Paying for ignoring the anomalies in financial services

By Rajgopal Raju



First, the classic disclaimer. Some of my best friends are bankers. But at a time when I see little old ladies in my corner shop laboriously hunting for coins to put 10 quid on a prepaid heating meter card, in the coldest winter for decades, it’s hard not to be angry at bankers, politicians, and yes, even foreigners and immigrants, instead of just laughing about it. Believe me, 10 quid doesn’t get you much heating for arthritic old bones. Energy companies have still not dropped prices from the oil-high spike days. And yeah, we still have those antiquated pay before the heater comes on systems.



If anything came out of last week, when Masters of the Universe faced angry lawmakers on both sides of the Atlantic, it’s that these guys really do live in an alternate reality. I thought I was the one who reads SF. More likely, they refuse to face the new reality — as one senior civil servant here said, “They’re like the dinosaurs who’ve eaten to the edge of the forest, and don’t realise their time is over.”



Despite all their zillion dollar public relation advisors, they hadn’t the foggiest notion how it sounds to say things like ‘we’ve seen our personal share portfolio drop from billions to millions,’ or ‘we’ve been good boys, we cancelled that nth corporate jet after the Mr Obama smacked us’, or ‘it’s impossible to live on half a million dollars a year.” Or even the base fact that the world will stop turning unless they can give out bonuses. Never having had to mingle with the aam aadmi — all those corporate jets — they don’t get the deep, searing anger against their kind. The privileged usually don’t. However, many bank chiefs now claim they’re going to take one dollar salaries — they haven’t realised that if politicians put bankers under the guillotine now, millions of Madame Defarges would happily knit and cheer them on. I’m not saying it’s correct, please note. But that’s how it is. If anything, the depositions worked to fuel public anger against the banking class.



The public wants blood, any blood, and at least in the welfare states of Europe, rich, tall, mostly white men, in the UK usually Lord this and Sir that, are juicier targets than Italian fitters, Polish plumbers or poor mothers of octuplets.



Politicians are finally getting the hint — and realising that they have to ditch their cosy relationships with high finance. Obama did it first, with his salary caps in a society where personal property is as sacrosanct as as apple pie. Gordon Brown has been forced to jettison high-profile advisors and regulators who are ex-investment bankers.



Both extremes are dangerous. We’re still pouring vast amounts of taxpayer money into banks hoping they’ll fix things. We’re putting people, who unlike, say, politicians and mediapersons, are not used to being public villains, against a wall, fighting for their five star lifestyles, and giving them free money to fix the world? What would you do? I’d take what I can get and run to the Bahamas. And yes, it is unfair to tar all bankers with the same brush. Most didn’t even know what was going on. The best option, really, is to throw some high profile sacrifices to the wolves. Jail a few, cut off (figuratively, please) a dozen or more symbolic heads, get some non-finance outsiders on to those boards, and get on. And yeah, give up those bonuses. You might actually live to earn another day, before some mad mob really lynches you. The prospect is real, though it might happen in Slovenia instead of Pennsylvania. There’s just this much that even a passive western public will take.



In London, the anger now has focused on banker bonuses. American banks gave out some $18 million in bonuses for 2008 — British banks are still to announce theirs, and most, we hear, are Marie Antoinettishly going ahead. After Obama, the UK government is under intense pressure to tear up those gilt-edged contracts, but is still trying moral suasion. They’re daily upping the ante, though, as public outrage pours in.



This has generated a fascinating conflict of opinions. Even usually establishment commentators are swinging from one extreme to the other. Here’s how the argument goes: for, not all bankers are bad guys, why deprive those who did good work? Against, those who did ditto in retail, engineering, metals, auto, etc., are paying with their pensions and jobs so why shouldn’t other bankers? Without bonuses, there will be a talent outflow, even in these hard times. Counter, what talent? Firstly, these guys goofed up, next, who needs exotic skills like complicated trading or slicing paper trails, anyway? Sure, let financial services take its chances on losing talent, like every other industry sector is being forced to do, from lawyers to auto designers. For, who’s going to fix the mess if there aren’t any good bankers left? Against, maybe we need someone else to fix the mess, who said they were good in the first place? And why can’t they learn to live on half a million dollars, like other highly skilled people in other professions?



In India, we’ve always accepted huge income inequalities as a given, fate, karma, the accident of birth if you will. We don’t pillory our rich for their ostentatious homes, marriages, or extravagant lifestyles. America takes a middle road — the pursuit of happiness is a constitutional right. But riches are supposed to be earned, not inherited. In Europe, which has a socialistic approach, they genuinely believe that a bricklayer should earn as much as an engineer or doctor. For years, society turned a blind eye to the financial services anomaly, mainly because they kept the credit lines flowing, and allowed governments to run massive welfare states. That prosperity has now disappeared. I suspect worse to come.