Tuesday, July 10, 2012

In Britain, Conservatives Fight For, Not Against Massive Bonuses for Bank Executives

Expect the Same When Conservatives Control the U. S. Government

In a private, free enterprise economy there is relatively little that governments can do to prevent large financial institutions from paying huge bonuses to the senior management.  The power to pay bonuses lies with the Board of Directors, elected by the shareholders but in reality controlled by management.  This flaw in capitalism can only be remedied by active stockholders, something not likely to happen.

But government can use some of its power to attempt to persuade banks and other institutions that need taxpayer support to keep bonuses within bounds.  This is not interfering with the market, it is simply stating that taxpayers have a stake in the health and welfare of the financial system, and that paying huge bonuses when banks and other companies are performing poorly, violating regulatory authorities and dependent upon taxpayer bailouts is not in the taxpayers best interests.  It is not even in the shareholder’s best interests, it is only in the executives best interests.

In Britain, where the Conservative party with its coalition lapdog the Liberal Democrats rule, it appears that the government is not only willing to allow banks to pay huge bonuses, but is actively supporting that policy.

George Osborne
Mr. Osborne:  He will fight to the death
for the right of unlimited pay for bankers
Just whose side is he on?
George Osborne is preparing to fight for the right of British banks to pay big bonuses when he attends a European finance ministers meeting next week, even as the interest rate rigging scandal adds fresh impetus to a proposed European Union crackdown on pay.

Yes, everyone is reading that correctly.  The British government will try to use its influence with European regulatory policy to safeguard the right for banks to make large payments to its management.  How large can the bonuses be?

The chancellor is due to attend a finance ministers meeting on Tuesday at which he is ready to argue that tough European proposals for a 1:1 bonus to pay ratio are the wrong way to tame City remuneration.

That’s right, a democratically elected government is using its power to make sure bankers can get bonuses that are larger than their salaries.  But wait, it’s not as though the Conservative party is opposed to limiting compensation for bankers

“We are not opposed to remuneration restriction in the financial services sector,” one aide to Mr Osborne said. “But it’s a question of how you do it. We are not persuaded of the specifics of [the Parliament proposal].”

They just want to do it a different way.  And what is that different way.  Conservatives to the rest of us:  We’ll get back to you on that. 

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