Abandon All Fear

What nobody else seems to be saying…

[Misadventure Capitalism] – The Fat Cats That Got The Cream

Posted by BHudson on February 8, 2009

Royal Bank of Scotland – 68% nationalised
Lawrence Fish, non-executive chairman – paid £6.6m in 2006, receiving a £1m pension from April.
Fred Goodwin, former chief exec. – paid £4.2m in 2007, due for a pension of £8.37m

HBOS – 40% nationalised
Peter Cummings, former head of corporate lending – paid £2.6m in 2007
Michael Geoghegan, chief exec. – paid £2.955m in 2007

Bearing in mind that their companies are now owned by the taxpayers, one would have thought that they could show some restraint in pouring out bonuses. Nonetheless, RBS alone seems to think it’s a good idea to pay out a billion pounds of money to their fat cats as reward for nearly killing the economy.

I hold these points to be self evident:
1.Wages are a reward for the individual’s input of the factors of production.
2.Banking is a service industry, hence the factors offered by the executives are labour and entrepreneurship.
3.Most executives seem to do very little work. Hence, their input of labour is little.
4.Good entrepreneurship does not result in almost going bust. Hence, their input of entrepreneurship is very little.
5.Hence, they are due little compensation for their efforts.
6.Bonuses are a reward for extraordinary success.
7.Ending up mostly owned by the government is not an extraordinary success. Hence, they are due no bonuses.

Anything there sound ridiculous? To be honest, they ought to pay back all their bonuses for the years of unwise lending that got us in this state in the first place. Now the government has bailed out the bankers and decided to nationalise them, they ought to take a stand to stop such ludicrous profiteering, rather than trying to ‘coax’ them into playing ball. If America, France and Germany can do it perfectly easily…

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3 Responses to “[Misadventure Capitalism] – The Fat Cats That Got The Cream”

  1. Cecilieaux said

    Self-evident? Hmm …

    “1.Wages are a reward for the individual’s input of the factors of production.”

    Wages are whatever pittance an employer can get away with and still get production from workers, not what the managerial class is paid.

    ‘2.Banking is a service industry, hence the factors offered by the executives are labour and entrepreneurship.”

    Executives neither labor nor are entrepreneurs, but rather managers of other people’s wealth (which calls for an entirely different evidence that I’ll set aside for the moment), paid as highly as it takes to keep them from stealing it. Often even that is not enough.

    “3.Most executives seem to do very little work. Hence, their input of labour is little.”

    Agreed.

    “4.Good entrepreneurship does not result in almost going bust. Hence, their input of entrepreneurship is very little.”

    Entrepreneurs are not managers, but individuals who cause an undertaking to come about or are deeply enmeshed in the business of keeping it going. This is a lot more than merely balancing the books and going off to golf at 4. most executives would not have a clue how to begin an enterprise and — obviously — even less of a clue on how to keep one going.

    “5.Hence, they are due little compensation for their efforts.”

    Agreed.

    “6.Bonuses are a reward for extraordinary success.”

    Bonuses have become anything from a mechanism to stop up pre-tax margins to bribes to keep the upstairs help from stealing the silver, or at least avoid impregnating the lord of the house’s daughter; they are not work incentives.

    “7.Ending up mostly owned by the government is not an extraordinary success. Hence, they are due no bonuses.”

    Banking in the hands of government, insofar as the solid and sturdy business of keeping and safeguarding people’s money, is probably not a bad thing — it succeeds at keeping the money where everyone can see it.

  2. BHudson said

    1. I’m dealing in truisms, not cynical pragmatism.

    2. Managing other people’s money = making business decisions = entrepreneurial action. As they (presumably, I’ve never seen any evidence of it) fill in forms and whatnot, perhaps occasionally sign things, they are a human factor of production = labour.

    3. –

    4. If they make business decisions, regardless of what little else they do, they are providing entrepreneurship.

    5. Glad we agree. They are bad labour and bad entrepreneurs. Hence, the value of their input is low, hence the value of their compensation should be low.

    6. See 1. If I were talking about what they pragmatically are, I would have said something entirely different.

    7. True. Unfortunately, the trade off for the visibility is putting the money in the hands of the executive who sold off all the gold and put us further into about 44% debt. Were the government capable of taking over the banks out of preference and managing them well, it would be great. But they took over the banks out of desperation, and are showing little signs of managing them at all, let alone well. So now we just have the same banking structure as before, but buoyed up by the taxpayers’ money, involuntarily invested.

    BH

    NB – I’ve edited the post to reflect the correct approximate nationalisation level of HBOS (not sure what the exact figure is). Previously I’d had it as 100% for some reason. Can only presume I was typing in a hurry, not really paying attention and got it mixed up with NR or something. Sorry.

  3. BHudson said

    Oh, and by the way, I’m using ‘wages’ in its most broad term, ie. payment for a service rendered, rather than its specific meaning of payment per (time)unit.

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