New York state’s comptroller of the banking system announced yesterday that banking bonuses in Wall Street reached $20.3bn in 2009, up 17% from 2008, at 1$17.4bn. And in 2008, they were down 47% from the peak in 2007 at a grotesque $33bn. For 2010, bonuses could reach $21bn. They have not returned to pre-crisis levels because investment trading is just so much lower than in 2007.
In the UK, the Centre for Economics and Business Research estimates that bonuses in the City of London will be around £7bn for 2010. However, the government is trying to get the banks to agree to lower the bonus level to just £4bn. How this is to be done is unclear. It could be that bankers will take more of their bonuses in bank shares rather than cash or that the cash will be deferred over future years. The other trick will be to increase basic pay rather than the bonus. Apparently, “senior bankers” at Britain’s largest bank, HSBC will have their basic pay doubled!
I wonder what the lowly members of bank staff working on the counters or in the back offices on pretty average salaries that are being squeezed make of that? After all, the bonuses of most ‘ordinary’ bank staff are small, just a few thousand dollars or pounds on their salaries. One-sixth of all jobs in Wall Street have disappeared since the end of 2007, or about 31,000. These are not ‘senior bankers’ on huge pay and bonuses, but back office staff. They are the ones sacrificed to get the banks back into some shape.
The real rubbish dished up by the supporters of finance capital is the argument that getting banks to cut bonuses means that the government will get less in tax revenues. So cutting bonuses would be stupid for the economy. What rubbish! On that argument, we should probably double or triple the bonuses, so we can get more tax revenue!
It is estimated that if the City of London cash bonuses are cut from £7bn to £4bn, about £1.8bn will be lost in tax revenue not paid. But this is tiny compared to the amount of corporation tax that the banks are avoiding by using the last two years of losses to reduce the profits reaped this year for tax purposes. The UK government is losing £5-7bn from that ‘loss adjustment’ alone.
Moreover, the real loss of tax revenue comes from the consequences of the Great Recession caused by the banking collapse. For example, the UK has at least 2.5m people out of work and looking for a job. It’s probably much higher than that. If all these people had a full-time job at average wages of about £25,000, they would earn £62bn. At a very crude tax rate of 20%, that would bring in £12.5bn, way more than the loss of revenue from reducing bank bonuses.
But that’s something those opposed to interference in what the banks pay their top people don’t talk about.