Listening to the Today Programme the other morning, it seems a consensus has been reached: the problem in the banking industry is big bonuses, and if the politicians can command the banks to stop paying big bonuses, then the “bonus problem” will be solved.

Why are big bonuses are paid in the first place? Unpleasant as they may be, the reasons described by Chris Dillow cannot simply be wished away. Individual bankers generate huge quantities of revenue, and if they walk out the door they take the revenue with them, giving them bargaining power that (partially) explains their incomes.

We – the taxpayer – own some banks now, and our interests will not be served if the revenue generators walk out the door and take the business with them. The general impression appears to be that big bonuses exist simply because bankers are greedy and like paying themselves lots of money, as if people in other industries wouldn’t pay themselves lavishly if they could.
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Some bloggers have been asking what the left wing response to the current banking crisis ought to be. Here’s what I predict it will be.

The crisis will be slotted effortlessly into the existing left-wing narrative about the evils of capitalism, neoliberalism, and the ‘myth of free markets’. The bailouts will be commonly referred to as hand-outs to the greedy bankers who created all the trouble in the first place [1], and the headline figures (say the $85bn to AIG) will be spoken of as if this is money taken from taxpayers and given to banks/insurers [2]. We will see lots of talk of parasitic financiers who produce nothing and indulge in nothing but speculation. continue reading… »