Despite the mind-blowing size of bank bail-outs, governments on both sides of the Atlantic are struggling to have even a modest impact on the behaviour of those held responsible for the collapse of the global financial system. It is quite a demonstration of capitalist power relationships, with politics coming a distant second.
For example, New Labour's one-off 50% levy on the bonuses banks pay to their high-performing senior staff has proved to be no deterrent. Banks operating in the UK are set to pay out an expected £40 billion over the next few weeks, absorbing the extra tax themselves to protect the size of bonuses.
Stephen Hester, chief executive of the Royal Bank of Scotland, told MPs yesterday warned that the government-guaranteed lender has no choice but to pay large bonuses to its top employees as it has become a “prisoner of the market” despite being 84% state owned. What Hester is acknowledging is that the state is in fact propping up the market.
We, the taxpayers, are making it possible for bankers to enjoy massive bonuses once more. And for doing what precisely? By all accounts, banks are still not lending to ordinary people and small businesses. All the profits are being made out of “investment” activities – mergers, acquisitions, currency speculation and so on.
The global financial crisis broke in 2007, and Northern Rock was just the first New Labour took into public ownership, in February 2008. Since then the government's strategy has been to restore the bankrupt banks to profitability and return them to the private sector.
On January 1, following European Union approval, Northern Rock was split in two. Northern Rock plc is the “good”, profitable bank that will hold and service all customer savings accounts and some existing mortgage accounts, as well as offering new mortgage and savings products to new and existing customers.
Northern Rock (Asset Management) plc is the renamed old and “bad” bank holding and servicing the majority of existing mortgage and unsecured loan accounts. It will not offer any new products or provide the option of additional borrowing to its existing customers. Guess which of the two will be returned to the private sector and which will remain in public hands, in receipt of continuing bail-outs funded by taxation?
In the US, Barney Frank, Democratic chairman of the US House financial services committee, said he was not in favour of replicating the UK’s one-off tax on bonuses. “The problem with taxing only bonuses is they shift it to other forms of compensation.” He's not wrong there. Banks employ armies of accountants and consulting firms like Ernst & Young who specialise in arranging the figures, switching funds around the world to minimise charges
The political heat on bonuses is also rising in Washington. In the US bank stocks fell in New York as investors took a dim view of the Obama administration’s proposals to charge banks a levy to pay for the estimated $120 billion the government lost on its bail-out fund.
Top US financial executives will testify today in the opening sessions of before the Financial Crisis Inquiry Commission. The FCIC will cross-examine the chief executives of four large banks to explore the causes of the 2008 meltdown. The commission is scheduled to report in December. Many more catastrophes will engulf the global economy before then.
One thing the commission won't do is to shed much if any light on the essentials of capitalist profit-chasing growth that called for the 30-year explosion of credit preceding the crash.