“Who is going to bail out the taxpayer?”
At last there is an official inquiry into how the banking crisis happened – but not into punishing those responsible or compensating those that suffered. It is something the government should consider in this year’s budget or next year’s general election.
The main culprits of the crisis are the bank boards, but while some directors have been culled, many still hold top positions at other FTSE companies.
BP (LON:BP) is paying the price of having two Royal Bank of Scotland non-executives on board but other companies remain keen to recruit the bank directors that allowed the crisis to happen.
And Sir Fred Goodwin’s pension shows there is little punishment even for the bank executives forced to quit.
Bank shareholders may feel they have been punished by having their dividends suspended and their share prices decimated but in reality, most banks would be bust if the government had not stepped in with equity, loans or toxic-debt insurance. The aid was to save the system, not the save the banks, but it has left investors with something when they faced having nothing.
Shareholders ought also to share some responsibility for allowing or encouraging banks to overextend.
Borrowers benefited from the easy loans of the pre-crunch era but instead of being punished for their folly, they are rewarded with interest rates even lower than when they took their loans. Rates have been artificially depressed to offset the recessionary effects of the banking crisis and people whose profligate spending caused the boom are now being given cheap finance to carry on spending.
There is no reward for savers however. They showed restraint during the boom but are now being punished with negligible interest rates to subsidise borrowers.
There is no justice for them and little prospect of it. Even using the budget to make more savings tax-free through ISAs or other vehicles offers little compensation: cutting savings rates from 5 to 1 per cent is an 80 per cent reduction in interest income; making it tax-free only trims the reduction to 75 per cent. The chancellor needs to address this issue seriously rather than leave prudent savers to suffer.
And while homeowners benefited from the financial boom before 2007, those who have bought property in recent years are seeing their equity wiped out and possibly losing their homes too.
Meanwhile taxpayers face decades of paying for the measures to offset the consequences of the crisis, not least through losses on the bank rescues. If we are all pay tax we share the pain, but inevitably some taxpayers will pay more than others.
A statement during April’s Irish budget by Richard Bruton, spokesman for the Opposition Fine Gael party, sums up the unfairness. “The banks bailed out the developers, the government then bailed out the banks; the taxpayer is being asked to bail out the government. Who is going to bail out the taxpayer?”
The Financial Services Authority’s review of the crisis may identify the culprits but what will it do for the victims?
