generally try and make the problem go away, for fear that the criminal banks might take their crimes elsewhere, to another jurisdiction who was less fussy about their dishonesty, so that they can continue to reap the rewards for their wrong-doing, the kind of rewards that would make an ordinary man or woman gasp in disbelief.

There are two particular stories in the financial press today which deserve a second look. They both deal with big bankster lies.

The first story deals with the decision of EU chiefs, who have agreed a package of financial laws that includes capping bankers' bonuses at a maximum of one year's basic salary. The bonuses will only be allowed to reach twice the annual fixed salary if a majority of a bank's shareholders agrees.

Yes, you read it right, bankers' bonuses will be capped at one year's salary unless the shareholders agree and then they can be doubled.

I know we are talking about the people in the investment banking divisions of the banks, I doubt if the average counter clerk gets this kind of bonus,  but hey, I'm sorry, but can someone enlighten me as to how this bunch of clowns who will already be earning somewhere in the region of £300,000-£400,000 a year as basic salaries, gets to deserve this kind of bonus in this present age? What do they have to do to secure that kind of money, apart from deliver even bigger sums to the bank itself, and where the hell is that money coming from anyway?

Well, we know where a lot is coming from. Mexico might be on hold for HSBC right now, but sure as hell there are other drug producing entities out there. The Pakistanis didn't appear to have slackened off from exporting vast sums of dirty money from the Afghan drug trade  through British banks based in Dubai, when I last looked!

Russian oligarchs don't appear to have fallen out of love with moving their dubious money through London, while the foreign tax evasion business is still thriving. Banks are routinely ignoring their legal responsibilities under the money laundering regulations to fully identify their customers and especially the Politically Exposed Persons (PEPs) (not my allegation, the FSA has said so), that they are required to pay special attention to, and the money keeps rolling in.

So, please, someone, anyone, tell me what it is these people do that is so valuable to the UK that they deserve to double their annual pay, every year, as a basic minimum?

Someone on Radio 5 Live has just said that they bring in £50 billion a year into the British economy. Well, that sum may hit these shores electronically, as part of a relocation process, but I seriously doubt if all of it stays here, in fact I suspect that a huge amount of it moves on fairly quickly to some other safer, palm-fringed location, having been discreetly disguised behind a British facade.

The same Radio commentator has said that these people bring in a lot of revenue for the UK, but as we all know that the vast majority of UK banks spend fortunes relocating their profits elsewhere, I seem to remember that all the British banks assessed together only contribute about 7% of the UK GDP, so I am not sure whether that is an influential argument to justify giving them these bonuses.

Currently there is no legal pay limit on top bankers and traders, who can earn performance bonuses many times their basic salaries. In fact, the bonus cap outlined  is just a part of a sweeping financial reform package introducing higher capital requirements for banks, the so-called Basel III rules. Othmar Karas, the European Parliament's chief negotiator, said: "For the first time in the history of EU financial market regulation, we will cap bankers' bonuses.

"The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs."

So, the underlying function of this programme is really to ensure that Banks put a lot more money onto their balance sheets, to enable them to be more stable and resistant to financial seismic shocks, which proved to be so dangerous a few years ago.

The impact is intended to drive the banks into a situation where they must begin to focus on their traditional role as providers of capital to fund business and drive growth, instead of merely being casinos, speculating on derivatives and cleaning up drug money for dodgy Mexican banditos!

So, what is wrong with any of that, isn't that what every politician is calling for, isn't that what industry wants and needs, isn't that a desirable outcome, someone, please tell me what is so wrong with that ambition?

Well, of course, the EU is content to consider a 100% bonus package in the future, because they know perfectly well that no bank can make the kind of money that drives such a bonus by operating as a decent, wholesome, lawful bank, making transparent business loans to entrepreneurial customers. They have to continue to operate as 'fiducaires' to crooks and foreign dictators in order that get that kind of cash flow, and the banks, and the City and the Politicians know it, and that's why I say they are telling big lies.

Hear what dubious words our Prime Minister utters! 

“...We in the UK have major international banks based in the UK that have branches and activities all over the world...We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the UK...”

The UK has been battling to stop the Basel III accord on capital requirements, fearing the impact on the City of London as the EU's leading financial capital. The announcement represents a major blow for the UK Government, which has argued against a cap on bonuses over fears that bankers could leave the capital as a result.

This is such an old and hoary chestnut I am amazed Cameron still keeps trotting it out, but it gets another outing every time something like this happens! It's as if he can't think of any other reason, just like the other hackneyed excuses he rolls out. He has warned that '...European Union regulations could harm the City’s competitiveness...' after Brussels voted to cap bankers’ bonuses...'

This is what I mean when I talk about big lies. David Cameron is playing to the Eurosceptic  wing of his party. This isn't about economics or banking, this is just grubby politics. How on earth can European regulation possibly damage our competitiveness, surely it can only improve it? To be competitive means that you compete for business on equal terms with all other banks throughout Europe.

The uncomfortable reality is that the City doesn't give a flying fuck about fairness or competitiveness, it wants a monopoly, and it wants to maintain its hegemony over other European banks. It wants to keep the drug money and the foreign criminals' proceeds for itself!

Cameron has to come out with this crap because he has that other comic chancer and self-populist, Boris Johnson snapping at his heels like a demented poodle. He is also a delusionist when it comes to the competition argument. He states;

"This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire," he said. (I Imagine that In Brixton, they speak of little else!) "Brussels cannot control the global market for banking talent. Brussels cannot set pay for bankers around the world....The most this measure can hope to achieve is a boost for Zurich and Singapore and New York at the expense of a struggling EU..."

Speaking in Latvia today the Prime Minister said he would look “very carefully” at the EU’s decision.

Is this the same David Cameron who only a year ago In a wide-ranging speech in London on the economy, said he wanted to discourage irresponsible bank bonuses and encourage firms to show "social responsibility" and said that the chancellor was considering new tax rules to prevent abuse.

He used that speech to discuss his vision for a transformed capitalism, based on two principles "The first is a vision of social responsibility, which recognises that people are not just atomised individuals, and that companies have obligations too.

"And the second is a genuinely popular capitalism, which allows everyone to share in the success of the market."

The government is consulting on new rules which would require the UK's 15 largest banks to reveal remuneration for their eight highest-paid non-board executives - board executives' pay is already published. Mr Cameron said hard work and success should be rewarded - and entrepreneurs who got rich should be celebrated. But he said the City bonus culture had "got out of control" in recent years.

This was the same speech in which the Prime Minister said he wanted "no rewards for failure".

Today, after hearing of the RBS decision to pay bonuses amounting to £607 million, the Government called this a responsible demonstration of laudable restraint! Well, if this year's figures are a success, then I am a chocolate frog! These are the so-called 'successes' that RBS staff got rewarded for.

An announcement that it made a loss of £5.16billion last year. In fact RBS has made a loss for five consecutive years, ever since it was largely taken into public ownership in 2008 during the global economic crisis.

The large hit RBS took over the past year was attributed to unusual costs such as the additional £450million it was forced to pay out to customers who were defrauded by payment protection insurance, bringing its total compensation bill to £2.2billion.

In addition, the bank has been fined £381million for its role in the Libor rate-fixing scandal, it must set aside £700million over fraudulent interest rate swaps, and it lost £1.3billion in restructuring costs.

RBS also had to take a £4.6billion accounting cost based on a revaluation of its own debt. Nevertheless, the announcement that RBS would nonetheless reward staff with 'bloated bonuses' worth millions was described as 'astounding', with the bank accused of 'turning a blind eye' to wrongdoing over scandals such as rate-fixing and the fraudulent selling of insurance.

Chairman Sir Philip Hampton tried to put a brave face on it all. He admitted that the bank could not guarantee that the taxpayer would ever see a return on its investment. 'We will do our best to see if the taxpayers' money can be returned, but the bank was in a terrible mess, if you go back four or five years, it needed substantial re-capitalisation,'

He confessed the decision to pay massive bonuses rather than returning taxpayers' cash was 'toxic for everybody', but insisted it was necessary to avoid haemorrhaging skilled staff.

Here we go again, the dodgy old 'skilled staff' argument. If bankers are so skilled, how did they manage to drop us in the financial doo-doo in the first place. Even Lord Lawson on the Banking Commission has publicly stated that there is nothing very special about bankers, and that they are ten a penny!

In an interview on BBC Radio 4's Today programme, Mr Hester refused to put a date on when the bank could be returned to private ownership, but predicted, 'RBS will be ready to be privatised within the next couple of years.'

He then proceeded to perpetuate another great big mis-statement about the banking sector. He attributed the company's losses to the legacy of mismanagement he inherited, saying: 'The clean-up of RBS is entering its last phases, and I'm hopeful that as we enter the last phases of 2013 and into 2014 the company will look more like a normal company. '2013 will be another tricky year for us and for the UK economy, but every year that passes we are chopping away at the bad inheritance we had.'

Well, excuse me, but isn't that rather the point. Hester knew exactly what he was getting into when he joined the bank, and anyone working for him must know the deal. When you inherit someone else's Augean stable, you have to shovel a lot of shit, in order to clean it up. That's the moral burden of responsibility he took on, whether he like it or not, when he adopted somebody else's screw-ups.

This is your big dilemma, Mr Hester. You can't turn round and claim you would have been making a profit if it wasn't for all the fines you have had to pay for all the crimes your predecessors and no-doubt some of your staff committed, some of whom may still be employed by you. If and when you get it right, then no doubt the glittering prizes and the bonuses will be awarded to you, but if you knowingly take on a problem situation in full possession of all the facts, then it seems ridiculous to be paying you bonuses when you are still making losses. You are in a secure job, and being paid a great deal of money anyway, and the same goes for your staff. In this era of deep recession, what more do you want?

Well, it seems Hester does want more!

Commenting on the EU's bonus restrictions, Mr Hester confirmed in an interview with BBC Radio Scotland that he would be taking his bonus of shares worth £780,000 next month, saying: '...Other people decided to award it to me - as you know it's the only bonus in four years I have taken...'

He doesn't get it, but he is not alone, none of them do! The bankers think that by continuing to threaten Government that they will move elsewhere, that this will permit them to maintain the comfortable sinecure they have so long been used to enjoying. Let us not forget, as taxpayers we own a significant chunk of RBS and we have a big investment in other banks as well.

Like I said, we must be completely barking mad if we agree to their getting one penny bonus more, before they have returned all our invested money with interest!.


lifeafterdebt said...

Could agree more Rowan.Great post!

AbogadoNZ said...

Another 'goodie' Rowan.
A number of points come out of this:
1. The banks underlying threat to leave the City is a lie for the simple reason it cannot be achieved. What City anywhere could absorb tens of thousands of new migrants - most of whom don't speak the local 'lingo'? Where are the houses and schools for the families? Where is the communications infrastructure and where, tell us, is the empty office space? The banks are stuck in London, like it or not.
2. The government with its 80%+ shareholding in RBS has the 'levers of control' and can direct the bank to do pretty much what it wants. This being so, why is it authorising the payment of several hundred million Pounds of 'our' money to reward yet more losses?
As for Hester's acceptance of a bonus because it was 'agreed by others' this merely confirms he has no business sense (successful managers don't reward failure) and if any further proof were needed it is clear he has no morals. This begs the question why would the owners' representatives (the Cabinet) tolerate the continuation of employment of a CEO who has proved himself to be immoral?
The whole situation is a crock of sh**.

Joseph Malek said...

Rowan, great article! In reading this past week, what are your thoughts on this brief snippet? "Well, late last Friday afternoon, Moody’s threw a cat among the pigeons by announcing a credit rating cut for the U.K. from Aa1 to Aaa. Still investment grade, so no worries there, but it might cause some holders of U.K. bonds to have to bail because of the rate cut. The British pound sterling was sent to the woodshed, and has been there since, falling all the way to 1.5140, from the 1.5255 it held on Thursday.

I’m not surprised by this move from Moody’s, the U.K. is a mess folks, and the thing that I’ve been reminding you about for about 4 years now, is that whatever happens in the U.K. seems to be about 6 months ahead of hitting the U.S. shores.. Unsustainable debt loads just keep haunting the U.K. just like they are now doing to Japan, and have been doing to the U.S. I know that former Bank of Canada Gov. Mark Carney has hung his shingle at the Bank of England (BOE) and he is seen as somewhat of a savior. I think Carney has his hands full here, folks. I doubt he’ll be able to make a difference overnight or even within a year or two."