LIBOR Revisited: who should pay the piper?

Oh, it’s embarrassing, isn’t it? Poor old George. I guess it’s a little like glancing up and seeing someone’s landed on Mayfair. On your Mayfair, complete with hotel and those extortionate charges. Rubbing your hands together with glee before the barely-suppressed smirks of the other Finance Ministers encourage you to take a closer look. Whose piece is that on Mayfair? Is it the boot? Damn! You’re the boot. You’ll just be paying yourself (apart from the portion you have to hand over to the head of the Federal Reserve, whose grin is no longer quite so suppressed, but no need to go into that).

Poor old George. And it’s not like he can brush it all under the carpet. Everyone’s noticed. “What’s the point?” shout the press. “You’re only paying yourself.” (At this point the man from the Fed’s gone very quiet and is hoping no one notices him). George shrugs. It’s a wash, he’s thinking. No one wins, no one loses. He’s also hoping no one’s spotted the man from the Fed.

Sorry George.

So taxpayer owned RBS has to pay a fortune to US regulators (and before anyone corrects me, yes, I know it’s not the Fed and George Osborne, it’s the CFTC, the DoJ and the FSA, but they just don’t strike me as Monopoly players). And the taxpayer is outraged. More by the fine than by the moral depravity of the offence, which is a shame, but never mind.

George has options, though. He can shrug, again, and let the taxpayer take the hit. He can try to justify this by pointing to the statements made when RBS first entered public ownership and the supposedly arms-length mandate of UKFI (the body that holds and manages the taxpayer’s RBS and Lloyds shares) in managing the Treasury’s stake. The bank was to be run as a bank, in other words, run to make money. Some lip-service paid to consumer and business lending, but arms-length is arms-length. You can’t have it both ways. And if you’re running a bank like a bank you do (almost) everything you have to to hold onto the talent that makes that money. Otherwise, as Obiter Dicta points out, the cold hard reality is that the taxpayer will be even more out of pocket. So that’s Option 1: Let “Innocent” Bankers Obtain Rewards.

Of course, that’s all out the window now. It fell out back in 2008-9 when UKFI decided to exert a little influence on the way RBS awarded its bonuses. They shrank, suddenly and mysteriously, and became subject to the arcane and (conveniently) ill-defined notion of “clawback”. A lot of people argued back then that bankers would leave in droves, the best of the bankers, anyway, and the taxpayer would lose out.

It’s the same option that George has taken now (only this time without even the pretence of being remote from the whole thing). Like the bonuses, the arm of arms-length has shrunk. Option 2: Lose Ill-gotten Bonuses Or Resign.

I think as a nation we’re beyond worrying about whether those being punished are in fact guilty. Everyone is seen as guilty, either directly, or by association, or simply of the crime of having made good money during the boom years. So what remains is the economic argument. Is the pleasure of seeing a bunch of bankers making less money worth the potential cost to the taxpayer? If, as we were told at the time, the best all left four years ago, what have we got to lose now? And if they didn’t (and we know they didn’t), could this be the final straw?


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