They want capitalism back
December 3, 2009 1:32 PM   Subscribe

First they wanted socialism. Now they want capitalism back. Rescued from bankruptcy by UK taxpayers, the directors of the Royal Bank of Scotland are threatening a mass resignation unless they are permitted to share £1.5 billion in bonuses. Some people have asked why we have to share the bad times but not the good.
posted by bobbyelliott (69 comments total) 5 users marked this as a favorite

 
Vermin.
posted by WPW at 1:38 PM on December 3, 2009 [4 favorites]


resign then. Prove the bonuses are needed for retention by finding someone to pay you more money.

Jackasses.
posted by JPD at 1:39 PM on December 3, 2009 [16 favorites]


Thaes is ma shocked face, laddae. Ye ken how it is wi they cunts, they cannae jist come oot and say - Hans oop. Gie's yir fuckin dosh!
posted by Blazecock Pileon at 1:39 PM on December 3, 2009 [25 favorites]


They're bluffing, and anybody who doesn't know it is a damned fool.
posted by Faint of Butt at 1:41 PM on December 3, 2009


Unfortunately its a bunch of fools who need to call the bluff
posted by JPD at 1:42 PM on December 3, 2009 [1 favorite]


Fuck 'em. Resign. Please.
posted by Babblesort at 1:43 PM on December 3, 2009 [2 favorites]


Scots Wha Hæ Thi' People Bled
posted by Joe Beese at 1:43 PM on December 3, 2009 [1 favorite]


They're bluffing, and anybody who doesn't know it is a damned fool.

The best way to call that bluff would be to fire them, rather than refuse to pay.
posted by WPW at 1:44 PM on December 3, 2009 [7 favorites]


This is when I start believing in guillotines.
posted by tkchrist at 1:44 PM on December 3, 2009 [4 favorites]


Oh... noes? Man, I wish we had this problem in the US. "Gosh, the people who ran the bank into the ground are threatening to resign unless they get bonuses? Um... awesome! Don't let the door hit your ass on the way out." I was of the opinion that the mass resignation/firing of shitty executives should have been the first condition of the bailout.
posted by Caduceus at 1:45 PM on December 3, 2009 [3 favorites]


In other news, Goldman Sachs executives are arming themselves in anticipation of a populist uprising.
Schroeder told Liu on Bloomberg News that a "Clint Eastwood mentality" reigns at Goldman Sachs. Her sources told her that "we may have a lot of empathy for these people who are the poor, but we're not going to live in a double wide trailer, either. We're going to protect our fistful of dollars with our Glock."
posted by enn at 1:45 PM on December 3, 2009 [1 favorite]


The idea of privatized profit and socialized risk is destroying us. Free markets are only free if they're allowed to go down, and companies are allowed to fail.

When we're willing to intervene when things blow up, when we backstop the biggest companies, that removes their incentive to limit risk. In the US, we just spent more money than all our wars combined, with the explicit purpose of not changing anything. Wall Street got to keep all the profits from the bubble years, but then when it blew up, it was all on our dime. And we're setting it all up to do it again, because all those players are still there, and they're all looking for the next big score.

We have to let companies fail for capitalism to work. The destruction of bad business models, and the removal of the players that created them, is the most important part of capitalism. If we prevent that mechanism, then the stupidity, greed, and corruption will just keep accumulating, until the government is no longer able to perpetuate it, and the system collapses.

You folks absolutely want those guys to resign. Replace the failed managers. Remove the bad players from your system. You didn't want them doing that job anymore anyway, so this is a fantastic excuse to fire their asses.
posted by Malor at 1:46 PM on December 3, 2009 [42 favorites]


Bank bailouts are not socialism and have nothing to do with it. The banks don't want socialism; they'd be nationalized and run for the interest of the people. They want capitalism, just a capitalism that only intervenes when it's in their favor.
posted by graymouser at 1:47 PM on December 3, 2009 [7 favorites]


Someone needs to call their bluff.

BTW, I wish the U.S government had 1/4th the balls that the Brits had when it came to dealing with their big banks. The British straight up took over RBS. They own something like 70% (Equivalent to what we own of AIG).

But you know what's idiotic is the way that Obama and the left have managed to basically let the teabaggers take control of the "Anti-wallstreet" message. Jane Hamshear had this to say to politico:
A particularly grave error, in her view, was steering the groups away from populist assaults on the AIG bonuses early in Obama's term.

"The natural people who would have been organizing at that point in time were the liberal groups. The bankers came to the White House and said, 'We want you to ratchet down the rhetoric and that's what happened. The word went out at those meetings, 'Don't criticize the bankers, don't criticize Geithner and Summers,’" she said, referring to gatherings of major, White House-allied groups under the rubrics Unity '09 and Common Purpose.

"All that populist anger migrated over to the teabaggers and grew over there," she said. "That was a huge mistake and we're going to pay for it in 2010."
(Of course this article is about the U.K, where they are doing much better)
posted by delmoi at 1:48 PM on December 3, 2009


Supposedly, without the bonuses, certain staff will leave the company and take their "technical expertise" with them. I dare say when your bank is as healthy and vital as the Royal Bank of Scotland, you're negotiating from a very strong position.
posted by Sova at 1:48 PM on December 3, 2009


Don't forget this is literally within the same few days as the court judgement about refunding banking fees.
posted by longbaugh at 1:55 PM on December 3, 2009 [1 favorite]


These people provide nothing of value to society. They make nothing. They in no way innovate or advance the human condition. They merely game the system to create artificial money for themselves while producing no benefit for society whatsoever. Usually quite the opposite.

They need their banks and investment firms in order to produce their magic money a hell of a lot more than we need them to... well, anything really.
posted by Naberius at 1:57 PM on December 3, 2009 [6 favorites]


We have to let companies fail for capitalism to work. The destruction of bad business models, and the removal of the players that created them, is the most important part of capitalism. If we prevent that mechanism, then the stupidity, greed, and corruption will just keep accumulating, until the government is no longer able to perpetuate it, and the system collapses.

The problem is that if you don't intervene, the banks don't fail they freeze They stop lending and hoard their cash. The idea that you can just "let" big banks fail is ridiculous. Now, you can do something like what the FDIC does with small banks and shut them down in an orderly way, and unwind their counter party deals, but that's still intervention.

What I think should have been done was 1) Take over the banks, and 2) impose a reasonable salary cap: $250k/year on government owned banks (in the US). Even if the institutions are invaluable to the economy the people are not. Get rid of the people who failed, and make sure that the people who replace them will know that they won't get a bailout.
posted by delmoi at 1:57 PM on December 3, 2009 [5 favorites]


On the other side of the pond: Wall Streeters defend bonuses as part of culture, and with potential for the US to rein in pay at seven companies that received extraordinary government assistance, bankers and traders to flee the large banks after this year's bonuses are doled out, especially once they see their pay is largely in long-term stock with looming clawbacks.
posted by filthy light thief at 2:02 PM on December 3, 2009


I am not in favor of letting banks fail, since these institutions do play an important role in our economic infrastructure. On the other hand, I am just fine with letting the directors of RBS fail in this pathetic blackmail attempt. Don't let the door hit you on the way out, you fuckers.
posted by anigbrowl at 2:07 PM on December 3, 2009


This calls for bluff-calling.
posted by Ironmouth at 2:07 PM on December 3, 2009 [1 favorite]


We have to let companies fail for capitalism to work. The destruction of bad business models, and the removal of the players that created them, is the most important part of capitalism. If we prevent that mechanism, then the stupidity, greed, and corruption will just keep accumulating, until the government is no longer able to perpetuate it, and the system collapses.

So, you'll be supporting all of the persons who are going to be affected while we wait for all of this?

Didn't think so. Also suspect that your anti-bailout stance would change should you be directly affected.
posted by Ironmouth at 2:09 PM on December 3, 2009


Privatized profit, socialized risk, companies which are vital to the nation and so have to be bailed out when they fail -- this goes back to the days of railroad robber barons, in America anyway, and further. It's just that every generation or so they manage to rewrite history so we don't realize they're going to do it again.

That's capitalism, kids. Profit by any means possible, and if that includes strategic abuse of the taxpayer by means of careful investment in his supposed representatives, then that's what happens.
posted by edheil at 2:14 PM on December 3, 2009 [2 favorites]


Jump, you fuckers!
posted by dirigibleman at 2:14 PM on December 3, 2009


They stop lending and hoard their cash.

I know that's what happened. I'm not sure I understand why. If you're a bank, deposits are liabilities, and good loans are assets. A hoarding bank presumably believes there's no such thing as a good loan. Why?

What I think should have been done was 1) Take over the banks

Probably the best idea. We've recommended it to other countries via the IMF and World Bank, and it's been seen to work, but for some reason, oh, it just can't work here, businesses will get scared.

But failing that, I actually wondered why we didn't just have the state act as a lender of last resort. Is there a good policy reason to funnel the money through a private institution that may or may not do what was intended with it?
posted by weston at 2:18 PM on December 3, 2009


Eat a bag of 'em, dicks.
posted by BaxterG4 at 2:19 PM on December 3, 2009


Lets hope the government calls their bluff and lets them resign, we don't need them!
posted by amil at 2:23 PM on December 3, 2009


The problem is that if you don't intervene, the banks don't fail they freeze They stop lending and hoard their cash. The idea that you can just "let" big banks fail is ridiculous. Now, you can do something like what the FDIC does with small banks and shut them down in an orderly way, and unwind their counter party deals, but that's still intervention.

What I think should have been done was 1) Take over the banks, and 2) impose a reasonable salary cap: $250k/year on government owned banks (in the US). Even if the institutions are invaluable to the economy the people are not. Get rid of the people who failed, and make sure that the people who replace them will know that they won't get a bailout.


It's not ridiculous to let the banks fail. Let them hoard their cash, but use bailout money to introduce new banks. It doesn't matter if the original banks fail or not as long as the new banks have cash to lend.

Someone made a sequence of economics videos describing this plan that I think was posted on metafilter, but I can't find it.
posted by esprit de l'escalier at 2:28 PM on December 3, 2009


These people provide nothing of value to society. They make nothing. They in no way innovate or advance the human condition. They merely game the system to create artificial money for themselves while producing no benefit for society whatsoever. Usually quite the opposite.

Naberius, if you really believe that banking provides no value to society, I think you need a history lesson or two.

So, you'll be supporting all of the persons who are going to be affected while we wait for all of this?

Didn't think so. Also suspect that your anti-bailout stance would change should you be directly affected.


Ironmouth, it sounds like the bailout, then, should go to the people that pay the taxes while they are affected, instead of bailing out the failing companies just so they can fail again. Bad business models and new businesses that take on too much risk fail all the time, but they don't have implicit government backing.

That's capitalism, kids. Profit by any means possible, and if that includes strategic abuse of the taxpayer by means of careful investment in his supposed representatives, then that's what happens.

edheil, your post is very contradictory. You say "that's capitalism" and then, shortly after, you discuss how government intervention through "careful investment in ... representatives" actually creates the problem. So, which is it? Is it the evil capitalists, or the evil representatives that enable the "strategic abuse" in the first place? I think you should really consider what you mean when you say "Profit by any means possible" as that's really just not reality.
posted by TheFlamingoKing at 2:29 PM on December 3, 2009


There's a group in the UK called the TaxPayers' Alliance, who are an "independent" (in fact, hard-right Tory-aligned) group that complain every time public sector workers get a pay rise, or the public sector spends money on anything at all. Think of them as teabaggers but with an added element of grating snobbery and self-righteous privilege.

Today, for instance, they are complaining about a local council spending £28,000 on employing a teenage pregnancy prevention officer.

If we're all very, very quiet, we might just be able to hear them saying absolutely nothing about bankers' bonuses whatsoever.
posted by athenian at 2:30 PM on December 3, 2009 [14 favorites]


We have to let companies fail for capitalism to work.

In the UK, we were pretty damn close to everything shutting down: no banks open, no cash machines, no nothing. Much as I hate a bailout, the alternative looks a lot lot worse.

Of course, given that the private sector had shown it was unable to run a vital utility such as the financial system, the government should have taken over lock stock and barrel: if the banks are so important, and they are too big to fail, then clearly they can't be subject to the same rules and risks of failure as a chain of bookstores or supermarkets, and so they should be run outside the capitalist system.

I'm with Socialist Worker: Shoot the bankers and nationalise the banks.

I'm sorry, did I say Socialist Worker? I meant the Financial Times.
posted by Infinite Jest at 2:32 PM on December 3, 2009 [7 favorites]


I know that's what happened. I'm not sure I understand why. If you're a bank, deposits are liabilities, and good loans are assets. A hoarding bank presumably believes there's no such thing as a good loan. Why?

I think they just have a much higher bar for what is a good loan.

But failing that, I actually wondered why we didn't just have the state act as a lender of last resort. Is there a good policy reason to funnel the money through a private institution that may or may not do what was intended with it?

My guess is that we don't have public banks for the same reason that the federal reserve is not publicly run: to keep the mob from voting itself into public funds.

What I think should have been done was 1) Take over the banks

Probably the best idea. We've recommended it to other countries via the IMF and World Bank, and it's been seen to work, but for some reason, oh, it just can't work here, businesses will get scared.


How is that fair to someone who owns stocks in a bank that hasn't failed? Nationalization eliminates investment, and is a good way to kill the economy.
posted by esprit de l'escalier at 2:35 PM on December 3, 2009


Remember the mantra of the Reagan/Thatcher 80's? The only obligation a corporation has is to increase shareholder profits. As it turned out, it mattered not at all where the profits were made. Screw up business bad enough to require a lien on all future earnings of the general population? Now there's some business acumen, bonuses all around for the Ayn Randian supermen!
posted by telstar at 2:39 PM on December 3, 2009


In the UK, we were pretty damn close to everything shutting down: no banks open, no cash machines, no nothing. Much as I hate a bailout, the alternative looks a lot lot worse.

The bailout the government gave to banks was necessary if we wanted to avoid a much worse situation. But we've missed the chance to do more, to promote the kind of bank and financial services that maximize social benefit while minimizing social cost. We rightly shied from a worse alternative, but sadly also from something better. I'm not keen on getting rid of capitalism entirely, because it can deliver benefits other economic systems don't. But a less regulation and less interference can't be justified by history.
posted by Sova at 2:43 PM on December 3, 2009


Just so I'm understanding; these guys resign and the banks stay open, right? Them leaving doesn't actually change anything other than the people who were directly responsible for creating an environment where a bailout is needed 1.) don't get paid bonuses and 2.) quit on their own, while leaving the financial institution itself intact.

Because in my neck of the woods, we call that "serendipity". If we could find a way to ensure they don't get to work in this field again, I'd call it "genius".
posted by quin at 2:51 PM on December 3, 2009 [4 favorites]


In other bankster developments:

In testimony before the Senate Banking Committee today, where he's seeking re-appointment as the Fed's chairman, Bernanke called for cutbacks in Medicare and Social Security even as unemployment rises and the middle class is endangered. ...

Bernanke reminded Congress that it has the power to repeal Social Security and Medicare.

"It's only mandatory until Congress says it's not mandatory. And we have no option but to address those costs at some point or else we will have an unsustainable situation," said Bernanke.

But there are several other obvious options that could make the situation sustainable -- including a transaction tax on Wall Street speculation or a slight tax hike on the wealthiest Americans. ...

[Sen. Jack] Reed [D-RI] asked him if he could think of other ways, but Bernanke returned to entitlement money as the way to balance the budget.

"Willie Sutton robbed banks because that's where the money is, as he put it," Bernanke said. "The money in this case is in entitlements."

posted by Joe Beese at 2:51 PM on December 3, 2009 [3 favorites]


But there are several other obvious options that could make the situation sustainable -- including a transaction tax on Wall Street speculation or a slight tax hike on the wealthiest Americans. ...

Every now and again, it's worth taking a look at U.S. Federal Individual Income Tax Rates History, 1913-2009 to get some perspective on how relatively little our wealthiest individuals are taxed, across the history of the country. It's amazing that we're able to convince China to lend us money in a time of war.
posted by Blazecock Pileon at 3:03 PM on December 3, 2009 [4 favorites]


I can't tell if I'd like corporations less or more if they would be 100% honest.

Let's see.

Honest: "We want free money, and we don't want to be held accountable for it."

Dishonest: "We're too big to fail, so we need a bailout! (12 months later) Free enterprise is what makes this country great. Why would you want to tax us when we're being productive?"

I think the bad part is that the dishonesty gets them followers. For all their "rebellion" rhetoric, Glenn Beck and other conservatives have been pitching that same story. They're remarkably pro-establishment, and yet they play the rebel angle.
posted by mccarty.tim at 3:09 PM on December 3, 2009


I've recently been thinking about 'utility banking' or "limited purpose banking," as described here and here.
posted by anotherpanacea at 3:19 PM on December 3, 2009


"Naberius, if you really believe that banking provides no value to society, I think you need a history lesson or two."

Well of course banking is necessary and important to keeping the economy running. I'm not a complete idiot. (Okay, the jury's still out on that.) But yes, banks perform plenty of critical services. And every single one of them could be handled at my local branch, by people who make, I'm guesstimating 150-200 thousand a year.

The people in the corporate office towers making 15 million, they're not doing one damn thing to earn that kind of money - how could they? They're producing that money out of nowhere through economic sleight of hand and stuffing it into their pockets. It's not like the economy would collapse if these demigods weren't there to make everything work for us. In fact you'd strengthen the economy considerably if you simply killed these people and thus prevented them from doing what they're doing.

Why do you think they're arming themselves? They understand this. They're afraid we're starting to figure it out, and they realize that killing them is precisely what they'd do if they were us.
posted by Naberius at 3:32 PM on December 3, 2009 [3 favorites]


You say "that's capitalism" and then, shortly after, you discuss how government intervention through "careful investment in ... representatives" actually creates the problem. So, which is it? Is it the evil capitalists, or the evil representatives that enable the "strategic abuse" in the first place?

Can you spot the libertarian presupposition? Those capitalists—who can blame them for influencing the government, whether legally or illegally? Why, if the government has power, then capitalists are obligated to intervene in the government's doings for their own benefit, and even if the consequences of such actions are horrific, it's not their fault, it's the fault of the setup!

It's like, if the instructor isn't looking, and you cheat, it's his fault.
posted by kenko at 3:46 PM on December 3, 2009 [5 favorites]


I can't believe anyone hasn't quoted Burns' A Parcel of Rogues yet, as it seems particularly apropos for this particular case of socializing risk.
posted by immlass at 4:05 PM on December 3, 2009 [1 favorite]


Well of course banking is necessary and important to keeping the economy running. I'm not a complete idiot. (Okay, the jury's still out on that.) But yes, banks perform plenty of critical services. And every single one of them could be handled at my local branch, by people who make, I'm guesstimating 150-200 thousand a year.

The people in the corporate office towers making 15 million, they're not doing one damn thing to earn that kind of money - how could they? They're producing that money out of nowhere through economic sleight of hand and stuffing it into their pockets. It's not like the economy would collapse if these demigods weren't there to make everything work for us. In fact you'd strengthen the economy considerably if you simply killed these people and thus prevented them from doing what they're doing.

Why do you think they're arming themselves? They understand this. They're afraid we're starting to figure it out, and they realize that killing them is precisely what they'd do if they were us.


So you get to decide whether someone deserves his paycheck, and then maybe kill him?
posted by esprit de l'escalier at 4:10 PM on December 3, 2009


weston: I know that's what happened. I'm not sure I understand why. If you're a bank, deposits are liabilities, and good loans are assets. A hoarding bank presumably believes there's no such thing as a good loan. Why?

Because right now banks can borrow for almost zero interest, either from depositors or directly from the Fed. Then they can buy riskless Treasury bonds yielding 3.5%, that is, lend to the government. That's a 3.5% profit with absolutely no risk. They have no need to take a chance lending to businesses when they can make a profit lending to the government.

The only problem is if inflation comes and interest rates rise sharply. Then the banks are in a squeeze because they borrow short term and lend long term. Their depositors demand a higher rate and the government bonds don't mature for 10 years. To satisfy depositor withdrawals they have to sell their bonds at a big loss to raise cash. And we are back with another banking crisis.
posted by JackFlash at 4:14 PM on December 3, 2009


It gets even better. The fuckers at state-owned RBS bailed out on Cadburys to back a hostile takeover by Kraft, despite no undertakings on UK jobs from Kraft (and the inevitable migration of taxable profit). Your taxes at work, indeed.
Contrast that with the discussions a couple of days ago in the "Moral Dimensions of Ditching a Mortgage" thread, where many homeowners in negative equity expressed their feeling that they had given their word to pay something, even if it no longer made business sense. Capitalism when it suits them, socialism when it doesn't. Moral obligation when it suits them, contractual literalism when it doesn't. As Krugman recently pointed out:

...after the debacle of the past two years, there’s broad agreement — I’m tempted to say, agreement on the part of almost everyone not on the financial industry’s payroll — with Mr. Turner’s assertion that a lot of what Wall Street and the City do is “socially useless.”

The inmates are running the asylum.
posted by Jakey at 4:23 PM on December 3, 2009 [1 favorite]


the directors of the Royal Bank of Scotland are threatening a mass resignation unless they are permitted to share £1.5 billion in bonuses

Out, out daemons of corporate irresponsability! FUCK YOU, sincerely.
posted by elpapacito at 4:32 PM on December 3, 2009


The incompetent greedy idiots who brought everything to the brink of collapse and chaos are threatening to leave?

Oh noes!

Personally, I'm in support of tossing the mofos into a pit of crocodiles.
posted by five fresh fish at 4:45 PM on December 3, 2009 [2 favorites]


Ah, a discussion about bankers. Let's tar everyone in an entire massive industry with the same brush and not even pretend to engage with how banks actually work and what they do.
posted by cillit bang at 6:03 PM on December 3, 2009


Yes, because the "Directors" are synonymous with the entire industry, right? The Captains of Industry have ever so much in common with the grunts who actually do things, right?
posted by aramaic at 7:01 PM on December 3, 2009 [2 favorites]


It's amazing that we're able to convince China to lend us money in a time of war.

oh, crap - it just hit me

maybe the expansion of the war is the price we pay for china to continue to lend us money

think about it
posted by pyramid termite at 8:23 PM on December 3, 2009


So you get to decide whether someone deserves his paycheck, and then maybe kill him?

Yes, exactly. My whole point is that I should have complete and utter dictatorial control over all aspects of daily life.

Nobody asks me whether drug dealers and users should be forcibly dragged off the streets, have their property confiscated, and get thrown in prison for a very long time, but we as a nation came up with some mechanism whereby we decided we had the right to do that to them - and yes, if they happen to get killed in the process, that's seen as too bad, but something they brought upon themselves.

If we're going to unleash the full fury of our legal and social might against petty drug sellers, I don't see why we wouldn't use it against people who are doing far more damage to the nation.
posted by Naberius at 8:24 PM on December 3, 2009 [4 favorites]


To satisfy depositor withdrawals they have to sell their bonds at a big loss to raise cash. And we are back with another banking crisis.

So...in a banking crisis where parties are dumping bonds, how does a government raise money for bailouts?
posted by weston at 10:37 PM on December 3, 2009


Forgot to mention earlier, Chancellor Darling had been signalling that RBS would have restrictions placed on the bonuses it could pay. Was Googling to find the story, but found an updated one, where PM Brown promises that RBS won't be singled out [though note that both the EU and the Walker Report have recommended lower bonuses for bankers generally, and the Financial Services Bill goes some way to implementing these recommendations].

One additional point: much of what these guys do could not be done in your local branch. We're talking consortia put together to fund £15 billion pounds of motorway development, say. You really do need expert, well-paid people doing that sort of work. [My problem, clearly, is that they want to get paid just as well when they fail; I don't have much problem with people earning good bonuses for doing good work].
posted by Infinite Jest at 12:18 AM on December 4, 2009


My problem, clearly, is that they want to get paid just as well when they fail; I don't have much problem with people earning good bonuses for doing good work

But the bonuses are an agreed part of their salary, which is structured so they get paid more the longer they stay on, to reduce employee churn. This is the thing that's being called a "bonus" - it's not and never was intended to be performance-related.

Any anyway, are we saying that everyone who works for a bank has failed? Because that's what the populist call for a blanket ban on bonuses amounts to.
posted by cillit bang at 3:35 AM on December 4, 2009


Cillit Bang - I'm a banker (not really but most of you people would say I am). Respectfully you have no idea what you are talking about. Bonuses are not an agreed part of any salary on Wall Street. Historically there were many years when bonuses declined precipitously or were even zero'd out. It is most certainly meant to be pay for performance. The retention argument is one that has only become popular in the last few years, and is totally bogus. No one is looking to hire these people away. A second point is that at a place like RBS it is the banks balance sheet (that was rescued by the UK government) that permits the firm and its employees to make money. They aren't a firm like Greenhill or Lazard where the senior people have the relationships that drive the firms success.
posted by JPD at 4:20 AM on December 4, 2009 [1 favorite]


Why the plutocrats will return
[W]hen you have a progressive tax system, especially when there are surcharges on people making seven-figure incomes, you also have a system where for any given level of national income, the greater the inequality, the greater the government’s tax revenues. And indeed federal revenues have been rising faster than median wages for decades now, thanks to the rich getting ever richer.

Given the government’s insatiable appetite for cash, it’s only natural that it would prefer to tax plutocrats, spending some of that money on poorer Americans, rather than move to a world where poorer Americans earn more (but still don’t pay that much in taxes), and the plutocrats earn less, depriving the national fisc of untold billions in revenue.

The government’s interests, then, are naturally aligned with those of the plutocrats — and when that happens, the chances of change naturally drop to zero.
Book Notes: From Poverty to Prosperity
Douglass North: "The natural state is a mixture of mutually interdependent economic and political interests that reinforce each other. The economic interests are the elites that produce economic activity. But they tend to support political groups that in turn will protect them from too much competition. The interplay is the elites in the political world protecting the economic elites from too much competition and giving them monopolies, while on the other hand the economic elites provide the funds that support the political elites."
Quote of the Day - "From Charles de Secondat Montesquieu's The Spirit of the Laws, Book 11:
As all human things have an end, the state we are speaking of will lose its liberty, will perish. Have not Rome, Sparta, and Carthage perished? It will perish when the legislative power shall be more corrupt than the executive.
"And yet here we are."
posted by kliuless at 6:32 AM on December 4, 2009 [1 favorite]


So you get to decide whether someone deserves his paycheck, and then maybe kill him?

Well, sure. Fine. That's more-or-less what these financial imbeciles did for a swath of the population. This recession has put millions out of work for no appreciable reason (effectivley deciding whether all of them "deserved" their paycheck). I'm not sure how many people have actually died as a direct result of the economic downturn, but I am positive that it is an integer > 0. The freeze on liquidity means no businesses can grow. There's less of them (these financial wunderkin) than everyone else, so if it is a question of whether they should go, or everyone else should go, then they should go.

Here's my solution to the problem: we need liquidity. We need small businesses running again. So, these people want to maintain the illusion that they should have this money somehow? FIne. Here's what they get:

We offer them the privilege of lending that money out to businesses that need it. They're given a selection of businesses to choose from; businesses that show promises of growth and of improving the local community. Since the money would have been "theirs" in a non-recession, they have total control to choose which of the businesses we select that they want to support. They get to feel all beneficent, we actually look up to them for once, and businesses are able to grow and get the cash we need.

£1.5 billion would be easily enough to jump start 10,000 small businesses in the UK. That's £150,000 each, enough to hire three workers at £20k (a very respectable salary) and have £90k left over for capital investments. Assuming such companies would remain open, you've just created 30,000 jobs.

I am biased, naturally. Everyone I know has a strong background in being a solid worker: engineers, doctors, lawyers, nurses, teachers, small business owners, childcare workers. We all pay the taxes we owe and almost all of our income comes from our salaries. We're not making our money through voodoo magic and paying a paltry 15% on it (it kind of pisses me off that Warren Buffett probably pays a smaller percentage of his income in taxes than I do, since almost all of his income is capital gains). No offense to anyone on MetaFilter who is, and I understand that someone out there has to be making money from money alone. But it still seems more honest to me to have a job where you are doing something that involves, in a tangible way, making things better or offering serices to others.

So, um, yeah. I don't normally advocate violence towards anyone, but if these financial whizzes aren't capable of surviving on their paltry $250k+ salaries (and I'm sure for many of them it's far greater than that) then they should probably starve and die.
posted by Deathalicious at 6:36 AM on December 4, 2009 [2 favorites]


Also:

But the bonuses are an agreed part of their salary, which is structured so they get paid more the longer they stay on, to reduce employee churn. This is the thing that's being called a "bonus" - it's not and never was intended to be performance-related.

Any anyway, are we saying that everyone who works for a bank has failed? Because that's what the populist call for a blanket ban on bonuses amounts to.


I think in these troubled economic times, surely the fact that they and their children will be out in the street starving should be incentive enough to stay in their jobs? I mean, if that fear is good enough to keep most people in their crappy, crappy jobs, then it ought to be good enough for the bankers.

Are we saying that everyone in every other sector of the economy has failed? No, but they still get to "enjoy" the consequences of the bad bankers' actions. So why should good bankers be any different?

Personally, if I was a banker and I'd gone through this, I would not be asking for a bonus right now even if I'd made money for the company. I think wanting a bonus in these circumstances shows that you don't have a clue about appropriate behavior in light of a given economic situation, which proves you are probably one of the bad bankers.
posted by Deathalicious at 6:42 AM on December 4, 2009


My last post, I promise:

[W]hen you have a progressive tax system, especially when there are surcharges on people making seven-figure incomes, you also have a system where for any given level of national income, the greater the inequality, the greater the government’s tax revenues.

"This is true. But it's not very true."
posted by Deathalicious at 6:46 AM on December 4, 2009


(it kind of pisses me off that Warren Buffett probably pays a smaller percentage of his income in taxes than I do, since almost all of his income is capital gains).

You probably do pay more than Warren Buffet -- and it pisses him off too. Warren Buffet has publically complained that he pays less in income tax than people who work for him who make much less, and said that isn't right. (Seriously - he got a television program into his office and compared his income tax bill to that of one of his secretaries/receptionists -- and she paid a higher percentage in tax than he did). He wants to be taxed more -- and for all of the other capitalists to be taxed more, too.

(This is why I really like Warren Buffet).
posted by jb at 7:06 AM on December 4, 2009 [2 favorites]


This isn't an easy situation for any of the parties involved. If Alistair Darling simply bans the bonuses then he risks a talent leak away from RBS to other banks. This might be a relatively slow process, but it will happen (other investment banks in the UK are beginning to hire again).

If star performers leave then RBS's investment banking decision will make less profit next year and lead to lower bonuses again (assuming the government allowed any) and more talent loss. Thanks to this vicious circle the most valuable part of RBS will slowly leak away and result in a massive loss of value for the UK tax payer (as 70% shareholder in the bank).

On the other hand, there is a huge political problem in paying these bonuses even in the face of large profits in the investment banking division when the bank would not have existed without public subsidy.

In my view, the best solution would be for the government to force RBS to sell its investment banking division to recovery maximum value for it now. The buyer would then be free to run the bank however they wanted, free from the problem of public subsidy.
posted by Mattat at 7:39 AM on December 4, 2009


fwiw, martin wolf is a prominent proponent of reining in bonuses:
Windfall taxes are a ghastly idea. They are a sop to prejudice, a burden on risk-taking and a form of arbitrary confiscation. No sensible person should support them. So why do I now find the idea of a windfall tax on banks so appealing? Well, this time, it really does look different.

First, all the institutions making exceptional profits do so because they are beneficiaries of unlimited state insurance for themselves and their counterparties...

Second, the profits being made today are in large part the fruit of the free money provided by the central bank, an arm of the state. The state is giving the surviving banks a licence to print money.

Third, the case for generous subventions is to restore the financial system – and so the economy – to health. It is not to enrich bankers, particularly not those engaged in the sorts of trading activities that destroyed the financial system in the first place.

Fourth... public finances will be devastated for decades: taxes will be higher and public spending lower. Meanwhile, bankers are about to reap huge rewards. This damages the legitimacy of the market economy.

Fifth, it is hard to argue in favour of exceptional interventions to bail out the financial sector at times of crisis, and also against exceptional interventions to recoup costs when the crisis is past. “Windfall” support should be matched by windfall taxes.

Finally, these are genuine windfalls. They are, as George Soros has said, “hidden gifts” from the state. What the state gives, the state is entitled to take back, if it is not used for the state’s purposes.

So the question, in my mind, is not whether a windfall tax can be justified but whether it can be designed successfully... Since the aim of policy is to recapitalise the banks, the tax should not reduce their ability to do so. It would be far better then to impose a tax on contributions made to the bonus pool. There is no public interest in such payments... Yet windfall taxes cannot contain financial excess, precisely because their goal is not to affect incentives. So what is to be done?

[...]

A big part of the solution must be to shift incentives. The more credible are the pre-announced limits on support from government, the more effective will be the changes in incentives inside banks, and vice versa. The less we are able to shift these incentives, the more important it will be to impose heavy regulation... Yet, regardless of the success of reforms of incentives in – and regulation of – the financial sector, it is reasonable to recoup not only the direct fiscal costs of saving banks but even some of the wider fiscal costs of the crisis. The time has come for some carefully judged populism. A one-off windfall tax on bonuses would make the pain ahead for society so very much more bearable. Try it: millions will love it.
also btw, here he is on limited purpose banking:
Suppose someone came up with the following design for the core institutions of our financial system: they would be mainly financed by deposits, redeemable on demand; they would invest in a wide range of often illiquid and opaque assets; they would engage in complex trading activities; but they would have a wafer-thin equity cushion. Surely, people would conclude, this is fraudulent. They would be right. Such a structure can only endure because central banks act as lenders of last resort. The government’s ability to create money is put at the disposal of private interests. Right at the moment, the ability to borrow from the government at zero interest is a licence to print money.

In practice, however, we have gone much further than this. We have also explicitly guaranteed many deposits and implicitly guaranteed many more liabilities. Indeed, in the crisis, policymakers guaranteed all the liabilities of institutions deemed systemically significant. Today, the core financial institutions are, beyond doubt, a part of the state.

Mr Kay’s proposal is, in sum, to end the fraud: banks would be forced to hold assets as safe and liquid as their liabilities. We know there are other ways of making a system of fractional-reserve banks relatively safe: a stable domestic oligopoly achieves much the same thing. But that does seem highly regressive.

Is Mr Kay’s the answer? One obvious objection is that it would impose a massive upheaval in finance. But, given the crisis, such an upheaval is the least we should fear. Another objection (though, to some an advantage) is that, taken to its conclusion, it would eliminate monetary policy. Public debt held by banks would set the money supply.
he remains unpersuaded:
Banking would disappear.

Short of such radicalism, we must approach the task in a more subtle manner. First, create a set of laws and institutions that make it possible to bankrupt any and all institutions, even in a crisis. Second, make financial institutions safer, with much higher capital requirements, against all activities. Third, prevent off-balance-sheet activities. Fourth, impose dynamic provisioning. Fifth, require huge cushions of contingent capital. Finally, cease to favour debt-finance, throughout the economy.

If we did all this, the world of finance would be duller and safer. It would still not have the reliability of jet engines. So long as we allow people to make leveraged bets on the future, breakdowns will occur. The division of finance into utility and casino cannot solve this problem. Only the end of leverage would do so. Do we want that? I doubt it.
previously :P

cheers!
posted by kliuless at 7:43 AM on December 4, 2009


I'd like some of you who are calling for blood to explain how exactly you think either bankers in general or a subset of them "caused" the recession. What was it? The MBSs, CDOs, CDO2,3,whatever CDSs?

I'd sort of like to know and so would many economists.
posted by atrazine at 8:26 AM on December 4, 2009


Not caused, but exacerbated. And there is a big difference between thinking bankers are evil and thinking bankers of rescued firms demanding bonuses is absurd and insulting
posted by JPD at 8:41 AM on December 4, 2009 [2 favorites]


Limited purpose banking doesn't have to be radical. In fact, anyone, or at least and American, can start using an LPB at any time: Fidelity and Vanguard are two that come to mind, and I believe that Blackrock serves a similiar role in the UK.

The price is simply that you take on more risk. But when compared to the price of guaranteed returns, it's actually worth it. And I don't just mean the social costs: the administrative fees associated with conventional banking and insurance all come off the top of our savings accounts, after all. (By the way, nothing about utility banking requires us to forgo leverage: however, consumers would choose the leverage ratios of their fund investments.)

Parimutuel insurance is harder, at least at present, but this is largely because of regulations around property and casualty insurance in the US, which require fixed payouts. Of course, so long as the insurance industry is regulated distinctly from the finance industry, it will continue to serve as the speculative haven for all manner of bad actors, and I'm not even talking about potential problems in the health insurance industry.
posted by anotherpanacea at 9:14 AM on December 4, 2009


Wealth distribution tends toward the exponential, therefore taxation should tend toward the logarithmic. Let's set $1 billion as the upper wealth limit. As one's wealth approaches a billion, taxation approaches 100%.

A billion dollars buys a helluva lot of lifestyle. Let the wealthy find some other means of measuring their value, so that the remaining 99% of us can survive.
posted by five fresh fish at 4:13 PM on December 4, 2009


"we may have a lot of empathy for these people who are the poor, but we're not going to live in a double wide trailer, either. We're going to protect our fistful of dollars with our Glock."

So use a rifle from well outside pistol range. Thanks for letting us know Goldman Sachs.
posted by Smedleyman at 4:23 PM on December 4, 2009 [3 favorites]


Also RBS accused of importing cheap foreign labour

Perhaps they could import some cheap labour to replace their 'star traders', given that RBS managed funds perform no better than tossing a coin (and usually worse than a simple index tracker)
posted by Lanark at 3:09 AM on December 5, 2009


That can't be right! These people are paid millions and billions of dollars to generate huge profits for retirement funds, banks, insurers, and mutual funds! They *must* be worth that much, or else why would they get paid so much?!?

Oh, that's right: it's an old boys club that has nothing to do with skill and money management, everything to do with a oroborous compensation system, and plain fucking greed.

Jail for all of them.
posted by five fresh fish at 9:21 AM on December 5, 2009 [1 favorite]


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