Tuesday, 27 October 2009

Bankers' Bonuses

Bankers, including me, are paid out of all proportion to their contribution to society. This is because a good banker makes a lot more for his employer than a less good one, and that amount is, at least in his employer's expectation, more than it costs to employ him. To put it simply, it's an artefact of the capitalist system.

Similar considerations apply to professional footballers: footballers are less likely to precipitate a global finanical crisis, but on the other hand are paid a larger proportion of the money they bring in.

There has been much criticism of the bonus system in banking: in fact the system worked well in the crisis, enabling banks to slash staff costs by greatly reducing bonuses. In the resulting fall-out, banking salaries have tended to increase as banks seek to retain staff in a recovering financial market. Salary is now a larger fraction of total "compensation", so there will be less flexibility to cut costs in the next crisis.

It's been suggested that it would be better to pay bonuses in deferred shares, i.e. shares that cannot be sold for some number of years after they are awarded. Banks already do this, and it doesn't work to deter risk-taking. It's reasonable to suppose that one of the reasons Lehman Bothers failed is that the Dick Fuld, the Chairman and CEO, was unwilling to accept the takeover deal on offer at a late stage from the Korea Development Bank, because it would wipe out the value of his shareholding. It would be better to pay bonuses partly in convertible preference shares, because they would retain value if ordinary shareholders were wiped out but subordinated creditors were paid.

George Osborne now says he wants to stop British High-Street banks - including their investment banking divisions - paying cash bonuses above two thousand pounds this year. Of coure he's in opposition this year, so this is pure posturing. But if his proposal were to be implemented, any remaining staff in those investment banks good enough to get jobs elsewhere would do so, because bankers, like most other people, are not anxious to work for an employer who is not able and willing to pay the market value for what they're doing. Does he think bankers are so worthless that this would not be bad for the banks concerned? If so, he should say so.

There's a lot wrong with the global financial system. It might be possible to do something about it by means of co-ordinated international action. Successful reform would reduce the amount that bankers get paid. It would also very likely reduce the contribution of banking to the British economy, which governments of both parties have made it a policy to pursue. If that's what Osborne wants, he should say so, and put forward coherent proposals to achieve it. Until then, he should keep quiet.

Sunday, 25 October 2009

A common trap

How delicious is the feeling of fine silicon crystals slipping twixt one’s foot digits -

...like those little silicon bags that come in electronic equipment packaging -

I wore thick silicon gloves
- lex Renton, at a sweet factory

No no no. The first two mean "silica". The last means "silicone". All should know better. (The last has more of an excuse, since he's a food writer, but he used up his excuse by writing about "an algae".)

Stat rosa pristina nomine

George Osborne, the shadow Chancellor whom I do not admire, shares his name with a character in Vanity Fair. This is by choice: he started life as Gideon Osborne but changed his forename to one he liked better.

The memorable fact about Thackeray's George Osborne is that his creator condemned him to meet his end at the Battle of Waterloo "dead with a ball in his odious bowels". That was in a letter Thackeray wrote to his mother; in the novel itself Osborne ends the battle "lying on his face, dead, with a bullet through his heart."

Did George Osborne (the one who changed his name) not know about the odious bowels? Or did he not care?

Saturday, 24 October 2009

When Gordon Brown Got It Right

I disagree with a lot of what Gordon Brown has done as Chancellor and Prime Minister. But he did get one thing very right - when in 1997 he abolished Advance Corporation Tax (ACT) (with effect from 1999).

In the UK, companies are required to pay Corporation Tax on their profits. ACT required them to pay that tax in advance on that portion of their profits they chose to distribute to shareholders as dividends. The ACT paid was subtracted from the Corporation Tax charged at the end of the tax year.

Payment of ACT was deemed to discharge the shareholders' obligation to pay basic-rate income tax on dividend income. Shareholders not required to pay income tax, including Pension Funds, were entitled to claim back that tax.

So far so plausible, until one spots that the ACT was both set against the company's Corporation Tax obligation, and claimed back by Pension Funds. So despite its name, it acted not as a tax but as a government subsidy for Pension Funds. By abolishing it, the Chancellor not only simplified, for once, the tax system, but also removed a subsidy and so saved money for the public purse. This abolition is what is referred to in those journalistic and political circles which disapprove of government subsidies unless they go to the relatively wealthy as "Gordon Brown's Pension Fund Tax Grab".

And now George Osborne, in his speech to the Conservative Party Conference, has promised to reverse in some unspecified way this "tax grab". He made this pledge in a speech heralding economic austerity for all, including pay freezes in the public sector. Reportedly the pledge got the biggest cheer of the whole speech.

Sometimes I think the Conservatives might not actually be worse than the present lot. Then they kindly put me right.

Saturday, 10 October 2009

What constitutes an apology

Geoffrey Pullum on LanguageLog described Gordon Brown's statement about the treatment of Alan Turing as a "genuine and direct apology for once". I disagree.

Here's my idea of what would have been a genuine apology:
As Prime Minister of Great Britain I am ashamed of the way Alan Turing was treated. The shame is heightened by my recognition of the great service he rendered this country during the Second World War. To Alan Turing I say: we're sorry, you deserved so much better.

Here's what Gordon Brown did say:
on behalf of the British government, and all those who live freely thanks to Alan's work I am very proud to say: we're sorry, you deserved so much better.

Humility, not pride, should be the tone of a sincere apology.

Dannatt and Wellesley

Richard Dannatt, until a few weeks ago the head of the British Army, is to become a Defence Advisor to the Conservative Party. Apparently he and David Cameron cannot see why this is inappropriate so soon after Dannatt's public criticisms of the government made in his official capacity.

Dannatt is now Constable of the Tower of London, a ceremonial position. He remarked on television of one of his predecessors, the Duke of Wellington, that he had been "above politics". This is the politician who was forced to resign as Prime Minister when he lost a confidence motion over his opposition to the very mild electoral reform eventually introduced by the 1832 Reform Act, which abolished most of the "Rotten Boroughs" and extended the franchise to the wealthiest one sixth of the adult male population. Wellington was opposed to this reform on the grounds that "the country possessed, at the present moment, a legislature which answered all the good purposes of legislation—and this to a greater degree than any legislature ever had answered, in any country whatever".

Dannatt's belief appears to be that the country should be run by Old Etonians and retired Generals. Everybody else is too political.