Yesterday’s FT front cover was a beautiful moment-in-time snapshot of the meme war now underway in the credit crunch arena. The banner headline was “Banker fury over tax ‘witch-hunt'”; the first paragraph explained that “Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed out institutions”. But the real treat was the quotes in the sidebar:
“Introducing this 90 per cent tax is like taking the finance industry out the back and shooting it” – Bank executive in London
“What good does it do to be demonising an industry that you need to revive to fix the economy?” – Senior executive at US bank
“The tax measures will send the US back to the stone age” – Banker in Frankfurt
“This is like Russia 15 years ago. It’s like a McCarthy witch-hunt.” – Wall Street banker
“This is the most profoundly anti-American thing I have ever seen” – US investment banker
In other words, the view among bankers (irrespective of whether they’re on Wall Street, in London or in Europe) is: the US government just doesn’t get it. To which the obvious rejoinder is: no, you don’t get it.
I’ve thought for a while that the issue of bankers’ pay is a sideshow, and that all of us frankly have bigger fish to fry right now than trying to claw back Fred Goodwin’s RBS pension, the AIG bonuses or whatever. AIG’s bonus payments amount to $165m, for heaven’s sake – a drop in the ocean compared to the recovery plan, the toxic assets pool, or the contraction in GDP that America is looking at.
I think there’s also growing public understanding – in the UK, the US and elsewhere – of the argument that the rest of us need bankers to stick around in bailed-out institutions and fix the mess they created, on the basis that no-one else has a chance of understanding their asset portfolios.
But public understanding is by no means the same as public acceptance, of course – and it may well be the case that right now, publics’ need for durable solutions to the problems of toxic assets are dwarfed by their need to go out and clobber someone.
And in this regard, the size of bankers’ bonuses, or pensions, or whatever, may matter a lot less than the tone that they’re taking in public – which may yet prove to have the potential to be a political game changer. As Simon Johnson observes,
…the underlying issues are deeper still and laid bare by this week’s latest round with AIG. We have moved far beyond financial policy and into the kind of scandal that really gets taxpayers’ backs up. The greed of bankers slaps you in the face while the hubris of their leadership remains unchecked.
It’s a classic case of publics exercising a ratification veto on a deal cooked up between elites not because they necessarily disagree violently with the policy, but because the communication strategy was all wrong.
This is exactly what happened with the Irish no to the Lisbon treaty, it’s exactly what went wrong with the French and Dutch referenda on the European Constitution in 2005, and it’s exactly what could happen to a global climate deal at Copenhagen at the end of this year if policymakers don’t have their act together.
Here in the banking context, it’s the bankers (and their regulators) who don’t get it. Obama – in contrast to Geithner – does get it: and told Geither to find a way of getting the AIG bonuses back (even though Geithner had just said publicly that he couldn’t) because he gets that even though this is (a) a sideshow and (b) irrational, it’s not intelligent politics to attempt to head off an emergent mob with a cost-benefit analysis.
