The day bankers never imagined would come, when they would have to give account of their management to the public has finally come
For decades, the heads of the world’s largest banks could make decisions that compromised large sums of money and receive heavy bonuses without any questions, but today the game is over for some, or at least that’s what it seems.
If the financial heads thought they could get away with millionaire earnings while the world sank paying for their excesses and lack of regulation, they were mistaken. As the banks were rescued through a scheme that involved public debt, at least in England,citizens have all the right to know how the federal bail out money (coming from their taxes) is being used, and even more, to demand an explanation of why bonuses are still paid despite poor performances.
The million dollar questions
Given the current climate, bank bosses will not face an easy interrogation. Public anger keeps growing as the financial crisis turns deeper and more bank practices are revealed.
They will have to explain and convince why they were enjoying huge rewards when times were good but now want to share losses and seek public assistance when times are bad. Does this mean profits should be private but losses socialized? If that is the case, I would be more than tempted to become a banker.
Another question that strikes me is when did they see this coming and why they did not stop it then? Because if they did not realise the system was about to collapse it proves they had a poor understanding of the market. But bankers are not exactly characterized by being naïve, so I am much more convinced by the idea that they saw it coming, but wanted to make the last profits out of it before all taxpayers were forced to pay for it. And finally the failure of banks to pass on interest rates is totally unacceptable. Why is it that they can still have a final saying when the government (and therefore taxpayers) are now shareholders?
The controversial scheme of the bonus
Despite all the questions and criticism that surround the banking directors, it is the increase in bonus payment what angers the public the most. Originally, bonus were created to provide an incentive but evolved into a pay scheme in most banks, insurance companies and brokers. From call centre workers to directors, employees are given an incentive to achieve targets, which can be paid in cash, or in shares. In accordance to these rules, there should be circumstances when no bonus is paid, but the truth is that has rarely happened in the last years.
Bonus payments in the financial sector have doubled in 8 years from 6.5 bn pounds in 2001 to 16 bn pounds in 2008. Critics of the bonus culture also claim that it creates an incentive for individuals to take risks for their own benefit. But what has created a more than justified indignation is the fact that after asking for a billion pound rescue plan, some Banks are in fact considering spending millions in bonuses. Royal Bank of Scotland for instance, which is now 68% publicly owned, is considering spending 1bn in bonus. Shouldn´t the current shareholders (taxpayers) have a saying on that?
Under great pressure and a clear evidence of the mistakes, bankers on the hot seat are not expected to do other than say sorry, but of course that´s not a difficult word for one who has already filled his pockets, ask Fred Goodwin about it.
