city bonuses

Some people get paid lots more than I do. It's a fact of life, and I accepted it a long time ago. Some of them don't deserve more, some do, and I get paid more than some people who deserve more than me, but we all know life isn't fair. But that isn't the point with city bonuses.

Banks have to encourage staff to perform well. Staff are not all equally good. Some can make much more than others because of their personal edge in the market, and without large differences in reward, it is hard to keep such people in a free market. Especially a global market such as banking. So I have no problem with big bonuses if they are rewarding success, and I think it is a mistake to try to stop or limit them.

What does need to be limited is the level of risks that bank staff are allowed to take. I believe strongly in free markets, but free markets mean that companies come and go. Some die, if they are not good enough. That is fine. But when they die, it should be their owners (shareholders) that suffer, and their suppliers (including customers who chose to do business with that company). It should not be the wider community, i.e the taxpayer.

The implementation of this could be relatively straightforward regulation to limit risks to what the company can show it can afford. It is fine if the company wants to risk all it has and lose it and die. It is not fine if it risks all it has and also some of what everyone else has too. Ensuring that banks must show that their total risk exposure is less than their total assets would eliminate the sort of problem we are trying to deal with. They should in essence be forced to gamble only with their own money, not the whole country's. The reason we had the problem was because banks were essentially allowed to gamble with the wealth of the whole country, keeping any big wins for themselves, while expecting losses to be underwritten by the taxpayer. Taxpayers aren't currently even being rewarded for underwriting unlimited losses by getting a guaranteed share of the winnings (apart from corporation tax). That is still the case now, and limiting bonuses will not solve it. I don't care how big the risks and rewards are, that is a free market problem, but they must be forced to gamble with their own cash, not mine. And that's it.

We don't need much more regulation, we probably need a lot less, but it needs to be the right regulation regulating the right things.