Fred Goodwin. Adam Applegarth. John Thain. However many people lose their incomes because of the banking crisis, some people did very nicely in the run-up to it. Before his ousting last October from Royal Bank of Scotland, Mr Goodwin pocketed £15m in just four years. On leaving the wreckage of Northern Rock, Mr Applegarth scooped a pay-off of £760,000 and a pension pot of £2.5m. As for Merrill Lynch boss Mr Thain, he blithely splashed out $1.2m mid-crunch to redecorate his office. The bank may have been haemorrhaging both staff and money, but that was no reason not to spend $35,000 on a commode. These are egregious examples of excess - but as we report today there are plenty more, with 10 Wall Street bankers taking home $1.7bn over the nine years leading up to the credit crunch. Given the gigantic crisis the banking industry has landed itself and everyone else in, these sums must be the worst-ever example of rewards for failure.
For decades, the justification for these telephone-number salaries was that superstars had to earn super money. Yet the last 18 months have demonstrated conclusively that there was nothing stellar about these people at all. Such returns as they made relied heavily on happy timing and heavy borrowing. It was fashion, and little more. This is quite usual in banking, as Keynes knew: "A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him." Outlandish bonuses amplified and rewarded that herd behaviour.
Finally, ministers and public officials are speaking out against this system. In an interview last weekend, City minister Paul Myners (previously chairman of the Guardian's parent company) attacked finance's masters of the universe as "people who were grossly overrewarded ... Some of that is pretty unpalatable". Within the banking industry too, there is a growing acceptance that yearly bonuses reward staff and executives for behaving myopically, against the interest of long-term shareholders. Some backlash against the excess of the last few years is natural. Besides, banks are not going to have the money to throw around as they did during the bubble years. But if this reaction is to be more than passing, it needs channelling. Lord Myners stopped short of demanding that undeserving financiers hand back their bonuses to their now cash-strapped employers, and he was probably being pragmatic. But if Labour is to convince a sceptical public of the merits of its banking rescue it has to acknowledge the immense popular anger against the bankers. Regulation has (perhaps inevitably) taken a back seat to crisis management so far, but ministers need to start talking more explicitly about how the new financial system will differ from the old. Pay restraint must be part of that new order.
This is unlikely to happen without pressure from outside government. New Labour remains famous for being "intensely relaxed about people getting filthy rich" - one of the most shameful statements made by this government. Yet the centre-left has not taken the lead in proposing reform to banks and bankers' rewards, perhaps out of a lack of knowledge of the industry or a sense of powerlessness at taking it on. That would be to miss this opportunity of reshaping capitalism, and to help narrow inequality. Now is the time to talk about maximum wages or no bonuses at all. The explosion in bankers' pay is after all a very recent one. David Kynaston, the historian of the City, notes that before the big bang of 1986 it was not unknown for staff at big banks to receive hampers for a Christmas bonus. They must, surely, have been rather lavish hampers - but the point remains that there is nothing inevitable about the financial order or its amazing pay structures. Leaving the bankers to design the reforms would be like allowing tigers to design their own cages.
Copyright Speakers Corner 2017