“What blindness, what deafness, what Asperger’s afflicts them?” asks Boris Johnson in The Daily Telegraph. Do the bankers – about to waltz off with the biggest bonuses you ever saw – not realise that “their interests, and the interests of the community have been intertwined by the fact of state intervention”? New estimates from the Centre for Economics and Business Research suggest that bankers’ bonuses will jump 50% this year to £6bn.
It’s no wonder people are calling for a windfall tax, said Hugo Dixon on Breakingviews.com. The banking industry is only enjoying massive profits because of the bail-outs – which came in “many shapes and sizes”. In addition to the direct injections of capital, the industry has been able to get access to cheap liquidity and government-guaranteed medium-term funding. Ultra-low interest rates have made it easier to “mint billions in trading profits”. And reduced competition has made it easier for the survivors to “massively overcharge for their services”, said the Daily Mail. Anyone with “an ounce of moral sense can see that there’s no justification” for these huge bonuses. Day by day “it becomes increasingly hard to defend City bankers” from the growing clamour for tougher regulation and a windfall tax on their massive profits and bonuses.
The word bonus generates “near-hysteria” amongst politicians and journalists these days, but bonuses did not cause the credit crunch and “legislating over incentive pay is a dangerous intrusion into the free market”, said Heather McGregor in The Observer. It was the lack of trust between banks, not the bonus structure, that “led to the shrivelling of the interbank credit market which in turn led to everything else going wrong”. Legislation we may need, but a new improved version of Glass Steagall (the US Act which separated investment banking from mainstream banking) would be preferable to any “silly, simplistic and populist measure to restrict incentive pay”.
Indeed, although a windfall tax would win “immense public support” it would be wrong, said The Times. It would harm the banks’ efforts to build up their capital reserves and thereby lend again. “However unpopular it may be, they should be left to get on with their recovery, without the hindrance of discretionary taxes.”
Since the aim of the current policy has been to transfer money to banks, it seems a bit pointless to take it back again, agreed Martin Wolf in the FT. We should not be diverted by “populist rage” but focus instead on the “core issue”, which is to make financial systems more secure. Either we impose a credible threat of bankruptcy and/or institutions we have to support are made safer. “Open-ended insurance of weakly regulated institutions taking complex gambles is intolerable.”
Sure, but politicians still “quail before bankers”, said Will Hutton in The Observer. They must find their nerve. The US and UK need a “tough regulatory framework of capital and liquidity for all the banks in or out of the shadow banking system”. Banks that are too big to fail should be “ruthlessly broken up”. Nobody can predict the date of the next financial debacle, but it “will be even more overwhelming in its scale and ferocity. The rapid return of the bonus culture is an awesome warning of how quickly the venal shadow banking system is recovering.”