George Osborne is wrong. Even the bankers agree

Left Foot Forward has the backing of senior bankers at the World Economic Forum in Davos on eye-watering pay deals in the City, and that George Osborne is wrong

This blog pointed out last October that one of the main reasons bankers are paid such extraordinary amounts of money is that the industry is fundamentally uncompetitive; ironically, it is not subject to the market forces it is supposed to represent.

Unfortunately this crucial point has been disappointingly absent from much of the policy debate on how to address the issue of eye-watering pay deals in the context of unprecedented government support.

Comfortingly, it appears that Left Foot Forward has at least the agreement of senior bankers themselves on this issue.

The BBC’s Business Editor Robert Peston reports that in a private meeting at the World Economic Forum in Davos, a financial supremo is to have stated that:

“Banks are a regulated oligopoly and are not subject to ‘proper’ competition: they are therefore able to pass on the costs of their people to customers.”

Peston explains that:

“In other words, banks are able to pay their people more-or-less what they like, free from the market disciplines that apply to genuinely competitive industries.

Financiers will be delighted to know that following a number of “good discussions” with “lots of bankers” at Davos, the Shadow Chancellor has made it categorically clear that he does not favour breaking up the banks, contrary to the recent thoughts of the Governor of the Bank of England, arguing that:

“I fully understand that modern universal banks need to offer their customers investment-banking services.”

This vacuous tautology ignores the basic point that banks do not necessarily need to be universal – particularly given that the financial crisis was precipitated by this very universality.

Most of the customers that anyone cares about absolutely do not need investment-banking services. That this is an essential feature of financial markets is a ridiculous concept dreamt up to maintain the good life for the City.

At the same time, Mr Osborne has expressed resounding support for President Obama’s bank plan in an attempt to ride the bandwagon of public outrage against Wall Street. But no one, not even those with far greater financial acumen than Mr Osborne and his team, know what the Obama plan will actually do, or what the effects will be.

Odd, then, to offer unwavering support to what is without doubt a well-intentioned, but as yet undefined reform plan, whilst at the same time committing to maintaining the cosy status quo.

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19 Responses to “George Osborne is wrong. Even the bankers agree”

  1. Shamik Das

    More woe for Osborne: RT @leftfootfwd: George Osborne is wrong. Even the bankers agree:

  2. AndyG

    RT @leftfootfwd George Osborne is wrong. Even the bankers agree:

  3. Claire Spencer

    I hate that we weren’t bolder in the aftermath of the financial crisis re: breaking up the oligopoly. It would give us an even stronger leg to stand on against Osborne, who Phil Hammond is clearly failing to educate quickly enough.

  4. Dave Cole

    RT @shamikdas: More woe for Osborne: RT @leftfootfwd: George Osborne is wrong. Even the bankers agree:

  5. Philip Painter

    RT @leftfootfwd: George Osborne is wrong. Even the bankers agree:

  6. rob

    Please do not post pictures of these guys in dinner suits. You just look puerile. “oh look he went to a posh school” isnt going to work on me and it detracts from the substantive issues of any given article. Everytime i see one i consider shifting my vote from lib to con just to punish labour, im a former labour voter.

  7. John

    school photograph? check!

    alt text – gideon osborne? check!

    seriously, not doing yourself any favours here are you… it was so obvious and weak a jibe it actually distracted me from any point you were hoping to make.

  8. rob

    None of us are culpable for where we are born. Why is it seen as ok to rip on people born into rich families? Yes they are priviliged but that dosnt tell you anything about them as a person.

  9. Shamik Das

    What does it tell you about Cameron and Osborne that they’re planning to give millions to the 3,000 richest estates with their inheritance tax plans? Plans from which something like 90 per cent of the Shadow Cabinet will reap huge financial benefits and become even richer than they already are, while the rest of us must endure “austerity”. Does that sound fair to you?

  10. rob

    Leave off on the inheritance tax cuts. All the tories are planning to do is raise the threshold. Labour have raised the threshold before. Your re-spouting a mantra, considering labour originally tried to steal the tory policy, just makes you look silly. im pretty sure a fair amount of the current cabinet and their friends will benifit from such a cut as well. The modern labour party is hardly a workers collective. I would also bet that the tories scale back this commitment if they get into office, consider it was made in 2007 in very different times. i think this sums up my view on inheritance.

    Try harder.

  11. rob

    Appologies Shamik on re-reading my last post i realise its tone is personal and combative, I some times get to aggresive in debates. That said my substantial points stand.

  12. rob

    I think your framing of the issues and the debate are unsound. You seem to be arguing if one or both of two points.

    1. Tax cuts that benifit the wealthy are unfair while a nation has to be cutting budget deficits. Ie the rich should not be cutting taxs on the rich while the poor are suffering
    2. Tory policy is motivated by a selfish corrupt desire to feather the nests of their wealthy friends and supporters.

    But on balance the rich will not be better off under a possible future tory government than they will be under this current government. I take this to refute both points above as what ever happens the rich will be asked to pay more.

    1. The new tax bands are taking more of the direct income
    2. The NI increase is rasing the cost of small and medium enterprise thus reducing profitability.

    I think it is fair to tax the rich and i think it is unlikely the tories will carry through the inheritance tax cuts.

  13. Shamik Das

    On reflection I see your points. The actual substance of the article has hardly been debated.

  14. rob

    @shamik the substance of the article was not debated as i was origianlly destracted by the ad homin attack that seemed to be implied in the posting of that picture of osbourne. Then we got into a debate other the relative merit of certain tax cuts and their validity as a tool for attacking the tories.

  15. Anon E Mouse

    Shamik – Can’t LFF start publishing positive items about Labour rather than negative ones about the Tories?

  16. uberVU - social comments

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  17. Josh

    As a staunch small c conservative, I am ashamed that George Osborne leads my party on economic matters. He has no experience of the outside world, he didn’t even study economics at university, and we all know the danger of having a Chancellor without any prior knowledge of economics (Gordon Brown). Osborne is an embarrasment to the Conservative Party. He is an appalling speaker. One can hear his voice break and crack during the pre budget report debate. He sounds like a petulant child on the brink of crying. He dosen’t have any bottom. Brown was a useless pillock of the highest calibre, but at least he looked like he had gravitas. Osborne is a student politician. He should be replaced with John Redwood, a man with more intellect in one brain cell than the entire Labour Party

  18. business investor daily

    Our government’s response to the crisis has looked like a hotch-potch. What is really worrying is that this response has been much the most coherent of those in the major countries hit by the crisis.Improving governance of financial markets is ultimately only one component, albeit a crucial one, for building a more equitable and sustainable international order

  19. The George and Vince show may get ugly | Left Foot Forward

    […] Dr Cable was an early and strong advocate of breaking up banks into smaller entities. Mr Osborne presented a less clear argument, arguing on the one hand that he would support President Obama’s financial […]

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