He appears (by the replies from too many CiF posters) to have got away with his straw man line of a commission = a national maximum wage. It doesn’t.
What people want is a fair society, one which sees rewards according to merit and work. This entails looking at earnings across the whole scale. Mr Harris clears opposes this transparency and scrutiny, so is evidently against a fair society. That is some admission to make.

how do they expect the poorest in the land to react when told that, although their own circumstances are to be entirely unaffected by the advent of the commission, at least a few people they’ve never met or heard of are worse off as a result

is staggering. This is a projection of his, and his New labour chums, own selfish outlook, and a categorisation of the whole populace of solipsistic swine.
There are billions upon billions of people in the world I don’t know, have never met and will never hear of. I still want them to have a fair deal, and, by corollary, not to unjustly benefit, especially not when it’s been to the huge detriment of others.

He appears (by the replies from too many CiF posters) to have got away with his straw man line of a commission = a national maximum wage. It doesn’t.

Ahh yes. I was going to make this point too but forgot. Nice strawman there by Harris, but he clearly didn’t bother reading the text of the actual letter.

Absolutely spot-on, Sunny.

Said it before and I will say it until I vote Tory – Harris is, and always will be, a Tory himself.

Why on this God’s green Earth he doesn’t just cross over and be done with it is beyond me. But we can look at why NuLab are always up their own arses:

but of those Thatcher and Major supporters who switched to us in 1997

THAT is what NuLab’s policy is based on, nothing at all to do with a Labour stance.

PS, well said Sunny, it is about time the blues in NuLab were outed. (Is there any real red ones left, though?)

Will, a 10,000 + majority is the reason why he won’t cross the floor.

What amazes me is the sheer stupidity of Tom’s argument. The thought doesn’t even enter his head that the increasing wealth of the rich and the stubborn persistence of poverty might be connected.

“Take that in perspective – the average wage is around £25,000 ”

If you use a mean average.

Use a median one and it’s more like £19-20K, because the mean is dragged up by the super-rich.

And the median is in many ways more isntructive, because it tells you what the very middle are earning, and that everyone below that – 50% of the population – earns less.

Which only strengthens your point, Sunny, if only in one small way.

But always glad to help.

“By the looks of Tom Harris’ article, he doesn’t have any of those ideas – he’s just happy to accuse others of envy.”

How revealing.

Every time i’ve written about progressive tax for this blog, that’s exactly what the trolls accuse me of!

Is Mr Harris failing to tell us something…?

@6

Here are some figures, so that rather than say ‘about’ this or ‘about’ that, you can have some proper data

http://www.statistics.gov.uk/downloads/theme_labour/ASHE_2008/2008_all_employees.pdf

Best, if you’re discussing wages, to have the actual figures to hand

He has written three articles on CiF now, one complaining about sponging single Mothers, one on how shit his party is because of a single wally-who-got-caught, and now one that belongs to the ranks of people who think excess is good, beneficial and in no way affects the stasis of the economy in general. He is pissing well making my eyes itch!!

Will, a 10,000 + majority is the reason why he won’t cross the floor.

Well aye – and the fact he gets his 64k a year – if he crosses over after the next election he still makes that.

With him believing so much in Thatcherite policies I just don’t understand why Labour people vote for him – may be next election they will come to their senses.

NuLab despises left-wing voters -so what’s new? Remember Mandelson told them to read the Telegraph & Times before the 1997 election…

Good post, Sunny.

Leaving aside Harris’s odious but (I acknowledge) clever repositioning of himself to be able to say ‘I was pushed’ rather than ‘I jumped’ at the appropriate time and get the appropriate troll/rightwing response, which is making my eyes start to itch in the same way as it is Carl’s, I really like your last para on the need to see the Compass-led initiative as a way to engage in the debate even if we don’t agree with all the analysis.

Like Chris D and John Gray and others, I do have a problem with some of the analysis and reasoning (especially the way the ‘success’ of the National Minimum Wage’ is used in support), and I’ve set out those thoughts at Though Cowards Flinch, but on reflection I may still sign up to the call for a Commission; it is, after all, simply a call for a Commission, which is unlikely to come to anything substantive in the short term, but it has raised the high pay issue well (and exposed Harris fully for the knob he has become), so credit where credit’s due.

I know this is my personal bugbear that nobody except me evidently has any interest in, but one more time for luck … how is capping excessive pay in the banking industry going to lead a “healthier finance sector” if it increases the profits banks make from doing whatever they are doing? Again, profits = revenue – costs and “pay” is costs. I imagine there are ways of designing reforms to executive pay that do not simply end up increasing the capital share of income (increasing the share of revenue that goes to profits and shrinking the labour share) but simply capping pay is unlikely to do it (it is more likely just to increase profits) and I have yet to see anybody acknowledge this problem at all, and I don’t see how you can design reforms that are robust to this problem if you do not recognize the problem. If you goal is to change the incentives operating within the financial system, then simply reducing payments to employees isn’t going to cut it.

Sunny, you have not addressed this issue, should I assume that you have some reason for dismissing it’s importance? Could you share it?

Luis, I think the problem is that you’re looking for coherence where there isn’t any. The point is that the LC bunch want higher taxes for the rich, and with that goal firmly in mind they can proceed to come up with some nice relevant sounding ex post facto justifications. It will fund better education and stabilize the economy and prevent other major financial shocks don’t you know? Why do you hate better education and stable economies and innocent bunnies? etc etc

Luis, no-one (as far as I can see) is pretending that high pay is a magic bullet that will give us a healthier financial sector. But if a case was to be made for why it might help, I suppose the short version would be:
- Banks make money through lending
- The more they lend, the more money they make
- Employees who are incentivised to make money for their bank will aim to maximise the amount that is lent out
- But too much debt can be bad for the wider economy

how is capping excessive pay in the banking industry going to lead a “healthier finance sector” if it increases the profits banks make from doing whatever they are doing?

I’ve already answered this loads of times. Massively high bonuses give traders and people in finance an incentive to gamble wildly and take on massive risks. If they win, the pay-off is massive. If they lose, then things either carry on, or they move to another bank. The net impact though is huge volatility.

If profits increase by curbing remuneration, then they can be invested back into the company. Or be used to pay the lower end better! Or pay off debt – etc.

If you goal is to change the incentives operating within the financial system, then simply reducing payments to employees isn’t going to cut it.

Luis I’m afraid, like Tom Harris, you’re not actually reading what I wrote. First I didn’t say I expressly wanted a maximum pay limit. The campaign doesn’t call for that expressly either. Secondly, I didn’t say it was the silver bullet. In fact I mentioned a few other things at the end of the post… and there are plenty other reforms that need to be considered. The point is, we cannot carry on like before.

Sunny,

First some common ground – I appreciate you are not saying that pay reforms are a silver bullet, I agree there are wider reforms to be made to the finance industry, and I know that your support for the commission does not amount to campaigning for crude pay ceilings …… (you know what’s coming) …… but (!) I don’t think you are actually reading what I wrote …. you show no sign of even having grasped the point I am making. I will try to explain.

You tell a story: “Massively high bonuses give traders and people in finance an incentive to gamble wildly and take on massive risks.” Now of course there is some truth to this, but you are missing my point that if bonuses are somehow curtailed with the result that the profits banks make from “gambling wildly and taking on massive risks” are increased then the incentives in the system are still there. You claim to have answered this “loads of times” but nowhere in anything I have ever read by you can I see you acknowledge the differences between revenues in banking, profits and costs (employee compensation) and tackle the point that if the revenues from “gambling wildly and taking on massive risks” are high, then changing the distribution of those revenues with respect to profits versus employ compensation is not going to have the effect upon incentives that you imagine. You are arguing something like: bonuses create incentives to take on risk => sort out the bonuses => sort out the incentives. I am saying that line of reasoning is erroneous, and as far as I can see you have not shown that I am mistaken (or even shown any sign of recognizing the argument)

Now, I know that you have not expressly said that you want a maximum pay limit, but you cannot deny that one of the themes of the high pay commission you support is reigning in excessive pay, in some shape or form. I am presenting an argument which shows you that doing that might just increase profits and that if you want to change how the financial system behaves, you need to go after the revenues. Or you need to think very carefully about how to reign in excessive pay without just reducing the labour share of income – but if you’re going to do that, you first have to recognize the problem – if you can find an instance of anybody connect with the high pay commission writing anything about this, I will be very pleased to see it.

I apologize for length – I try to explain here what taking on risk means in banking, and why just cutting bonuses might be ineffective.

Preamble: There’s so much bundled up in the question of “high pay” that it’s hard to disentangle everything. Here I stick with the thread of incentives within the financial system.

One of the most basic issues can be thought of as simply aligning the incentives of employees with the interests of shareholders; it is not in the interest of bank shareholders to pay bankers highly, only to have them bust the bank, and wipe out the shares.

But how does this relate to “high pay”? Not much, necessarily. If you want to think about what bankers do as “gambling”, then they are making long-term bets, where we won’t know if they’ve really “won” until many years have past… yet bankers get highly paid in the short-run, if things look like they are turning out OK. So they have an incentive to do things that look good in the short-run. If they were instead only paid on the basis of long-run performance, incentives would be fixed, without changing the absolute levels of pay. They key is to prevent the gamblers from cashing in their chips before we really know if they’ve won. The problems come if bankers are paid so extravagantly and they able to cash in their chips too soon that once they’ve had few good years they don’t really care about the long-run.

It is worth thinking in some more detail about what banks actually do. I’ll quote you Sunny, but i could find the same story anywhere: “Massively high bonuses give traders and people in finance an incentive to gamble wildly and take on massive risks. If they win, the pay-off is massive. If they lose, then things either carry on, or they move to another bank.” Now this almost makes it sound as if banking was betting on horses, and that bonuses give incentives to bet on the long-shots, rather than the favorites – taking on more risk and gambling “wildly” – but of course that doesn’t work, if you start betting on long-shots you win less often, your revenues are lower, and banks pay their bankers out of revenues.

People like “traders” who make commissions from doing deals (and corporate financiers, M&A etc.) simply aren’t relevant here. If a bank earns £5m from arranging a merger, if the merger goes bad, they don’t lose the £5m. What matters is banks making investments that imperil their survival if they go bad.

Here’s a simply story. A bank has £100m of shareholder’s money, and borrows £900m. The bank pays 3% on its debts (you can think of the bank as borrowing money from depositors, so that’s paying 3% interest savings accounts). The bank then spends £1000m on investments, this could be making loans that either default or repay with interest, or it could be buying securities that have a capital value and may also pay interest (a dividend). Say the bank buys £1000m of mortgage backed securities. Next year those securities are worth £1050m – the bank started with £100m, it’s up £50m minus £27m paid out in interest, so it pays out £12m in obscene bonuses and reports £10m profit (10% return on £10m capital) as a result (this is a very small bank). This goes on for a few years, then in year 5, wham, the value of mortgage backed securities crashes, the bank’s investments are worth £500m, it owes £900m, it’s wiped out and needs a £400m recapitalisation just to pay its debts, and maybe another £100m on top, to get back in business.

It’s easy to understand why bankers getting paid obscenely well in the short-run might go down that road. If we manage to cut pay back to £5m, the bank now makes £17m profit annually from buying mortgage back securities! Are the shareholders who are seeing annual returns like that going to any more liable to look to the long-term than the bankers who were seeing £12m in bonuses? Evidence would suggest otherwise.

A better solution might be for regulators to notice that the bank has done a damn fool thing like bet the house on mortgage back securities, make them pay some sort of insurance fee (to pay for their eventual bail-out) that scales with the amount of systematic risk they are taking on, and this cost makes the whole business less attractive to bonuses taking bankers and profit taking shareholders alike – the net revenue (better: gross profit) has been cut. This last bit is just intended to give some idea of what going after revenues (gross profits) as opposed to trying to cap bonsuses, might look like.

Even if you had a cap at remuneration within the financial sector or more broadly (say at $1 million a year) – you’re looking at less than 1% of the population, if less. Many of them would not only be non-domiciles but won’t be voting for your party anyway.

They’re not a lot of votes, but they have a lot of money. Money buys votes. Plus, the Labour Party are pretty deep in the hole, aren’t they?

Apart from the why don’t you sod off and join the Tories rhetoric, I am certainly with Sunny on this.

A lot of Tom Harris’ objection was based on the idea that this must lead to a maximum wage, or pay ceilings. He would be right to object to that, though I take the Compass call for this to be considered to be somewhat rhetorical, and clearly many of those backing their campaign for the principle of more scrutiny of pay are not in favour of that, including St Vince.

David Coats offers some sensible comments, recognising the validity of scrutiny of top pay and broader inequalities, and the issues which should be addressed, suggesting that polarising the debate could leave it stuck. There is a trade-off there – it is necessary to mount the public argument, which has been missing, but the question is how to do so in a way designed to win it and open up the political and public space. The high pay argument as a whole does open up space; I suspect putting a maximum wage prominently in a campaign has the opposite effect, potentially narrowing support and giving opponents an easy target rather than their having to defend current arrangements (which is rather more difficult for them)
http://www.nextleft.org/2009/08/how-to-win-argument-for-fair-rewards.html

Tom H also forgets New Labour’s own campaigning against rewards for failure before and after 1997, which gave us the windfall tax as well as the minimum wage, and its policy agenda has always sought to mitigate and hold back inequality, (in terms of the overall distributional consequences of every budget – even including the infamous 10p own goal one, as Tom Clark noted the other day, being a Guardian columnist who knows his way around the institute of fiscal studies http://www.guardian.co.uk/commentisfree/2009/aug/18/gordon-brown-philosophy-vision), while being insufficiently bold in practice to meet the ambition of reversing it, as I acknolwedge and indeed have been arguing

So Harris falls into the politically debilitating trap of offering us a mythologised version of new labour (always and only defined against the left) which is much narrower than the broad coalition of support which new labour had in 97, and so which never acknowledges that it would need a broad coalition again to recover. Indeed, Roger Liddle made a good argument for a top pay commission as a New Labour argument back in 2008, as I wrote here
http://www.labourlist.org/impeccably_new_labour_case_scrutiny_top_pay_sunder_katwala,2009-08-18

Of course, those who say New Labour was very and too wary of this territory are right. One can certainly support the principle of scrutinising top pay without being New Labour(!); my point is simply that the government and ‘New Labour’ need not respond with existential dread to the idea of scrutiny of inequality including at the top, and they will in fact be outflanked even by not very-post-Thatcherite Tories like Osborne were they to retreat entirely from the discussion.

“What? How else would anyone fund tax-cuts for the poorest?”

Umm, maybe by not spending tax money on some of the things that tax money is currently spent upon? We can all make up our own little list of waste: ID cards, Trident to some, the EU, perhaps diversity outreach advisors, to others. But I doubt very much at all that there’s anyone out there who thinks we cannot slice 30 billion off a £660 billion budget. Thirty large being the amount needed to raise the personal allowance up to the minimum wage level (rough calculation, 30 million taxpayers, 5k increase in allowance, we’d be losing tax at 20% on that sum).

“How else would a government fund better education?”

You’re assuming that better education requires more funding. When there are other countries that have better education systems than we do on the same (and sometimes less) money than we spend then perhaps it’s the way we spend money rather than the amount that needs to be changed?

Luis – You appear to have answered your own question in part, but for my 2 pence worth…

The money used to pay staff clearly should not have been counted as profit, it should have been used to offset risk. The bank gave incentives to their staff to expand their lending (building up risk), they also underestimated the level of risk they were building up and turned thir industry into a gigantic gravy train for their staff.

Had pay (in some way) been limited, we would have had less incentive to expand and build up that risk and a greater cushion to protect against risk. It was hardly the only factor at play, but from where I sit it looks like banking pay incentivised the kind of behavior that got us into this mess.

Guys, dont you get it? I am a banker and if there is a limit on what I am paid I will just bugger off to Singapore, Dubai or Hong Kong whilst still with the same bank I am at now and pay (less) tax to their government instead of ours, whilst doing the same job and talking to the same clients. Net result = UK worse off. Simple as that. Also, you have a big suprise coming. China and India have billions of highly educated, highly motivated young people ready and grateful for the chance to work hard all day long who will soon be attracting the global service industries that we rely on to their countries (who aren’t burdened with welfare states). Ultimately the UK has no natural resources and all our money comes from business – if you hurt it you can kiss goodbye to welfare state, NHS and more. Get real.

Kiss goodbye to the welfare state, I rather kiss the bankers good bye your all moaning you run to this country or that, of course most of these people are not looking for British bankers because you lot F*cked up the banking here, they want success not a bunch of wankers.

I think I’ll be safe on welfare, I think your banking ideals are not safe at all, because one more blip and Banks will be brought under real control of the state.

Guys, dont you get it? I am a banker and if there is a limit on what I am paid I will just bugger off to Singapore, Dubai or Hong Kong

Please do

I am a banker and if there is a limit on what I am paid I will just bugger off to Singapore, Dubai or Hong Kong

Mind the door on your way out. It’ll be tough, but I’m sure we’ll find some way to cope without your doubtless immeasurable talents. Do enjoy your time living in a real authoritarian society. Just don’t come back crying to us if it doesn’t work out for you.

If you think that someone is being paid too much, don`t give them any money. It`s really rather simple isn`t it?

Phew thats a few MP’s without pay then, and a few ministers, and a few leaders.

End up making money for the government.

Andy@24
You are, of course, joking aren’t you?
You and your ilk are now costing every single person in this country £1700, I believe the bail-out now stands at £1.450bn. If we can afford this we can easily afford the £95bn per year which the NHS costs.
What arrogance makes you think that anyone would be concerned if you take the next jet out to Singapore, BTW, make sure your vaccinations are up-to-date on the way out, you don’t want a massive private health care bill while you’re away.

Hold on – the banking sector has guarantess – not actual money. So it’s different in comparison to funding the NHS.

Andy – a few things. That argument is always trotted out and yet I’m yet to see any evidence this is taking place. The Obama administration recently put a 90% tax on bonuses of companies that were bailed out by the administration. That essentially encompassed a huge swathe of the US finance industry. How many of those people eloped to other countries? Perhaps you can offer us some stats?

This argument that because of a globalised world we shouldn’t enforce any standards is getting rather tired. Hey, we may as well buy clothes from people using slave labour because otherwise those factories will move somewhere else using the same practices right?

Our aim should be to ensure the banking sector – which is essentially underwritten by the taxpayer – is not beset by continual instability because of the way risks are rewarded. We need better regulation and we need to ensure that next timesome financial company goes bust – it isn’t in danger of talking down half the sector with it.

—-

Luis Enrique
The problems come if bankers are paid so extravagantly and they able to cash in their chips too soon that once they’ve had few good years they don’t really care about the long-run.

That is EXACTLY what is happening now. Have you not been reading the articles unpicking the financial crisis?

Now this almost makes it sound as if banking was betting on horses, and that bonuses give incentives to bet on the long-shots, rather than the favorites – taking on more risk and gambling “wildly” – but of course that doesn’t work, if you start betting on long-shots you win less often, your revenues are lower, and banks pay their bankers out of revenues.

What? You’re actually arguing banks should pursue high-risk short term strategies rather than organic growth? The only reason they can do this is because they know they’re backed by the tax-payer. Otherwise banks would be more careful about high-rish short term betting. I’m not necessarily talking about only betting long-term, I’m talking about taking on less risk that puts the entire bank at risk, and pricing risk better. And more transparency.

A better solution might be for regulators to notice that the bank has done a damn fool thing like bet the house on mortgage back securities, make them pay some sort of insurance fee

You’re asking under-resourced regulators to monitor all the securities banks are buying and trying to determine whether those risks are adequately priced. That’s an even more unworkable solution than a high pay cap. And it’s too much regulation. Much better to ask why banks are mis-pricing high risk derivates in the first place, no?

Guys, I’m afraid Andy@24 has got it (sort of) right and most of you have got it wrong. Labour is indeed the party of equality – equal misery for all. It always has been. It always will be. The City has been one of the few things that has justified this country’s name being pre-fixed with the word “Great”, since WWII. So, like the rest of the financial world, they f_ _ _ ked up, big time, because they assumed that the USA wouldn’t f_ _ k up, which, unfortunately, they did. Do you really think that emasculating the City is a sensible response? Do you really think that staffing it with people who know that no matter how huge their responsibilities are, no matter how brilliant they are or how hard they work, their pay can never exceed that of a third rate football player, will do anything other than emasculate the City? Do you really want equal misery for all? At the moment, New York and London are the two great financial capitals of the world. Bring in this crazy and puerile idea of pay-capping and they won’t be for much longer – that’s when you’ll see all the talent slipping away to their replacements.

“their pay can never exceed that of a third rate football player”

So why haven’t they already left?

Harris is from Scotland. He’s Labour because being a Tory is the same thing as being a loser.

“The Obama administration recently put a 90% tax on bonuses of companies that were bailed out by the administration.”

Err, no. Details, as always, are important. The House passed such a law. The Obama Administration said:
http://www.foxnews.com/politics/first100days/2009/03/22/administration-changes-needed-percent-tax-aig-bonuses/

“White House economic advisers said Sunday that President Obama won’t “govern out of anger” despite calls for the heads of AIG executives who received bonuses, and acknowledged that using tax law to get back $165 million in government-funded bonuses may be “a dangerous way to go.” ”

The issue died in the Senate. It ain’t law.

Obama’s actual proposals were more along the lines that cash bonuses should be limited to $500,000 or less. Anything over that sum should be paid in restricted stock (ie, stock that couldn’t be sold for a few years) so as to create incentives for long term performace, not just short.

Which is in fact pretty much the way Bob Diamond of Barclays Capital is paid. Huge chunks of Barclays shares. So much so that he lost £20 million or so on his holdings last year.

“How many of those people eloped to other countries?”

So, despite the fact that the tax didn’t go through, there’s another point to be made about why the American experience would be different from our own.

If you are a USian, you pay US taxes whereever in the world you live. If you are in a lower rate tax regime then you owe the extra to Uncle Sam each year. Thus fleeing the jurisdiction doesn’t make all that much difference (there are some allowances but at the top end it makes very little difference). You have to give up your citizenship and that is a very complex and very expensive process indeed.

Our tax system is based upon residence. You can bugger off and from 5 th April that yearthat’s it, no more UK tax to pay. Further, under EU law it would be illegal for us to try to move to the US system (although Richard Murphy still advocates such a move).

So what the Americans do in the face of high tax rates (that didn’t get imposed) won’t tell us much about what would happen here.

If you want to see what would happen with very high tax rates just look back at UK history. 60s and 70s….so many people buggered off that we called it “the brain drain”.

On further point of interest. There have been two great bursts of globalisation, two great shifts to the international division of labour and its specialisation. 1880s-1914, 1980 ish to now. Both times London specialised in finance, Germany in manufacturing. If it had happened one way once, the other the other, then we might think that policy had something to do with it. That it happened the same way both ties doesn’t mean that policy didn’t have anything to do with it, of course, but it does at least begin to point at the idea that there might be some comparative advantage at play.

Some “natural” reason why global finance moves to London if it is able to. Me, I think it’s the legal system but that’s me punting, not a fact.

stantheman@33
But the whole point is that bankers have not shown themselves to be brilliant, not even average. Most people do not mind that very capable people are well rewarded but not imcompetents.Adam@24 is incredibly arrogant in his assertions about leaving, he says he is a banker,.but is he a good banker?
And not if, as you assert, British bankers merely follow their American counterparts because they believe that they won’t f..k-up. I once bet £5 on a horse because my neighbour did;- I lost, but it was £5 and I wasn’t being paid thousands for being a horse-racing expert.
And if the ‘Great’ in Great Britain is justified because ot ‘the city’, things really are worse than we think.

steveb@37
Einstein fk’d up several times – so, on your basis, Einstein was not brilliant, not even average, but an incompetent?
Andy@24 has got it right – when the loons in power finally and irresistibly screw up the City, there will be a new “brain drain”, just as there was when Labour thought a 98% top tax rate was not unreasonable.
Your analogy of a £5 racing bet is hardly appropriate – for a start, your neighbour would have had to have been an acknowledged horse-racing expert! The point is, I accept that all of these very clever guys (and gals) – fk’d up! Anyone who flies high will always do so, at least once.
I’m totally puzzled by your final comment – sounds good, but what does it mean? Before this current episode, the financial City of London was the undisputed envy of the whole world – it probably still is today, but definitely was before. What else did Britain have, that you could say that about? The Beatles come to mind, but little else. I’m talking about real envy here – not admiration, otherwise you could maybe add Princess Di, the Monarchy(?), a few footballers, etc.
Incidentally, I am not a banker, have never been one and have never tried to be one.

Come on Sunny mate, slow down a little and think a bit more carefully will you? Of course I know that’s EXACTLY what’s happening now, that’s why I gave that description of what’s happening now…. and then went on to explain how removing the disjoint between the time-span of the bets and the bonuses is important.

“You’re actually arguing banks should pursue high-risk short term strategies rather than organic growth?” Try as I might, I cannot fathom how you could have interpreted what I wrote like that. (by the way “organic” growth means “not by acquiring other banks”, it doesn’t mean “low risk”). That passage you quote from me was intended to explain how thinking of “risky” behaviour in banking as if it was like betting on long-odds outsiders at the races is a mistake – you talk about “high-risk short term betting”, I do not know what you mean by that and I’m not confident that you do.

Meanwhile, there is still no sign whatsoever that you have grasped what I have been saying all along, about how you may suceed in changing the incentives faced by bankers by somehow cutting bonuses, but if that only serves to increase the profits to shareholders (as it would if bonuses were simply lowered) then you will not have removed the peverse incentives from the system in the way that you hope to (not to mention that it’s rather odd for left-wingers to be campaigning for higher profits). Hence why it’s necessary to think about how banks generate revenues, not just about how those revenues are split beteween bonuses and profits.

As for what you write about the limited capacity of regulators, well I quite agree that we cannot expect too much – but if you are saying that the capacity to identify the build up of systematic risk in the system is beyond regulators, well we really are in a fix. Reassuringly, smarter people than me think otherwise. Like Roubini and the Obama administration.

Haven’t I been reading about the crisis? Yes I have! Here are some three of the best papers on the subject (all intended for a non-technical reader – I highly recommend them) are: here (pdf), here (pdf) and here. This would be a good place to explore too.

Re the globalisation ‘myth’. Globalisation is basically hitting us in two stages – Britain has become almost completely de-industrialised by the developing world taking over manufacturing post WWII in the first stage. We are now basically dependent on the service economy – and like it or not, the biggest part of that is financial services for the global economy. There is simply no way to go back to being an industrial economy without a collapse in living standards as you simply will not be able to produce goods cheaply enough to compete with the east without paying people a small fraction of what they are paid today. I work for a biochem company and last year we moved our research department to Hyderabad in India. There you can hire first-rate PhD-level scientists for the equivalent of about £3k per year. If we start losing financial and other services to the developing world in a big way (in a 2nd stage of globalisation) then what exactly do you think we will run our economy on? If you start hitting people with pay caps and super-taxes they really will simply leave. It did happen before in the 70s. There are a lot of places to choose from, most with better weather and quality of life!

Try to remember who actually generates wealth for this country. Nobody disputes the huge value to wider society provided by nurses, doctors, teachers or even social workers – but – dont forget that they (and also most private sector workers) dont generate any net income for this country whatsoever. And though that might sound a bit mercenary, as said above, without that income into the UK you simply wont be able to pay for the welfare state, nhs, public sector etc. City bankers might be obnoxious nasty tw@ts, but they are among the few that do bring serious money into this country. Sad but a reality of life that britain has to face up to.

stantheman@38
“your racing analogy is hardly appropriate”
And neither is your Einstein analogy, when he got it wrong it was a theorum,so relatively speaking, it had no effect on reality other than to disappoint the academic world..
“Before this current episode….the city of London was the undisputed envy of the world”
Yes, funny how getting found-out changes things.
Personally I never use the term ‘Great Britain’, but bankers, Beatles, the monarchy or footballers would not be on my list of great Britains. Possiby Newton, Oxbridge and the armed forces of WW1 and WW2 would
Considering you are not a banker you are quite forgiving of that profession, those people were paid enormous amounts of money to get it right by using their so-called expertise and knowledge and not by following, sheeplike, the behaviour of the USA. The average lay-person knows that the economic environment of the USA is different to our own.