As much as none of us really want to walk down memory lane to the Wall Street bailout, it is worth going back in time for a few minutes. Remember TARP? And now we have a compensation czar for those banks who received TARP funding.
Well, during all the testimony on Capitol Hill when all the bank execs were called in to explain how the financial system failed, not one of those bank presidents agreed that cutting compensation was the answer. How many times did we hear that if we cut the compensation or the bonus structure our “best and brightest” would defect to banks in Europe.
Of course, most of us who were left holding the TARP bag were hoping those particular bankers would go to Europe or anywhere but here. The bank presidents and executives were looking after their own wallets.
Today UK’s finance minister Alistair Darling more or less closed the door on those bankers who were “threatening” defections to European banks. The British compensation plan for bankers’ bonuses has been slapped with a 50% super tax for a period of time up through April.
Darling said banks would be charged a 50 percent tax rate on bonuses they pay to their staff above 25,000 pounds starting today until April 5, 2010, a powerful disincentive for big payouts in this year’s Christmas bonus round.
The new tax would apply to all banks, building societies and branches of foreign banks operating in Britain.
This decision was met with
… banking groups have warned that penalising high earners in the financial sector will lead to an exodus of talent overseas.
Does this come as any surprise? Nope. Perhaps, since Britain has taken the first step other countries, including the U.S. could follow suit.
Let’s face it, this was a bold move by Britain’s finance minister. But, it is the populace that will vote him in or out of office in the upcoming elections… not the bankers with extravagant compensation plans.
If all the countries who stared into the financial black hole during the end months of 2008 had the guts to stand firm on compensation and bonuses for just a short time… as the Brits say, “one-off”… the banks would retain money to lend to the rest of us. As it is today in the U.S. we are continually hearing about the Wall Street recovery and the banks being able to pay back the TARP funding but for those on Main Street we are still seeing… and standing in… unemployment lines and signing up for food stamps.
Some have said that this act would be like punishing the bankers. And?
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