House prices are back up, share prices are back up. Even Adam Applegarth, the CEO who led Northern Rock to disaster, is back at work in financial services.
Welcome back to life in the bubble. Crisis? What crisis? Leona Helmsley made herself an outcast by declaring that “taxes are only for little people”.
For bankers, crises are only for little people. For little people, crises mean losing your job if you are unlucky, or a pay freeze of you are lucky.
For bankers, the crisis means a return to the good times: bonuses are bigger than ever. This year, Goldman Sachs is projecting record revenues and average employee compensation (including the receptionists) is on track for a $1m each.
It would be nice to think that the greedy and incompetent bankers who caused the crash in 2008 have suddenly transformed themselves into brilliant and ethical masterminds of recovery in 2009. The truth is more mundane.
If you give people free money and reduced competition, then even the most incompetent banker is going to make money. The free money is coming from the government in the form of QE (quantitative easing). QE is a fancy way of the central bank printing money and giving it to the banks. Of course, the money will in theory have to be paid back (although much of it will be written off as bad debt). But if you or I were given a few hundred billion dollars interest free, even we might make a penny or two out of it.
The free money problem is also inflating a huge bubble in other asset classes, like shares and property. With free money it becomes attractive to gamble on shares, especially as banks are paying a nice round 0.0% on deposits. Cash is for losers, the casino is for winners. So the government is funding a massive gambling spree by the banks who will rake in the bonuses as the bubble inflates. But we all know what eventually happens to bubbles: they burst. By that time, the bankers will have got their bonuses and once again the taxpayer will be left to pay for their greed.
The bubble can go on inflating for as long as government gives free money to support the banks’ gambling addiction. The government has to keep the party going at least until the election, and worry about the hangover later. But when the hangover comes, it is going to be the mother of all hangovers. Neither the banks nor the politicians have learned anything or changed anything since the credit crunch. History is about to repeat itself, painfully for all of us who are not bankers.
(Pic: Jeff Kubina cc2.0)
