Posts Tagged ‘armchair expert’

Banking Bonuses

Wednesday, March 31st, 2010

Well, the armchair drivers of the country who think they know everything. Lets look at your latest screwup.

The banking sector has been having a bad time. They made some bad decisions, and lost a lot of money, but let us look at why.

1) Companies traded on the stock exchange are legally obliged to maximise profit for investors. This means that they have to take risks and try and do whatever they can to make profit.

2) When the banks got into trouble, because of point 1), everyone blamed the bank bosses. The same bank bosses that had made huge profits for the last 15 years, because this year they were hit with problems caused by a global economic crisis that, lets face it, the armchair critic didn’t see coming any more than the top financial analysts in the world, then suddenly these bosses are ‘useless’. Really, because they have a failure rate of just over 6.5%. I bet that the VAST majority of people in the country don’t keep out of their overdraft for 15 years.

3) So, the bank bailout. Oh my god how can the government step in and spend billions of our tax money to save banks that screwed up? Well, because if they didn’t the following would happen:

  • Everyone who has money in the bank would lose it. Sure they get it back through the banking insurance system (up to a limit), but who do you think pays for that? The taxpayer. You pay for it either way.
  • Once you let one major bank fail, you lose a lot of confidence in the sector. Other banks become at risk and possibly fail. More expense for the insurance payouts. OR, you realise you need to save the banks, but now it is much more expensive due to weakened conditions compared to if you had saved the first one
  • Allowing a banks to fail, lets take RBS for example, would lead to 141,000 redundancies, right there, 141,000 people out of work, claiming benefits and not paying taxes. Who pays for these benefits, the taxpayer. Who gets hit with higher taxes to make up for the shortfall of 141,000 well paid people? The taxpayer.
  • The RBS investment bank division made 5 billion in profits last year. That means about 1.4 billion in tax revenue, plus about 3 billion in increased value of the company. That is about 120 pounds per taxpayer last year that the government didn’t have to find elsewhere. That is money you get to keep.

So now we come to the main point of the article – bank bonuses.

Everyone is screaming how bank bonuses should be suspended because of the problems. RBS cut bonuses and people left. Who cares right, they were the greedy ones.

Yeah until you look at the numbers. They cut 400 million in bonus payments and lost staff who they expected to make profits for the company of 1bn

That is a net loss of 600 million pounds. Money that is lost from a company that the taxpayer owns. Because the armchair expert decided they knew best. And thanks, you cost every taxpayer in the country about £20 right then and there. Thanks for that.

The banking sector is incredibly complex. The more we stop rewarding success, the more this sector, and every other with that attitude, suffers. Rewarding success is the only way to ensure success. If we lose the strong banking sector that the UK has, we become a third rate power. You can expect to see 10 million unemployment, and getting handouts from the IMF, because it is our biggest industry, and if we don’t protect it, we as a country are screwed.

So, before you become an armchair expert – remember this one fact