o The Observer, Sunday 8 February 2009
o Article history

US President Barack Obama has announced pay curbs for bankers; in France, Nicolas Sarkozy is to restrict traders' rewards. Here in the UK, part-nationalised banks are still doling out bonuses, while Lord Mandelson bleats that they should consider "how it looks".

Restraining top bankers' pay is not a PR exercise, as Mandelson appears to believe; it is a necessary part of healing and re-making the banking system. Our politicians should emulate Obama and leave the nationalised bankers in no doubt that their role is now that of public servants, and that they will be paid accordingly. The Obama plan to cap pay at $500,000 has plenty of loopholes, but that doesn't detract from its powerful symbolism: excessive rewards will no longer be tolerated. Mandelson, Darling and Brown, however, still seem to be in the grip of "BankThink" - that warped worldview in which large bonuses are not only reasonable, but necessary.

BankThink maintains that curbing bonuses will lead to a brain drain from the sector. What brains are those? I guess it must be the great intellects who can't see a problem with creating the credit crunch, then asking taxpayers on the average income (about £25,000 - a year, not an hour) to fund their bonuses. Adherents to BankThink say big bonuses attract the best people. They don't: they attract the soulless, the amoral and the avaricious. Professions such as teaching and medicine - and, yes, politics - draw in excellent practitioners without ludicrous rewards.

Regulation, of pay or anything else, is anathema in BankThink: we are told it is pointless trying to regulate top pay because some people will find ways round it. True, but so what? Most people will comply with new regulation, and it can drive cultural change; tougher drink-driving laws, for instance, have made it socially unacceptable to get behind the wheel with a few glasses of Piat d'Or under your belt - unexceptional behaviour in the 1970s.

Bloated executive pay at banks and other firms does not represent a fair reward for talent, as BankThink would have you believe, but a huge market failure engineered with the connivance of weak remuneration committees, venal headhunters and unchallenging shareholders. It has undermined the moral authority of business leaders, made organisations more resentful and less productive, torn at the fabric of society and torpedoed the work ethic, by severing any recognisable link between effort and reward.

It is not only top bankers, but executives in general, who have stoked the excess. A US study last year found chief executives at the top 500 companies received pay packages worth, on average, $10.5m - or 344 times the earnings of the average worker. As Peter Drucker, the management writer, has argued, that ratio ought to be brought right back down - he suggests to the region of 20:1 or 25:1. What motivates people is not necessarily absolute sums of money, but how well they are doing in relation to others, and the beauty of linking the boss's pay to that of the average worker is that his staff's earnings would have to rise in order for him to earn more.

Ordinary bank staff, many of them on modest salaries, are finding their own small bonuses also under attack. I sympathise. They have been badly let down by their bosses; but a better alignment between the boardroom and the banking hall would reduce the risk of it happening again.

Boardroom clones face up to the truth, now they need to add a bit of diversity

FTSE 100 boards are still stuffed with white, middle-aged, middle-class men, a fact I have lamented in the pages of this newspaper. At least, though, they seem to recognise it as a problem.

Research commissioned by accountancy firm KPMG found business leaders were aware that their company boards are very narrowly constituted and see life through a lens distorted by class, cultural and gender privilege. They haven't done anything about it yet, but self-knowledge is a good start.

The KPMG research backs up my view that this lack of diversity led to a "dissent deficit", which in turn contributed to the financial meltdown: when boards are full of identikit directors, there is unlikely to be enough debate
or challenge. This is not just about getting more women at the top table: it is also about more diversity in terms of race and social class.

As the credit crunch has shown, a monocultural boardroom is not just outmoded and politically incorrect: it is a commercial weakness.

Second wave of crunch will wipe out pensions

If anyone still doubts the destructive force of the credit crunch, consider the second-wave effects on pensions. It's a little noticed fact, but 290 company pension schemes with 120,000 members are already in a queue for a bail-out from the over-stretched government Pension Protection Fund.

Between them, the 225 companies in the FTSE 350 which operate final-salary pension schemes are shouldering a deficit of £163bn; according to a report by actuary firm Hymans Robertson, that shortfall has risen five-fold in the past year in relation to the companies' market value. In the case of 37 companies - including industrials such as GKN and all the high-street banks except HSBC - unmatched pension liabilities are in excess of their stock market value.

Industrial companies are still suffering from the last recession, which has left them groaning under a pensions legacy out of all proportion to lean, post-Thatcherite manufacturing; this time banks and retailers will suffer the strain. Companies need to have adult conversations with employees and unions and come up with a strategy, but most are remarkably reluctant to embark on this.

From the point of view of shareholders - including, er, pension funds - it is disastrous, as unchecked retirement liabilities will act as a drain on corporate earnings for decades. From the point of view of pension fund members, it is even worse, as their savings for old age could be at risk.

Why have chief executives mortgaged their businesses to their pension funds in this hugely risky fashion? Why have they failed to put in place secure funding for their own staff's retirement nest eggs? It has been all too easy to kick the issue into the long grass. Most chief executives have shown little urgency to tackle pension problems, since the benefits might not be seen for 30 years, and certainly will not boost next year's bonus. The crisis in Britain's corporate pension schemes is yet another product of short-termism and skewed management incentives.



Obama limits bankers pay packets



President Barack Obama has placed an annual $500,000 (£345,000) pay limit on bank executives whose institutions require further rescue funds from the US government.

In a move designed to appease growing public concern about increasing largesse in a sector that has received close to $200bn in public aid, President Obama, said that "in order to restore our financial system, we've got to restore trust." Any extra pay being awarded to senior bankers must be paid in shares and options that will only vest once the bank in question has repaid its government funds.
Further restrictions include the prohibition of so-called "golden parachutes" – payments for new bankers joining from rival firms. Shareholders in abnks receiving government capital will have a vote on executive compensation.

In addition, banks will face greater scrutiny on expenses for luxuries such as corporate jets, Christmas parties and office refurbishments, following a raft of stories on flagrant bank spending in recent days. Treasury Secretary Tim Geithner, who next week will outline a second bank rescue package, said that the economic crisis had been exacerbated by a "loss of faith" in the judgement of leading bank executives.

"There is a deep sense across the country that those who are not responsible for this crisis are bearing a greater burden than those who were," he added.

Goldman Sachs, historically one of the best payers on Wall Street, said that it intends to repay the $10bn it received from the Treasury in October. Goldman chief financial officer David Viniar said "operating ... without the government capital would be an easier thing to do."

Recession? Not for the bankers and a culture of greed that is more obscene than ever...


Andy Hornby: Takes home £60,000 a month

They just don't get it. Almost 18 months have passed since the credit crunch erupted, destroying the livelihoods of millions of hard-working families around the globe.

Yet the world's bankers - those one-time 'masters of the universe' - are still finding it impossible to call a halt to their plutocratic lifestyles.

At the newly created Lloyds Banking Group (in which the Government holds a 43 per cent stake in return for a £17 billion cash injection), it has emerged that one of the first steps that senior executives took following last month's takeover was to seek a bonus deal for its already well-remunerated directors.

It also has emerged that Andy Hornby, the former Asda man who led HBOS to the brink, is still taking home a £60,000-a-month consulting fee from the new super bank.

However, this is minor league compared to what is going on across the Atlantic. John Thain, the executive brought in from the New York Stock Exchange to clean up Merrill Lynch after it accumulated billions of dollars of toxic debt, is now at the centre of an unseemly bonus and expenses row.
Having arranged for Merrill Lynch to be rescued by Bank of America, his first thoughts were on redecorating his own office and his bonuses.

Thain splashed out a total of £860,000 - including a specially designed £63,000 rug, a £25,000 commode and a £1,000 waste bin. He then cynically proceeded to persuade the firm's new owners that £3.9billion worth of bonuses should be handed out to retain the best staff.

The money went to the same overpaid, failed investment bankers who had helped to drive one of Wall Street's oldest and most venerable houses to the edge.

Perhaps we should not be surprised. After all, it was a Merrill Lynch team which advised Sir Fred Goodwin and the Royal Bank of Scotland into a deal with Dutch bank ABN Amro - perhaps the worst banking merger of all time.

Matthew Greenburgh, the terrier-like executive who forged this disastrous alliance which eventually resulted in a British record loss of £28billion, ended up earning himself a bonus of more than £5million for his role in the transaction. So far, there has been no word that he intends to pay it back.


John Thain: £63,000 carpet

It was only after John Thain's behaviour was exposed in the media that he decided it might be safer not to ride his £63,000 flying rug to last week's meeting of the world's financial elite in Davos, in case he was ostracised.

Meanwhile, the Swiss bank UBS (which was among the biggest victims from toxic debts with £32billion of losses) has now decided to focus its business on wealth management and has begun recruiting brokers in the U.S..
Despite a rescue by the Swiss government, it is reportedly offering bonuses of 260 per cent of sales to the new recruits.

The grotesque culture of excess has proved too much for President Barack Obama as he seeks to steady the U.S. economy. He has complained that the astonishing £13billion of bonuses pocketed by Wall Street bankers last year, as the world financial system was plunging into a chasm, was unacceptable in the light of the U.S. government's £500billion bail-out.

Acting decisively to end the Wall Street greed, any bank in receipt of U.S. government aid - that applies to most of Wall Street, including the supernumeraries at Goldman Sachs - will be limited to paying their top executives no more than $500,000 (£357,000) a year. They can be awarded new shares, but these cannot be cashed in until the banks have paid back their debt to Uncle Sam.

Bank of America shares plunge to 25-year low

The Associated Press
Published: February 5, 2009

NEW YORK: Bank of America Corp. shares plunged below $4 a share Thursday — a level not reached since 1984 — pummeled by unrelenting concern that the government's plans to help prop up banks could hurt shareholders.

Shares dropped to as low as $3.77 before climbing back to $4.50 in midday trading.

Pressure on the shares, which lost 11 percent on Wednesday, intensified because some mutual funds are prohibited from owning stocks that fall below $5.

Financial stocks have been under considerable pressure lately, but Bank of America's stock has been hit particularly hard. Investors remain extremely anxious ahead of President Barack Obama's unveiling next week of a new framework for spending what's left of the $700 billion financial industry bailout which Congress approved last year.

Specifically, investors fear that the administration's moves could hurt shareholders by diluting the value of their stock.

Charlotte, North Carolina-based Bank of America has already received $45 billion in government aid, including a $20 billion injection last month to help it absorb losses from its acquisition of brokerage Merrill Lynch & Co.

On Wednesday, the bank said it is selling nearly half of its corporate aircraft as the bank works to scale back costs, joining Citigroup Inc. and other companies in cutting back private jet travel.

Why Is the Government Hell-Bent on Rewarding Greed, Incompetence and Narcissism?

By Jim Hightower, Creators Syndicate. Posted February 5, 2009.

Washington shouldn't reward Wall Street's culture of excess. Instead, it should insist that those who wrecked the economy be fired.

Bankers have never been much loved, but gollies, this Wall Street bunch seems hell-bent on being loathed.

As a consequence of their avaricious grab for outrageous personal enrichment during the past decade, these arrogant titans of financial gimmickry have caused a vast economic collapse that is presently costing million of Americans their homes, jobs, pensions and dreams -- while also bringing down the banks themselves.

As you would expect, the Wall Streeters who did this to us are now humbled and filled with deep remorse. HA! Just kidding.

Instead, the perpetrators keep grasping for all they can get, taking no responsibility for the damage they've done. Obtuse? Self-indulgent? Narcissistic? What's with these people? A few examples of their bloated sense of entitlement:

• While Merrill Lynch was imploding last year, requiring a $25 billion salvage job from us taxpayers, CEO John Thain was merrily spending $1.2 million to redecorate his office, including buying a $13,000 "custom" coffee table, a $1,400 wastebasket and a $35,000 antique commode (add your own toilet joke here).

In such tough times, why didn't he just make do with the perfectly luxurious office of his predecessor?
"Well ... his office was very different than the ... the general decor of Merrill's offices," Thain told a CNBC interviewer. "It really would have been ... very difficult ... for ... me to use it in the form it was in."

• Citigroup, which lost $28 billion in the past 15 months, has now received a $345 billion bailout from Washington. Time to cut nonessential spending, right? Yes -- as long as "essential" includes a new $50 million Dassault Falcon 7X jet for top executives.

Never mind that the bank already has five executive jets in its fleet. It took a public expression of outrage from President Barack Obama to get Citigroup's honchos to back off this extravagance, and it's said that they're still sulking about it.

• Despite their historically disastrous year in 2008, Wall Street investment bankers awarded themselves a total of $18.4 billion in bonuses -- the sixth-largest payout on record! Shouldn't they be embarrassed, you ask? Of course, but a January poll of the bankers found that 46 percent of them felt they deserved a bigger bonus.

By the way, the Street's rationalization for such giveaways is that top bankers must be showered with treasure in order to keep them hitched to the corporate plow. "Retention bonuses," they're called. Merrill Lynch's Thain, for example, doled out $4 billion in bonuses last fall while the firm was awaiting its bailout check, explaining that it's essential to "pay your best people," or they'll leave.

Shouldn't he have to wear a clown costume when saying silly stuff like that? Leave to where? The whole Street is on fire. Besides, these are the geniuses who lit the match -- who would want them?

Which brings us to the "Obama stage" of the banker bailout. At its core, his plan looks like more of the same. The government (you and I) will buy the bad loans now held by the banks, paying an inflated value for them. This gift will make us by far the biggest investor in Wall Street -- yet, even though we're putting up the capital, Obama's team does not require a commensurate decision-making role for the public.
One decision in particular needs our say-so: Who's going to manage the money? Under Obama's plan, the same old obtuse, self-indulgent, narcissistic -- and failed -- bankers would keep their jobs and control the bailout. It seems the president's top economic advisors, Timothy Geithner and Lawrence Summers, don't have the stomach for the real housecleaning needed to set Wall Street right. Instead, they cower behind knee-jerk ideological platitudes, scoffing that "governments make poor bank managers."

Hello? It's hard to be a poorer manager of America's financial system than the current group of greed-headed "free marketers." They lost hundreds of billions of dollars in bank assets during the past year or so, wrecking our economy in the process, and now they want to be rescued.

Rescue the system, yes. But not those who wrecked it. Wall Street's culture of excess should not be rewarded, and any bailout should begin by insisting that all of those who did this to America be fired.
To find out more about Jim Hightower, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

European leaders fear civil unrest over economic woes

By Peter O'Neil, Canwest News ServiceJanuary 23, 2009

Europe, Canada's second-largest trading partner and top global ally after the U.S., is getting pounded by a tidal wave of bad economic news that has prompted warnings of a frightening hike in civil unrest.
Europe's top politicians are so rattled by the prospect of growing protests that they have arranged an emergency leaders' summit in March to deal with growing tensions, the Daily Telegraph reported Thursday.

The latest spate of grim economic news here Thursday included a plunge in consumer spending in France, tumbling factory orders in the United Kingdom, predictions of an even deeper recession this year in Germany, and continued concern about the impact of billion-dollar bailouts of the continent's troubled banking system.

Politicians are warily eyeing the public mood that led earlier this week to riot police being forced to rescue Iceland Prime Minister Geir Haarde, whose limousine was pelted by eggs and drink cans hurled by protesters.

Iceland's government will almost certainly fall in coming days, London School of Economics professor Robert Wade told Canwest News Service Thursday.

"The situation is very tense and very unstable," said Wade, who has just returned from a visit to Iceland where he spoke to about 1,000 people about the crisis.

Thousands of protesters have participated in sometimes-violent street demonstrations in Bulgaria, Hungary, Latvia, Lithuania and Greece in recent weeks.

French President Nicolas Sarkozy has warned that Europe could face the kind of demonstrations that paralyzed several capitals in the spring of 1968.

But one analyst said Thursday that the comparison could be an understatement.

"I think fears have moved beyond chic academic protests a la May 1968 in Paris," said Fredrik Erixon of the Brussels-based European Centre for International Political Economy.

A more apt comparison for Iceland and some of the Baltic countries could be the French Revolution of 1789, he warned.

No end to bank crisis in sight, IMF says

WASHINGTON (MarketWatch) -- There is no end yet to the global financial crisis, the IMF said in its latest report released Thursday. "Policy actions to resolve the financial crisis have been broad in scope, but have not yet achieved a decisive breakthrough," the IMF said. It called for more aggressive and concerted policy actions. Countries have made a "good start" on fiscal measures to battle the downturn, but toxic assets must be removed from bank balance sheets. "If the financial sector is not restored to health, an enduring recovery will not be possible," the IMF said. The report was prepared for a meeting of G20 deputies in London last weekend but only released five days later. The IMF straddled the fence on Washington's debate over how to proceed with bank rescues, saying putting the toxic assets in a bad bank or "ring-fencing" the assets with government guarantees were both good ideas.