‘Bank executive bashing’ has become a real fashion of late with print media, TV, radio and politicians jumping on the bandwagon. This is partly the fault of the banks not really understanding the public’s anger at their behaviour in laying the foundation stones for this recession, but also because they have totally failed to take in the message that big bonuses are a real ‘no,no’ these days!
As a result we now we have politicians from a number of countries sharpening their knives to punish and constrain the banks – either by restricting bonuses or even breaking up the various parts of the larger banks. President Obama came out with an unexpectedly hard-line approach last week by indicating, in essence, that high street banking should be separated from the investment banking side in organisations where both exist. He clearly set out to send a strong message to the banking community; but it was the language he used that adversely affected the share prices of banks and the value of the markets more generally. It’s unusual to hear a US President, especially a Democrat, sounding so aggressive on an internal issue; saying things like ‘if they want a fight, I am ready’, or words to that effect.
Maybe it had an impact though, as leading US firm Goldman Sachs announced a cap on bonuses (at £1 million) for its top UK employees this week. But will the public in the US and UK see that as enough, because these are still huge figures by most people’s standards? And remember, this is at a time when the government has either invested in these institutions or made guarantees to support their activities, and where unemployment is still over 2.5m in the UK. The public may ask whether it would be a better idea if the banks used the bonus money to pay the UK government back more quickly and help reduce our enormous deficit?
These are real concerns, both politically and economically, and the finance sector does not deserve our sympathy. However, the recovery is very fragile and the markets very volatile. Politicians also need to be careful to think not only about the political capital of what they do, but also about the psychological message it sends out in uncertain times. The President’s fighting statement may gain him political capital, but it did not help to steady the markets. The stock markets are an international symbol of stability and affect the behaviour of many individual consumers – the last thing we need now is to upset the proverbial applecart while one wheel is still in need of major repair.
My plea to politicians is to be aware of the broader psychological effects of what they are doing and saying. They have a critical role to play in building our confidence in the world’s financial systems, but they have to get the balance right between carrot and stick!
