Financial Consultants

BONUS BONAZA – Failure of ethics or economic model?

Is there a failure in moral and ethics within the Financial sector or a total miss-management by global leaders to accept the responsibility to create a sustainable global economic growth?

What does it mean to create a sustainable growth? Does this mean regulations and laws to eliminate greed, or as in other areas, to change mentality amongst global leaders together with financial leaders, to create a more sustainable growth.

We run anti-smoking campaigns to make people smoke. We start anti-drug campaigns to stop drug use and traffic. We even try to run campaigns to reduce obesity problems in the industrial world. Do these campaigns work, or is it just a way to do tell we are thinking of this and will do something about it, but we do not know how yet.

Are we doing the same with the Financial World today? Governments and think tanks around the world write in various media about responsibility and reactions to bonuses and rewards amongst the financial players. We tell them how bad this is, and something needs to be done with it, and soon.

However, we come short to see some real action – maybe because we do not know what to do about it, or is it just ignorance?

News have been full of Financial stories this year. Starting with the financial crisis packages and discussion on how to save the banking and financial systems around the world. Different models have been proposed, but all agreed that we need to save the banks, otherwise the global economy would collapse and create a recession of unheard dimensions. We can all agree on the last statement, however, we disagree on the means to correct the failures. Most country authorities made large tax payer contributions to the banks and financial institution which essentially did not have cash enough to pay their debts to each other more or less.

Financial instruments deemed perfect by themselves alone,  not proven to work in a global social economic model  however, had collapsed and no one trusted no one anymore. The economy contracted and did not work anymore.

I remember my first economy class, the teacher said that economy was about circulation of money.

Well, does present economic ensure that the money is circulated, or does it have a tendency of piling up somewhere?

The latest news is that the Royal bank of Scotland plans gigantic bonuses to their managers

RBS plans to give between 1 and 5 million British Pounds to each Bank manager in their system.

The same bank was saved in October 2008 and is now owned 70% by the British state.

The state woned  Royal Bank of Scotland (RBS)  plans to give record high bonuses up to 5 million punds to their top management in the bank.

In average the bonus for their employees will be around 200.000 pounds each.

The 20 top managers to be given the highest bonuses will get around 800.000 to 4 million pounds each.

The planned bonuses are higher than the amounts paid out at the top of the financial boom in 2007. They are around 66 percent higher than was paid out last year.

RBS was on the verge of collapse last year in August, and had to be given state supprt to survive the crisis that was brought on them.

The british department of Finance or the Treasury put in over 200 billion pounds to get the bank up and running again, and this gives the state a 70% ownership in the bank at the moment.

Again this proposal of bonus payment from RBS will be in direct collion course with UK Financial Investment, the government office in charge of following up state investments in banks amongst other things. They inspect and keep track on how the tax payers money are invested in the banks and they have to approve the bonus payment proposals from RBS.

The plans from RBS and other banks revealed recently about the bonus payment is a sign that the bonus culture is back again and we have learned nothing from the crisis at all. This happens less than a year after the collapse of the same banks was a given fact.

The economic models are the same, the people are the same and the mentality, moral and ethics are back to its 2008 level again.

It is expected that RBS will do massive lobbying to get approval to perform the bonus payments proposed. They will use the same old arguments used earlier, that the managers on top level are getting offers from their rivals of higher payments and it is therefore a need to compensate to keep their talents.

These are the same talents that brought up on us the financial crisis in 2008, and still deemed still to be the best money makers. Of course they are, given that we proceed with the same economic models as before, driving the same highway that made it possible to over speed and almost kill everybody around you.

There is no sign of moral or ethical improvement which was expected from this crisis. There is still no sign of change in the way the financial world is behaving and the greed that was the signs in 2007 and 2008.

Several employees in RBS staff in Singapore left work last week in the fear they would get smaller bonuses than expected.

Well, maybe this is what has to happen, and the migration of workforce will have to take place, but in the end there will be no places to run as more and more banks accept the fact that there is a limit to how much you are worth as a human to the humanity and its way to prosperity.

RBS has already provoked anger over a 10 million pound proposed bonus package to the CEO of the bank, Stephen Hester, given that he gets the bank up and running again.

Secretary of state in the department of Finance has contacted all boards in all the banks in Great Britain and reminded them that they should build up reserves instead of paying out bonuses to management and employees. But at the same time the Department of Finance is cautious to take any decisions that can harm the finance sector at a time where the banks still struggle to build up their balances.

None of the british banks have at the moment taken any final decision on how large the bonus packages should be at the year end.

American banks have already put aside large sums of money for bonus payments this year.

Last week JP Morgan revealed that they are willing to pay out over 30 million dollars for salaries and bonuses to their employees after a record high surplus of 4 billion US Dollars in the last three months in 2009.

The largest insurance company in the world, AIG paid out over 165 billion US Dollars in bonuses in March this year. This created chock waves and scandal at that time, but nothing more than that. The government wrote some letters and commented the act in the media, but the company went on and did what they deemed necessary to keep their employees happy. Set moral aside, and continue the happy games we have played in the last year. Uncle Sam has given us money, and then we do whatever we like with it.

Around 200 billion US dollar put into the same department last year to save it, was effectively used to pay the bonuses proposed, well done US federals, we taught them a lesson there did we not?

AIG got the most of the US crisis package since they went with a loss of almost 1 billion US Dollar every day during the last quarter in 2008.

The same people in charge now, as was in 2008, give themselves a tap on the shoulders, well done, we got the money, the government saved our bank, lets reward ourselves to be able to sell the story to the government.

All this are signs that the Financial sector has not learned nothing. Most important of all is to see that Governments around the world has not taken this opportunity to properly regulate and ensure a moral aspect of the Financial sector.

This was a once in a decade chance for the authorities around the world to unite and get the Financial sector to become sustainable wit
h respect to global development, and not only for their own enrichment.

The message sent out from the Financial sector as well as governments is that there is no hope for sustainable global financial development and that we have to get prepared for the next recession or even depression with a decade or so. Maybe the cycles for these recessions will decrease as globalization takes more and more over, and makes information and capital flow to act faster than before.

The time this last recession took to spread to global phenomena was the fastest ever, and we have to expect it will be more instant next time.

Enrichment of the few does not work anymore, as global economy also will demand a more sharing of the financial positive development.

The G20 countries needs to come up with a plan on how to bring not only their own economies up and running, but to ensure even the poor world gets to take part of this development. Most of all, it has to be a sustainable economic development. Economy can not isolate itself from the social development, as both are mutual dependent upon each others.

There is a moral aspect in this, which has to be guided by the social development, brought into the social economic models brought forward in the next years to come.

However, the recent actions taken by major banks all over the world by announcing the need to pay more money to retain their employers, tells us we need to start there first.

There has to be set a global framework for how the financial sector should reward their players, and new measures have to be set forward at this moment. I do not have the answers to this, and leave this up to the private or governmental think tanks around the world to illuminate the common people on this issue.

In December there is going to be a summit in Copenhagen to talk and agree upon environmental issues, and to look closer into the Kyoto agreement and what targets we are to set in the industrial world.

These targets both have a cost and a gain, both environmental and economic. But last but not least a social aspect to it.

If  this summit do not manage to link the financial sector into their environmental targets as well as the social aspect, it is doomed to fail.

 There is no way we will be able to make a sustainable economic model unless we bring all segments of the world with us here, industrial, developing and third world.

We can not allow the poor take the bill and pay for the miss-management by the industrial and developing world.