Editorial: The Nonsense of “Reining in Bankers’ Pay” and Why Central Planning Never Works

As I mentioned in my last article about the attempt at instituting a bunch global rules on the banking industry not being workable, as the issue is a systemic one, and not one of being underregulated. As long as fractional reserve banking is the way banks do business, and central banks around the world prop it up, things will never change, no matter how much window dressing and rules are made up to cope with.

To show you another part of the folly of ‘fixing’ the problem, look at the G-20 comments and ideas on just one aspect of what they think needs to be fixed, and see how nonsensical it is to imply they can even do it, or that it would even be a fix; I’m talking about the idea of reining in bankers’ pay.

This is something the mainstream, socialist leaning media drools over to hear, as it confirms their latent beliefs that capitalism was the problem, and it gives them something they can understand and get behind and support. This is why it’s also brought up and implied as being a problem, as it takes the attention off of the inherent problems of the system itself and the Federal Reserve and other central banks, which make them worse from their practices and policies.

Now as far as the G-20 countries tackling reining bankers’ pay, it’s a joke, and those responding to that idea show why it’s so ignorant and stupid to even attempt to do.

The very first concern about it is the fear that talented banking executives would simply go to another type of financial institution if that attempt is made, and so deplete the quality of executives in the banking ranks. 

Some of the types of financial sectors they could go to would be private equity and hedge funds, among others.

Another concern was over the interference of governments into the reward process of negotiations with workers, and that the idea of the government setting those parameters would take away their freedom in that regard. This of course is why governments should never be involved in bailing out failing industries, as these types of problems emerge, making things even more complicated and impossible to work out. This is why banks should have thought of this before accepting bailout money, as the individual bank may have failed, but the deposits would have simply been transferred to another bank, keeping the deposits in the banking system the same, even though under someone else’s management.

In another unworkable idea, the financial leaders want a global pay code to include forcing banks to “claw back” already awarded cash to employees, if the earnings aren’t up to standard. Could you imagine that idea in any other business industry. Sorry buddy, but we want $500 back this month because things didn’t go as good as we wanted them to. It’s bizarre to even think like that, and yet the central planners have no loss of idea capital that is truly as weak as the long-term U.S. dollar.

Think of it. Executives and traders would have had their money for some time and used it for a number of private circumstances, and then would be asked to give it back. That’s so incredibly ignorant it’s almost beyond imagination.

Or let’s look at what Stuart Fraser, the group policy chief for the City of London Corporation, which represents financial companies in the U.K. had to say about it:
“Sufficient flexibility is being given for individual governments to decide what’s most appropriate for them,” Fraser said. “They don’t want to constrict bank lending in the shorter term. Any targets to be set will be done over a number of years so as not to create any indigestion in capital markets.”

Robert Talbut, chief investment officer at Royal London Asset Management Ltd., also said, “The more stringent you want the restrictions to be, the less easy it will be to get unanimity, and without unanimity it’s incredibly difficult to see things changing significantly. No one region will want to put its banks at a competitive disadvantage.”

What these guys are saying is it’s basically impossible to do this – period! When the term “sufficient flexibility” is used by Fraser above, that’s another way of saying every country will try to get an advantage over the others. Or when Talbut follows up saying “No one region will want to put its banks at a competitive disadvantage,” he’s saying the same thing.

Look at it from the point of view of OPEC countries getting together and saying they’re going to cap production. It’s never done. Almost all of them agree to it and go home and do what is best for their own countries. That’s how it would work for capping bankers’ pay by governments too. It’s simply unworkable, and we haven’t even gotten into laws and practices of individual countries.

Again, most of this is coming from the European Union which after bailing out their banks were greeted with pressure from its citizens to rein in the banking pay, even though most of them really don’t understand what they’re asking.

Ok, I’m going to say it again: this is why government shouldn’t use taxpayers’ money to bail out any industry, including banking. These types of things will always come up after government intervention, creating pressure which can’t be relieved without bringing up the issues we’re talking about here. And this is just one small and easy to understand part of the overall banking mess.

This is why central planning and socialism have never worked. You simply can’t even take one or two small parts of an overall picture and get it to work through the imposition of rules from a centralized committee, no matter how smart and bright the planners are. Some of the top minds from the top schools in the world are in the financial and banking industries, and they completely failed. (I show the reason why in the last article.)

There is no way to oversee billions of individual decisions and voluntary transactions on a day-to-day basis. People research on their own and make a decision based upon the best information they have at the time. There’s no way that can be controlled or managed, and yet the elitist central planners won’t start trying, even after history time and time again shows it’s not workable. But like in the case of attempting to rein in bankers’ wages, they just won’t stop trying.