Why the banks should pay the confounded bonuses

February 18, 2009

Well it’s not because anyone necessarily “deserves” them, nor because it in any way makes sense for failing businesses to pay bonuses.

Neither am I intending to be insensitive to the understable natural reaction of those who don’t work in banks and are struggling to hold on to their jobs (if indeed managing to do so) in a horribly difficult economic climate which the banks’ imprudence did so much to bring about.

My logic centres on simple economics and pragmatism, leaving moral issues and sentiment parked out of sight.

Just think what happens if the bonuses are not paid.  Who profits by it? The answer is that the banks get to keep the money. And will they use it to lend more to cash-starved businesses? Will they hell! They will hoard it greedily because all they care about is repairing the damage their own incompetence has done to their balance sheets.

Money in the hands of bank employees is “live” money.  Money that will be spent, that will help to stimulate an economy that needs the stimulation of its life. Money held back in the banks’ coffers is “dead” money, that makes the banks feel more cosy and safe but does nothing to help revive the economy.

We have the intolerable situation where the banks have dealt us a “double whammy”.  First their screwed-up get rich quick schemes have put the world economy in jeopardy.  Secondly, the banks are the main obstacle to getting us back out of this recession they caused. The intended fix for the credit squeeze (by dint of putting taxpayers in hock for generations in order to throw billions at the banks) is not actually loosening up credit because the banks are only interested in reflating their capital ratios.  They are just saying “ta for the cash” and clutching onto it tight. A selfish and short-termist stance that guarantees a far more painful recession for everyone and paradoxically will hurt the banks in the longer run.

So let the bank employees get their bonuses (senior management most definitely NOT included), let them spend, generate demand, keep themselves and others in jobs.  And above all keep the money away from the damnable banks.

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One comment

  1. Looks like it doesn’t matter any more. We’re going to have “quantitative easing” which is a euphemism for the Bank of England inventing cash from out of thin air and chucking it at the banks. They’ll have plenty of dosh to pay bonuses AND start lending. But probably still won’t.

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