All of this talk about taxing bankers' bonuses has had me a little confused.
On one hand, flinging around such huge sums appears wholly irresponsible, especially when the only reason they are able to do so is that we, the taxpaying public, were willing to bail them out. Effectively, they are using our money to enrich themselves and there is a sense whereby they should be making good rather than making off with the cash. On the other hand, one is loathe to interfere with the right of a private company to determine its own remuneration policy.
So perhaps it would be right to leave the decision in the hands of the banks' management, yet provide an incentive to reduce these to a less eye-watering level.
My mind is drawn to the concept of a 'luxury tax', introduced by Major League Baseball in the United States, whereby there is a salary cap for each team. If a team chooses to spend more than that cap, a tax is paid in proportion to the overspend. This serves to increase competition, discourage reckless expenditure in search of short-term advantage, and provide funds for redistribution.
I am still convinced that having a range of banks, from those focussing on 'vanilla banking' to the more exotic investment banking, is a good thing. Indeed, I see no reason why risk-taking should be discouraged. However, we need to change the overriding culture of the financial industry so that there is a sensible balance between risk and reward, and where those who get that balance wrong face the reality, and the consequences, of failure.
A 'luxury tax' would leave senior management in charge and allow us to claw back some of the billions that we have invested. Worth a thought?...
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