[Marxism] City of London Bankers get $28bn bonuses

[Steve Palmer <spalmer999@xxxxxxxxx>]

From The Independent  (Â1 â $1.75)

City bankers have not lost a penny of their multimillion-pound bonus packages 
so far, despite the credit crunch which has caused the worst financial crisis 
in 80 years, new figures show.

Official statistics reveal that, in the financial year to April, City workers 
took home Â16bn, almost exactly the same as in 2007. The period covers the 
Northern Rock nationalisation and the UK employees hit by the Bear Stearns 
implosion. During the period, banks across the world were forced to make huge 
writedowns on investments linked to US subprime mortgages.

Bonus payments in the UK financial sector have more than trebled in just over 
five years, from Â5bn in 2003, according to the Office for National Statistics 
(ONS). This is shared among just over one million employees in the sector, but 
that is heavily skewed towards the high-powered executives, who are routinely 
handed seven-figure packages.

Last year, Bob Diamond, the president and head of investment banking at 
Barclays whose base salary was Â250,000, was paid Â18m after bonuses and 
options were taken into account.

The remuneration figures were released only days after Gordon Brown vowed to 
wage war on the "irresponsible" bonus culture that had helped cause the 
financial crisis gripping Britain. Financial sector payments made up about 
two-thirds of the bonuses across the entire British economy. Total bonus 
payments last year hit Â28bn, which has doubled over the past eight years.

Last night politicians and union officials said it was deeply concerning that 
such large bonuses were still being paid even when the financial markets were 
clearly deteriorating.

Vince Cable, the Liberal Democrat Treasury spokesman, said: "It is deeply 
alarming that, after what has happened in financial markets, no lessons have 
been learnt. The bonus culture was deeply destabilising and contributed to the 
crisis."

Derek Simpson, the joint general secretary for the Unite trade union, added: 
"This is evidence that the City bonus system is rotten to the core. These 
bankers are being rewarded for failures which have had devastating consequences 
for our economy." He called on the authorities to tackle the problem head on, 
saying: "It is time for the Government and the Financial Services Authority to 
get really tough and stamp out the bonus culture in the City."

Yesterday provided some slight relief for the battered UK markets. The week had 
seen staggering losses across the globe, with London's blue chip index slumping 
to its lowest point in five years as fears of a worldwide recession 
intensified. Yesterday the FTSE 100 rose 2 per cent with investor confidence 
returning in the banks as well as the oil companies, after the oil price 
bounced back to more than $70 a barrel.

The mining companies continued to suffer as metal prices fell further on fears 
of slowing demand from China. It was further hit by hedge funds forced into 
selling to cover losses elsewhere. There was bad news for the French bank 
Caisse d'Epargne, however, which admitted shock losses of â600m (Â470m) from 
derivatives trading.

The inflation-busting bonus numbers emerged on the day that Josef Ackermann, 
chief executive of Germany's biggest financial services group, Deutsche Bank, 
pledged to relinquish his bonus, which would have run into "millions of euros".

He told the German newspaper Bild am Sonntag: "I told the Deutsche Bank 
supervisory board that I am renouncing my bonus in this difficult year in 
favour of hard-working staff that need the money more than I do." The three 
other senior board members agreed, who received a combined payment of Â4.3m.

Mr Cable welcomed the move and called on the financial services sector in the 
UK to take a page out of Mr Ackermann's book. He said that, as banks' 
remuneration committees prepare to decide next year's bonuses, "until 
regulation is put in place it would be good to see some self-restraint from 
those who work in the financial services".

The Government's official bonus numbers are compiled from those paid during 
bonus season â the period from December 2007 to April 2008. The latest 
figures show no decline in rewards, despite the City being at least six months 
into the credit crunch when the payments started.

The issue of bonuses has become a huge political issue this year, with 
investors furious over bankers taking rewards in a year that many banks have 
declined or even collapsed.

Following the Government's Â37bn rescue package for Royal Bank of Scotland, 
HBOS and Lloyds TSB this month, the Prime Minister said he wanted to "bring an 
end to rewards for failure". He said: "The guiding idea is fair reward for hard 
work, effort and enterprise, not incentives for irresponsibility or excessive 
risk-taking for which the rest of us have paid."

A critical problem of the bonuses, as highlighted by Mr Brown and Mr Cable, was 
their promotion of huge risks for a short-term gain. Bonuses should be paid in 
shares, which could not be sold for several years to track the performance of a 
company over the long term, Mr Cable added.

The FSA, the City watchdog, has begun to scrutinise the issue of bonuses, and 
sent a letter to bank chief executives, calling for bonuses to be aligned with 
"sound risk-management practices and controls". So far the FSA is yet to impose 
regulations, but said it would demand more regulatory capital for those that do 
not heed its warning on risk. 

__________________________________________________
Do You Yahoo!?
Tired of spam?  Yahoo! Mail has the best spam protection around 
http://mail.yahoo.com 

________________________________________________
YOU MUST clip all extraneous text when replying to a message.
Send list submissions to: Marxism@xxxxxxxxxxxxxxxxxxx
Set your options at: 
http://lists.econ.utah.edu/mailman/options/marxism/archive%40archives.econ.utah.edu