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Curbing bank bonuses: I've found the victims

Dave Harvey | 13:00 UK time, Monday, 28 September 2009

An end to greed and recklessness!" "An end to automatic bank bonuses!"

You know who said that. And you know why. Even if you keep your cynicism locked away, it's not hard to find reasons for the Chancellor to tell the City to stop paying those huge Christmas bonuses.
ChampagneAnd who will feel sorry for them? Who will ride to their rescue? Champagne salesmen maybe? Party organisers in Surrey? Well, how about a west country carpenter?

A few months back I went to an auction. Not Sotheby's, nothing fancy - it was a bankruptcy auction on an industrial estate in Bristol. They were selling huge saws and belt sanders the size of your garage. The lots were all that was left of Crabtree Kitchens, a lovely family firm that would make any west country heart beat with pride.

Richard Morley, the director, is a lovely man with a twinkling eye and a great eye for craftsmanship. The staff were loyal, regular Bristolians. The City seemed a world away. But Crabtree Kitchens was sunk by the financial storm that hit London a year ago.

You see, those evil bankers have to spend their evil bonuses somewhere. And the classic treat is a new car and a new kitchen. No bonus, no new kitchen. Orders plunged.

You can read more about how this hit Crabtree, and how two of the staff set up a new company, here.

Surely if we've learnt anything from this global recession, it is that everything is connected. Alistair Darling's "bonus crackdown" will get easy cheers today, for sure. But somewhere in the "real world", ordinary companies with ordinary employees will pay the price.

Update 29.09.09
I just spoke to Zoe Wilkins, the designer at Crabtree Kitchens who has set up a new kitchen company with the former master joiner. The new firm is busy, they've already completed four kitchens and have quotes on another five. So who's buying? Mostly, it seems, people who've decided not to move house, but to extend the kitchen. This firm seems intent on being a weathervane for our times, doesn't it?

Comments

  • Comment number 1.

    And so the money that isn't paid out as bonuses, and hence doesn't get spent on luxury goods vanishes into thin air does it? The trickle-down argument is as lame as the threat of migration of irreplaceable talent.

  • Comment number 2.

    You could argue that building your entire business on such a tiny portion of the available market (big bonus earning city bankers can't be that big a part of the west country community) is remarkably short-sighted.

  • Comment number 3.

    So far, not much sympathy then! Maybe gibbon_plinth ( great moniker by the way) would be interested to know that the designer from Crabtree's who has now set up on her own (www.trulybespoke.com)is aiming for the safer, if less lucrative market of modest kitchen refurbishments and local home conversions.

    Still, were Crabtree the only people who made hay while the sun shone, and didn't notice where all the money was coming from?

  • Comment number 4.

    oh dear you've all been brainwashed by the politicians who have taken the heat off themselves by blaming the whole crisis on banking bonus's. Complete nonsense, who was it that was knighting all these bankers in the first place? By the way Roy (above) 41% of the bonus goes in tax (51.5% next year),no bonus no tax to support all those public sector workers,so as Dave says everything is interlinked.Finally banking is very mobile so you will start to loose the real talent.The politics of envy does huge harm.

  • Comment number 5.

    Although I take your investment advice to heart Mark when considering where to invest my SIPP (I'm assuming there isn't more than one Mark Dampier) I can't agree that this is about the politics of envy.

    The imminent cause of the credit crunch is decision-makers in the finance sector flanneling their superiors and shareholders into thinking that they were risk aware and conservative, whereas, in reality, they didn't really have a clue what level of risk they were dealing with.

    At the same time they were heavily incentivised to continue to behave 'as if' they understood the risks they were taking and acting accordingly.

    So annual bonuses were based upon producing illusory profits that would be lost in the future.

    So there is a sound basis for reforming bonuses.

    At the same time increasing capital requirements for firms makes sense too.

    What is more problematical is changing the perception of the amount of investment risk that is being taken. 1) It requires a re-programming of the way the suits think and act (assuming they do it in that order) 2) It has potential leakage into the wider world, with ordinary people re-evaluating their risk budgets across their pension funds, ISAs and even reassessing downward their willingness to save long-term.

  • Comment number 6.

    sorry Shaun the cause of the crisis was very low interest rates and rising land prices.The banks behaved in a vert logical manner and lent to everyone,banks do this everytime,the wonder is the politcians and regulators didnt do anything about it,but then they were too busy getting their bonus's!! Stamp duty alone was bringing in over £6bn a year,so the bankers were idiots,but they always are,but they are not alone in causing the problems as you might believe listening to politcians!!

  • Comment number 7.

    Mark,

    #4) If money is not creamed off the productive areas of the economy in such volumes, then it remains to be paid to shareholders such as pension funds, in interest to the actual providers of capital, and to be put to more productive uses through investment. Besides which, if it is not paid to bankers it is paid to others who will also pay tax - some of them even without avoiding it through nefarious means.

    #6) Agreed, the bubble was down to politicians - primarily by selecting to demonise retail price inflation while canonising asset price inflation. However, politicians are an easily-led bunch who think with their stomachs. No surprise that Blair received a juicy role with a bank in gratitude...

  • Comment number 8.

    It wasn't logical to assume that interest rates wouldn't rise, especially if you're borrowing short term to lend long term. The decision makers in the banks did not have sufficient insight into the nature of the risks they were taking and their remuneration didn't incentivise them into pausing for thought and considering whether or not an approach of making money out of people rather than making people with people was the way to build sustainable profits. Hence the banks failed. And when there were voices warning about the magnitude of potential risk within these now failed organisations they were sidelined.




 

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