Pay it back!

Addicted to money

It was just a few short months ago that bankers were everybody’s favorite hate figure. Now the media circus has moved on. In the UK, Members of Parliament are being pilloried for stealing sums which total 1% of Goldman Sachs annual bonus pot. Many have already repaid the money.

Updated 23 June – In the UK, RBS has announced a $15m package for its new CEO.

In the US, Bank stocks rally. Meanwhile, the same guys are largely running the same banks, and most amazingly of all drawing the same bonuses. Now eyes are turning back towards the bankers and their obscene bonuses.

So why are the bankers, hedgies, and insurers being allowed to hang on both to their jobs and to the vast bonuses they accumulated over the past decade  – bonuses paid on falsely declared profits?

If they keep their jobs, they could still repay the bonuses which were paid out on profits which have since turned out to be illusory.

Do the math

Then we could use that money to continue bailing out the banks, insurance companies and other financial businesses.

Western countries have now spent at least a trillion dollars on the financial institutions. A trillion pounds of our money, made particularly poignant as the ordinary working Joe is being thrown on the dole in increasing numbers as a direct result of the banking crisis.

Meanwhile the bankers themselves, few of whom have yet been fired or resigned, are continuing to draw large salaries and large bonuses.  There have been several rounds of sackings, but even once that has been taken into account, there is one big fat unanswered question at the heart of this scandal.

Why shouldn’t the financiers hand back their bonuses??

A quick back of the envelope calculation shows that over the 10 years of the boom, the bankers were paid approaching $800 billion in bonuses – not far short of the amount now needed to bail them out.  Why on earth should they be allowed to keep that money?

Why have they not been lined up and interrogated about each and every deal that led to the global financial meltdown we are all now forced to underwrite?

Why have none, repeat, none, been arrested (other than for out-and-out Madoff style fraud?)?

Its well known that all sorts of civil suits are being quietly lined up – many lawyers are  currently cleaning up representing shareholder-plaintiffs.

What has happened to the criminal law in retrieving some of the plundered billions?

It is now abundantly clear that many of these bonuses were as a result of falsely declared profits – assets which were inflated in value to the point where actual dishonesty took place such as Lehman’s. Or in some cases the profits just never existed at all, such as John Thain’s decision to pay Merrill Lynch bonuses a month early just ahead of the BoFA takeover.

It is a fact that Lehman Brothers were warned by their auditors and accountants that they were overstating their profits.  The board however decided to ignore this advice and declared the profits they did.

As a result they were able to award themselves larger bonuses. Which they did.

At the time many in the financial world were openly boasting about the over inflation of derivatives and CDOs which they were conniving with.

If Directors award themselves a bonus from a company and then the company finds retrospectively that the director behaved in a dishonest way, the company can go after the director and ask for the bonus back. Plus its a criminal offence – breach of fiduciary duty.

UBS which is based in Switzerland is specifically looking into this, but UK and US banks and finance houses could do the same thing.

And when they retrieve the money they could use it to repay some of the taxpayer’s money they have squandered.