Driving to work today I was, as usual, listening to John Humphries on BBC Radio 4 as he interviewed his latest victim – this time Vyette Cooper , Chief Secretary to The Treasury.
She, like the Government, had jumped onto the bandwagon (or maybe they in fact created it ) calling for all city bonuses to be scrapped immediately subject to “contractural obligations”. Leaving aside the issue of whether bonuses should or should not be paid and whether they are in many cases excessive, I would like to examine how we came to this position.
Until about a year ago we had, according to the Government, the media and the city itself, but perhaps with a few dissenting voices, one of the strongest economies in the world. That economy however was built on the financial services sector and at the centre of that was of course our hugely strong banking system.
Of course we now know that that was not true and that was because the banks and the financial sector generally were taking huge risks. Those risks were acceptable in times of growth and when the market was on a sort of upward spiral, but were unacceptable and shown to be paper thin as soon as markets turned the other way.
Please do not think that I am defending or justifying in any way the actions of the banks and the invisible men of the city, but is it all their fault as the Government would now have us believe ? I think not. They did nothing wrong, acting completely within the law and to the delight and benefit of the country, the shareholders of the various institutions, the Government (by way of taxes), the Treasury (by way of invisible earnings) and of course the executors and senior staff whose earnings were linked to the performance of those institutions.
The fault surely lies more with the regulatory process. The fact is that the financial regulations surrounding the banks and the city generally were inadequate and allowed the sort of risk taking that we have seen and that caused our problems. Of course not just in the UK; if anything , countries across the world allowed their financial institutions to compete with each other for a share of the world markets and , to compete , they had to play the game and take the risks others were taking.
But the lack of adequate regulation and then the totally inadequate policing of it by, in this country, the Financial Services Authority (those of you who have read my earlier blog , on red tape , will know that it has never been my favourite body) was woefully inadequate. So I think we need, of course, to look carefully at huge bonuses being paid particularly at a time when financial institutions are on the rack and the economy is failing, but at the same time we need to lay the blame at the foot of the doors of those who are really responsible i.e. the law makers and the law enforcers.