Billy Bragg to Withhold Taxes in RBS Bonus Protest

January 18th, 2010 by The Parallax Brief

Billy Bragg, the singer-songwriter, will refuse to pay his taxes on January 31 unless the government restricts banker bonuses at RBS to GBP25,000 per person. Mr Bragg has launched a Facebook Group “NoBonus4RBS” where he encourages others to do likewise.

Mr Bragg writes on the NoBonus4RBS info page:

“I understand that the Treasury had little choice but to use taxpayers’ money to safeguard savings and stabilise and restore confidence in the financial system.”

“What I don’t understand is why, now that we taxpayers are the majority shareholders of these banks, we seem totally powerless to curb their excessive bonus culture? The estimated £1.5bn that RBS will pay to its investment bankers next month in the form of bonuses will ultimately be drawn from the taxes that you and I are due to pay on 31st January. Meanwhile, we are being softened up by the main political parties for painful cuts in public spending after the election…

“There is a brief window of opportunity in the next two weeks in which to exert pressure on the government over the issue of the RBS bonuses. If enough of us are prepared to withhold our tax payments, we may be able to convince the Treasury to act decisively to curb the multi-million pound bonuses at RBS. If you are a British tax payer and feel strongly about this issue, I invite you to join this campaign by simply writing a letter to the Chancellor informing him of your decision to withhold your tax payment until he acts on bonuses… If nothing else, we may discover if people in this country care more about banker’s bonuses than they do about who will be the Xmas No1.”

In response, Stephen Hester, the chief executive of RBS, has said his firm would pay its investment bankers “the minimum we can get away with” in the next round of bonuses, according to the Guardian.

Obviously there are so many organizations willing to lavish millions on incompetent bankers that RBS feels the minimum it can get away with is billions.

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JP Morgan CEO Made Catastrophic Mistake — That Made JP Morgan Billions and Improved its Market Position

January 14th, 2010 by The Parallax Brief

Matthew Yglesias exposes the grotesque irony of the banking sector bailouts:

At today’s hearings, Jamie Dimon said “We didn’t do a stress test where housing prices fell.” Kevin Drum is astounded:

“Wow. By 2006, housing prices were nearly double their trend growth levels and JPM never even considered a scenario in which they might fall. Just wow.”

The really jaw-dropping thing, though, is that even in retrospect Dimon has been a nearly perfect CEO and JP Morgan basically a perfectly-run company. During the boom, they all got filthy rich. During the bust, a bunch of their competitors went out of business. Thanks to the bust millions of people around the country are now unemployed. Hundreds of thousands of children have been pushed below the poverty line and are suffering consequences from it that will last a lifetime. The entire younger generation is going to suffer because of the massive debt-overhang. But Dimon and the Morgan crowd are still getting filthy rich in part thanks to government emergency measures designed to mitigate the crisis.

And this is not because Morgan had tons of foresight. They didn’t even consider a scenario in which housing prices might fall. It’s an idiotic mistake. The exact same mistake that everyone else made. But they made it to a somewhat lesser extent than their leading competitors. So rather than suffering, they’re benefitting.

It’s the miracle of capitalism!

There just not really much more one can add. Except perhaps that this Friday JP Morgan is expected to award Mr. Dimon, his management team, and several thousand of its investment banking and finance staff a total of USD18 bln ($18,000,000,000) in performance bonuses.

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Obama to Back Brown on Battering Bankers

January 13th, 2010 by The Parallax Brief

Despite giving Prime Minister Gordon Brown’s idea to introduce a global Tobin Tax, a levy on every currency trade transaction, the shortest and most dismissive of shrift at the last g20 conference, the Obama administration appears ready to join Britain’s efforts to crack down on the banking sector.

According to former IMF chief economist Simon Johnson, the US president has taken the banking sector’s decision to award itself ludicrously huge bonuses this month — instead of using the money to pay back tax payer loans, repair balance sheets, increase small business lending, or pay dividends — as an opportunity to fight back:

The Obama administration tipped its hand today – they are planning a new tax of some form on the banking sector…unfortunately too late to make a difference for the current round of bonuses.

We know there is a G20 process underway looking at ways to measure “excess bank profits” and, with American leadership, this could lead towards a more reasonable tax system for finance. In the meantime, my point is that taxing bonuses – under today’s circumstances – is not as bad as many people argue, particularly as it lets you target the biggest banks.

The prime minister’s and chancellor’s decision to levy a super tax on bonuses looks more and more right every day. One hopes that the rumoured scale of the next round of organised skimming from the banking sector will be the straw the broke the camel’s back and finally lead to serious reform, not just of the wage system, but of the whole sector.

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Bankers: “Greedy Souls” With “Contempt of Democratic Authority” Who “Steal”

January 13th, 2010 by The Parallax Brief

It’s very difficult for the Parallax Brief to disagree with a word of what Simon Jenkins says in his column for the Guardian today:

Over the next two weeks the executives of the leading British and American banks will announce that some £50bn is to be taken from accumulated profit and handed over, not to shareholders or taxpayers, but to themselves. It will be the most outrageous contempt of democratic authority in modern times.

The sums will be breathtaking, starting with Friday’s predicted payout of £18bn at the American bank, JP Morgan Chase. This is almost exactly what it cost the US taxpayer to rescue the bank a year ago. A similar sum is predicted at Goldman Sachs. This is happening at the heart of the western economy that has just endured its worst crash for 30 years, almost entirely through the doings of these banks and executives.

Since I delight in anti-state gestures, I have some admiration for devil-may-care effrontery, but this money is way beyond any concept of reward-for-work. A few thousand greedy souls benefited hugely over the past decade by gambling with shareholders’ and customers’ money. When, as tends to happen, the winning streak ended, they had to be rescued by the taxpayer.

This is all going to hit the fan starting from Friday this week, and it really is impossible to defend the remuneration practices of the banking industry. Readers looking for a comprehensive and brilliantly argued preview of the objections that will be raised should read Mr. Jenkins’s full column, linked above.

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Can Bank Regulators be Trusted with Banking Regulation?

November 18th, 2009 by The Parallax Brief

Former IMF chief economist Simon Johnson has written today about a terrifically illuminating paper published by the Bank of International Settlements (the central banks’ central bank) called Banking on the State.

Co-authored by Andrew Haldane, Executive Director for Financial Stability at the Bank of England and, according to the Baseline Scenario, closely in line with BofE supremo Mervin King, the paper offers a gloomy assessment of the current financial system. In broad terms, it argues that the banking system is locked in a boom-bust-bailout cycle whereby the taxpayer lifeboats provided to the management, shareholder and creditors of the banks lay the foundation for the next crisis by encouraging excessive risk.

In order to “drive the conversation forward” the Mr. Johnson discusses seven talking points touched upon by the paper. However, the Parallax Brief would like to concentrate on just two:

1—The authors say that it is clear, in retrospect, that banks were excessively leveraged. But how did regulators/supervisors miss the implications of this at the time? Banks’ balance sheets started expanding from 1970 onwards (page 3) and by 2000 “balance sheets were more than five times annual UK GDP.” This was not an overnight development – see the last sentence on page 8 which says “Higher leverage fully accounts for the rise in UK banks’ return on equity up until 2007″. It may be difficult for a central banker to come clean on who convinced whom that modern banking in this form is safe – but at a minimum the authors should draw lessons from earlier failures of regulators/supervisors when discussing prospective changes in the framework of regulation. Could some of the changes being proposed suffer the same fate as all previous attempts to regulate big banks? It seems the authors answer is that just moving things to Pillar I (from Pillar II) will help. This sounds like wishful thinking.

2—The author are right that US banks faced a leverage ratio constraint, which European banks did not. But US banks circumvented this by setting up SIVs – see the damage at Citi for details. Again, what were the regulators/supervisors thinking when they allowed this?

When placed in these plain terms, it becomes nauseatingly clear that those responsible for the regulation of banks have been outright negligent. How was it possible to the banks to become so huge, so leveraged, and so dangerous? All right under the noses of the regulators.

And more to the point, now that Gordon Brown and Mervyn King seem to be clashing antlers over which of the Treasury-FSA-BofE regulatory menage a trois should hold what responsibilities and for whom after the financial system has been reorganized, can we trust any them? After all, each and every one seemed to be blissfully oblivious to the fact Royal Bank of Scotland had liabilities larger than Britain’s GDP. Was it not, like, you know, pretty obvious that if anything should happen, it might be in trouble?

Talk about missing the elephant in the room.

Mr. Johnson’s conclusion rings depressingly true:

How can we believe that for the regulators, “next time is different“? Most likely, next time will be exactly the same, with different terminology: the financial sector “innovates”, regulators buy their story that risks are now properly managed, and the ensuing bailout (again) breaks all records.

It’s all politics. Unless and until you break the political power of our largest banks, broadly construed, we are going nowhere (or, rather, we are looping around the same doom).

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Goldman Lobbies Against Transparency for Banks

October 29th, 2009 by The Parallax Brief

Matt Taibbi, the Rolling Stone journalist who gained notoriety for the feature length banking sector beatdown in which he said Goldman Sachs was “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”, is at the grindstone again, this time exposing Goldman’s lobbying efforts.

Taibbi quotes from a Goldman Sachs lobbying document currently doing the rounds in the US Senate, which claims that “For some market participants… the openness and transparency of the equity market actually mean they are unlikely to achieve the best price.”

Says Taibbi:

There is a lot of crazy stuff in this document, but the most notable is probably this passage, in which Goldman pooh-poohs the notion that complete transparency in markets creates accurate prices.

Instead, the bank argues that an over-the-counter market in which big traders like Goldman get to do deals in the shadows in “dark pools” without the retail investor having any knowledge of what the hell is going on is somehow better for everybody, that this somehow produces better prices. Of course the reality is that the two-tiered system creates one pool of fools whose every movement is visible to every animal on the Serengeti, and another pool of giant bloodthirsty carnivores who get to walk around invisible, picking off the dik-diks one by one.

Everyone I showed this to had the same reaction — “I can’t believe they said this out loud.”

The Parallax Brief can well believe it. The efforts on both sides of the Atlantic may have saved the banking system, and may well have been better than the 1930s treasury view alternative of letting the whole system collapse, but it also meant an effective gift to banks’ management and shareholders. Without claiming a pound of flesh in return for the injections of capital and guarantees against liabilities, the banks were left to emerge unscathed and unbowed, and that’s allowed them to go back to their old ways of lording it in other people’s money, lobbying hard enough to make Big Tobacco look like wimps, and generally slipping back into their Masters of the Universe persona.

The recent announcement that Goldman would pay out a bonuses big enough to make King Soloman feel like a pauper was one, clear indication that nothing really has changed. This is merely a continuation of the same trend.

Readers shouldn’t hold their collective breath for any meaningful shakeup of the banking system.

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Guido Fawkes Defends Bankers’ Free Lunch

October 27th, 2009 by The Parallax Brief

Guido Fawkes is brilliant as a spiky muckraker and purveyor of parliamentary plots. Less endearing are his efforts to defend the obscene and wholly undeserved bonuses being awarded to bankers. Guido doesn’t seem to get it at all:

“George Osborne is off to Canary Wharf this morning to make anti-Banker noises at the Reuters HQ.   His speech will call for the successful to be penalised as an act of collective punishment for the mistakes of senior management.  No word as to what punishment the Bank of England Governor and Chairman of the FSA will face, Guido suspects none.

[…]

The successful traders who make profits for their firms help the banks re-build their balance sheets, why drive them overseas?   Punishing successful City folk after the event is a displacement activity when they should be punishing those responsible for the crisis – central bankers, regulators and those few bankers who actually had direct responsibility for the crisis.”

Even ignoring the point that at many banks the government is a major shareholder and therefore has every right to have its say on pay, Guido doesn’t seem to realize that these so-called successful traders aren’t successful at all. They’re simply piggybacking of taxpayer largesse and backing.

Pushing to one side the gargantuan equity injections that saved the banks — and the banking system — from collapse, the government’s tacit and explicit support is the only thing allowing the banks to trade at all, let alone make a profit. Let’s repeat that to make sure it’s sunk in: Government money and guarantees and, perhaps more important, the understanding that the government will support the major banks no matter what, are all that keep the banks in profit. Banks would find it far more expensive to raise capital — if they could at all — without government guarantees, while trust in their solvency would evaporate, battering their share prices and likely precipitating the kind of vicious circle that did for Bear Stearns and Lehman Brothers.

When the banks can operate without a taxpayer funded, trillion dollar zimmerframe, Guido can make his free market pitch — although even then, there are plenty of social, economic, moral, and business reasons for the banks to change their remuneration structures. Meantime, in the absence of a free market, there is no conversation to be had.

The bonuses must be stopped.

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Debt: Whose Fault is it, Anyway?

October 20th, 2009 by The Parallax Brief

The Parallax Brief has noticed recently the resurgence of the insidious and wholly egregious belief that what ‘really’ led us to the economic morass in which we currently find ourselves mired was people irresponsibly taking on too much debt. The idea that the financial crisis and subsequent recession were the fault of folk who took on debt they could never afford in order to live beyond their means has been around pretty much since the word sub-prime first entered the lexicon of economic disaster, but most recently it cropped up in an Observer piece written by Heather McGregor, an executive headhunter, to defend the bonuses paid to bankers. “What got us into this crisis,” McGregor argues, as if she were making a statement of irrefutable fact, “was over-borrowing, both personally and corporately…”

It’s easy to understand why this idea has become received wisdom throughout much of the conservative Right on both sides of the Atlantic. First, within this paradigm, the credit crunch was a kind of biblical punishment for the paucity of discipline shown by the great unwashed during the last decade — teaching a wholly justified and welcome lesson about moral hazards which befall those who succumb to consumerist gluttony. Second, it serves the purpose of getting the banks (key financial and ideological supporters) and the market (perfectly efficient and a panacea for all society’s ills) off the hook.

But being a convenient fit doesn’t make it right.

When someone applies for a mortgage or a credit card, there are essentially only two sides to the transaction. The first side is someone like you or the Parallax Brief: perhaps a primary school headmaster, or a couple who run their own bed and breakfast, or a call centre team leader, or the person sitting at the next to you in the office — but anyway, whatever their occupation or background, it’s a person who has more than likely had no training in the detailed criteria and methodology banks use to decide when to award loans to people and how much to give them if they do.

On the other side of the deal is a professional who has.

When the mortgage is finally approved or the credit card limit set, that wasn’t the decision of the layman applicant: it was the decision of the bank, the expert.

Nobody really knows if they can get a mortgage or exactly how much they’ll be approved for when they apply. Of course, we often have an idea, but that’s usually based on what has been awarded to friends whose financial situations we can compare to our own, rather than intrinsic knowledge of the banks’ methodology and rating system. Nor can the school headmaster or the B&B owner force the bank to give him them money. They can only apply then wait to see the bank’s diagnosis their ability to pay back the money.

Unequivocally, it’s the bank who decides on whether to hand out money, how much a person gets and for what, so doesn’t it seem more than a little disingenuous to defend banks by arguing that the credit crunch is our fault for taking on too much debt?

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