Last month Britain was swept up in a maelstrom of rage after it was revealed that Fred Goodwin, the chief executive of the Royal Bank of Scotland, was due to receive a generous pension to the tune of a staggering £703,000 a year. The problem? The Royal Bank of Scotland is now 70% owned by the British taxpayer. Cue outrage from all sides: while the tabloids and broadsheets alike foamed at the mouth, government ministers went a bit mental and promised to suspend the rule of law. The controversy over Goodwin’s pension wasn’t just a matter of one man’s greed, however; it was a focal point for the public feeling of helplessness, disbelief and disgust brought on by the realisation that the mighty, all-knowing financial powers we entrusted with our money are actually just a load of out-of-their-depth greedy idiots who’ve gone and squandered the lot.
Well, now the United States is having their “Goodwin” moment – and who knows where the chips will fall?
On Tuesday night I was watching Channel 4 news when they aired an interview with Wall Street “legend” Jim Rogers, who the reporter described as “one of the world’s leading financiers” . The build-up to the interview was interesting: Rogers, it was ominously announced, thinks the economic rescue plans being put forward by Gordon Brown and Barack Obama are “ludicrous and insane” and that “the politicians could be leading us into another Great Depression”.
Well you can imagine my surprise at hearing this, given that I was under the impression that the deficit-spending, government-stimulus strategy being adopted by leaders like Obama was meant to stop another Great Depression, not start one. If I’d been drinking coffee, you can be sure that I’d still be wiping it off the TV instead of writing this. But I thought I’d see what Rogers had to say before coming to judgement on the man. Big mistake!
There’s an episode of South Park where one of the kids’ dads, Randy, keeps getting into fights at baseball games. Every time he gets dragged off by the police, he drunkenly castigates the cops, shouting, outraged: Is this America? Are we in America? I thought we were in America!
That episode has been on my mind a lot lately, as I just can’t quite believe that the United States, traditionally a country with an extremely suspicious attitude towards socialism and anything associated with socialist ideas, should be having a genuine public debate about nationalising banks. As Randy said, I thought this was America. This isn’t just a back and forth on the pages of the New York Times, either. Obama himself has been publicly chewing over the idea:
Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country.
A quick thought on Wall Street bonuses, given that they’re once again a source of contention following Obama’s angry remarks last week. There seems to be a sort of circular argument going on between Wall Street and, well, everyone else. We cry: a bonus is for people who did good! Wall street responds: You don’t understand, that’s not how a bonus works. We protest: But it’s called a bonus! And so on…
The best way to think of the corporate practice of bonus-giving is to use the analogy of tipping a waiter. Tipping no doubt started off life as an occasional reward to the waiter for actual good service. But once the custom caught on, I imagine people found themselves tipping more frequently – after all, unless the waiter pours your soup onto your lap, most waiter-customer exchanges are of the friendly variety (Michael Winner excluded). But since everyone was now tipping, really good service had to be rewarded with a higher scale of tips. At this point, a basic level of gratuity would have morphed into social custom – so that to neglect to leave a tip without explicit bad service would be looked down upon. Hot on the heels of social custom would be the internalisation of gratuities by the restuarant itself, so the waiters start to depend on their tips – by withholding them you are effectively reducing their “salary”. Eventually we get to where we are today – mandatory 10% tips in London, 15% in New York. To reward particularly good service you’re talking about 20-25% . Non tippers are ostracised, questioned by waiters, blackballed by restuarants.
At this point, the only way to break the cycle is to round up a bunch of customers and get them all to start tipping for quality, not necessity. But no-one wants to do this because no-one wants to be the first one to face the consequences of breaking the custom, and besides they don’t want to punish the waiters who now depend on the tips. In any event, even though they may moan about it, they still think of it as some kind of reward system – the good are rewarded, even though everyone’s good.
