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Thank you Robert - your excellent Blogs not only explain clearly what is going on in the City in a lingo even pensioners like me can understand - but also give us a good laugh! Keep up the 'sterling' work!! You have taken all the 'grey' out of the financial World...

What a load of nonsense.These vast bonuses only create inflation and false property booms both of which are detrimental to the environemnt.
Most people wouldn't earn these amounts in a lifetime of work.Lets get back to relaity quickly before these "city whizz kids" do any long lasting damage to the real economy.

The City has been like this for the last 20 years and it is no revelation that the whizz-kids are any different from footballers, who get about 7-10 years at the top on huge amounts of money before getting the chop. I was briefly a City lawyer in the late 80s, but I was not prepared to sell my soul, especially when a shakeout was coming (and duly happened in 1992). The City takes people in, chews them up and spits them out again - like football. The mistakoe is to believe that it will last forever - whatever the new paradigm or "new economy" with everlasting growth of he late 90s was!

As in the early 90s, plenty of these people will lose money on property and as an economy, we are far too exposed to the fortunes of the City -our productivity level there (14th of the Big 15) bodes ill in the long term too.

However, from a personal point of view, it is really a case of catching the wave and accepting that a ten year stint is feasible within which there may well be two ups and maybe a short down (like the telecoms and dot.bombs problems in 2002). So, take the cash, do the hopurs, but bear in mind that it is as short term as any footballer's career.

Can anyone explain how the wealth of a relatively small number of city workers is "spread around"
- other than to the obvious candidates of already wealthy estate agents, car dealers, restaurant owners etc.
How does this wealth spread to the likes of ordinary people like me other than to boost the paper value of my
house & thus effectively impoverish further the property-less? I'm really unclear why schadenfreude is anything
other than a legitimate response.

Firstly I'm not at all convinced that the economy was built on financial services by accident. I believe that both the Govt and the City have been running a strategy to deindustrialise the UK as fast as possible.

There is no other explanation - apart of course from gross incompetence and a lack of vision and aspiration - for the rate at which UK industry has been sold off to overseas buyers and the fact that we've created very few new global companies for 25 years. A time period which coincides very neatly with the so called big bang.

In fact if you examine the trade deficit figures 25 years ago it was relatively modest and indeed in 1997 it was still only about £19bn. In the past ten years though it has shot up to over £80bn and could well hit £100bn this year.

This is no coincidence. The Govt deliberately set out to appear City friendly and has let it get away with blue murder. In an attempt to cement his own credentials Alistair Darling said recently that he didn't believe in economic patriotism. That means the City was free to carry on doing whatever it wanted and UK industry could go to blazes.

As to City bonuses it's worth reminding ourselves that just one of those eight billion quid would have transformed risk equity capital availability for start-ups and spin-outs. That the City didn't think of that says a lot for what it thinks its role now is.

We should have sympathy for those who loose their jobs but we should have no sypathy at all for those who engineered this appalling situation. Perhaps though they will learn a lesson from this.

Rubbish, if the economy of Britain is built on such false economies then we deserve everything that we get.

Asking us to feel sorry for these poor unfortunate fellows, who leave nothing but a trail of destruction through economies, pensions and global markets in their wake is akin to asking us to feel sorry for George Bush and the unending pressure he is coming under for his actions relating to Iraq.

I feel really sorry for these people that get to go home to their un-mortgaged home in their paid for Ferrari to their income from properties purchased with bonuses.

While I wonder just how bad the shortfall in my pittance of a pension will be.

Mr. Wilson is a tad misguided. Wealth creation comes in all shapes and sizes. Mr. Preston makes a valid point.

The City attracts billions of pounds of inward investment moneys every day, which the City has for over two centuries, skilfully managed. The City is often the creator of new ways to borrow and lend money. Innovation creates wealth and makes London THE hub of global financial services.

Money is the oil of the global economy in the same way that oil is the lubricant of the physical representation of economic wealth. It is too easy to "City Bash". Envy and ignorance are often easy bedfellows. Of course poor decisions create losses and problems. We are seeing this now, and everyone pays. That, I'm afraid is down to human error. It happens in all sorts of businesses, including financial services.

Every market and industry suffers periods of feast and famine. Right now, a "famine period" is emerging in financial services. Too much easy credit availability cannot go on indefinitely. We all benefit from cheap money in the good times, and now, we must brace ourselves for a bit of old fashioned thrift for a while.

As for the environment, we all need to look at ourselves. The world is a finite resource, and if one part of the world tries to do the right thing, another part of the world will ignore that and just plough on and use whatever resources are around irrespective of the consequences. That has always been the way in human history, and will not change. Just ask our Eastern friends if they fancy a bit of environmental climate awareness. I suspect they will call us in the West hypocrites, and it is their turn. A tough argument to counter, and not one for this blog reply.

The city earns this country billions of pounds every year - vital to the economy that affects all of us. You can't hazard that by going on some kind of moralising crusade. Only a tiny fraction of the hundred of thousands of city workers get these 'mega-bonuses.

A few comments:

1) Only a very small percentage of people get the huge bonuses that make the news. Most people working in the city don't get any bonuses and those that do are fortunate to get 10% of their salary. I get the impression that everyone not working in the city thinks we all get million pound bonuses. The reality is very different and should be reported by the media.

2) For those people that do earn big bonuses I say good luck to them. If through your trading activities you make £10 million profit for your company why shouldn't they pay you a 10% bonus (£1M), to encourage you to do the same for them again next year. If your company doesn't give them the bonus then you can guarantee that a different company will.

3) Despite what people may think, there is nothing stopping anybody from working themselves into one of these positions. Are you prepared to study hard, train yourself, work your way through the more junior ranks, live the job, take the risks, etc.

Well... There's the rub.

Do we want to live in a world where all that glitters is gold or would the real world be a better place?

Debt based money is a drug. You take some and suddenly everything is wonderful. Then you take some more to prevent the come down. Soon you're taking it in ever increasing quantities just to get by. In the meantime all those little things we should be doing are neglected, the money going to the dealers instead. We lose perspective and priorities become skewed.

Increasing the money supply (double digit growth for years) doesn't give us a better economy or build one on solid ground. It simply distorts the economy towards financial services (the dealers). Others lose out.

Perhaps we should allow other areas of the economy to prosper. Rather than bankers, property and stock market speculators.

A number of my friends work in various parts of the City and lots have recently taken on bigger houses and put children into private schools following the recent round of bumper bonuses - they are looking a little stressed at the moment...

As well as some of the underlings losing their jobs how about some of the obscene bonuses being paid back by the boses. They helped to create the mess. In fact why did they get such bonuses when more could have been paid into pensions. Afterall, we are paying their salaries with our premiums - aren't we shareholders?

My heart bleeds for the POOR dears. Welcome to reality for the majority of hard working UK employees - threat of redundancy every day. Earnings of £100,000 + vast bonuses, they can afford to retire at 30 anyway and besides they should have a decent private pension set aside.

There are also the sins of Brown when Chancellor to consider here. Once Brown dropped prudence as his guiding principle, the Labour Government adopted an irresponsibly high level of growth in public spending predicated on everlasting growth. So if we get a perfect storm of slowing growth and a rising fiscal deficit, blame Brown for not being more prudent and leaving something in the kitty for a rainy day.

I think all the various comments in these threads about the "stupidity" of banks etc. are a bit strong.

No, banks are not stupid. Bankers are not stupid. Yes, they are greedy which is why they do the job they do. People really shouldn't have a go at them just for having an attitude that aligns with their job!

They grow their business by taking incrementally greater risks over their competition. Occasionally someone bites off more than they can chew and another banker bites the dust...

That's not stupidity - C'est la vie.

Excellent article. This crisis can be summed up "As you sow , so you reap".

The City of London provides over 30% of the UK tax revenue. If this is greatly reduced we may all have to pay more tax to plug the hole.

Our ecomomy is a GOLD PLATED TURD. We no longer generate wealth, but recycle other peoples money. Should we all blame the turd polishers or should we have checked what they were selling us?

> Lean times in the City means
> slower growth, less wealth to
> spread around and a substantial dip
> in the Treasury's tithe.

Oh, I don't know. There's a labour
shortage for cleaners, crop pickers,
van drivers and carpet fitters and so
forth. Some of those bank workers
might be bright enough to retrain,
and find a new job with more
practical benefits to society.

In fact, I have a very large hedge,
and I need a part time gardener
myself.

"Money so they say
Is the root of all evil today
But if you ask for a rise it's no surprise that they're
giving none away"

Pink Floyd

We will all be looking back at this date one day, remembering it as the beginning of the second great depression that will make the 1930's look like the January sales at Harrods.

Andrew Stokes said "Only a very small percentage of people get the huge bonuses that make the news"

Probably true but so what? It still means that £9bn or so was not put to intelligent use.

As to his comment about if through your trading activities you make £10 million profit for your company why shouldn't they pay you a 10% bonus (£1M), to encourage you to do the same for them again next year then I have to say that given it's not your money you are actually risking then I don't see why you should receive any sort of bonus. But £1m !!! Do me a favour.

Rusell Long wrote

"Even if we assume that big bonuses 'create inflation', Christopher, the biggest creator of inflation must be the biggest spender of money - that is the government, whose £150Billion wage bill knocks the £15Billion bonuses into a cocked hat."

The governments £150 billion wage bill is divided between 6 million people who all have to live off an average £25,000 a head. In other words the bonuses are likely to create more disposable income than the whole government wage bill. It is disposable income that creates inflation, if indeed any form of income does.

It's remarkable how little it takes for those city gents to start smiling again! The promise of an intrest rate cut in the States next week. Billions channelled into the system by central banks across the world. How easily they forget that the underlining causes of the present crisis still remains: the real losses sustained and not yet revealed, though soon to be so, from all those morgage debt vehicles out of the USA and in this country a boom economy built large on consumer spending fuelled by credit/morgaged debt! It seems remarkable that the Footsie is now only a couple of hundred points of its year-to-date high. Is this just fiddling while Rome burns or am I missing something?

Russell Long wrote:

'..the government, whose £150Billion pound yearly wage bill knocks the £15Billion bonuses into a cocked hat.'

How many people is the public sector wage bill divided between, compared to a much smaller number of people receiving bonuses?

The people who really will hurt the economy are all of those commenting here that "bonuses should be banned/paid back/paid into our pensions" etc etc etc. Human nature is driven by incentive. You may not like it, but that's the facts. Communism didn't and won't work because most people, at their heart, are greedy and self interested, to put it one way, or willing to work harder for more reward for them and their families, to put it another.

If you ban incentive systems which reward performance among those owning or running companies, CEOs, financial risk takers, etc, you have worse performing companies and a return to eg the nationalised industries of the 1970s or the Soviet communist era.

Clearly, there are periodic excesses such as the current situation - but in such cases the same people get the downside as got the upside in the good times - they lose their jobs, get made redundant, their companies lose mkt value, their share options become worthless. That's the trade off.

As for those who wonder how such wealth trickles down to the wider economy - simple: it is spent and paid in tax by the people who earnt it.

A number of us sit and scoff at the city, their questionable bonuses and the imbalances that have been created in our economy.

The problem is that this is position that we are now in and any reduction in the earnings of the city will hit us all.

Despite the regular headlines in the press, the vast majority of these organisations and people do pay their taxes and it is an awful lot of money. It is these taxes that have enabled Gordon Brown to continue unabated on the spending spree that the public sector has enjoyed.

So before we all start feeling smug that some of these guys are getting what they deserve, it really will hurt us all.

The inevitable consequence, is that taxes will rise for the rest of us & government spending will slow. This will reduce consumer spending and house prices, and it will increase unemployment and bankruptcies.

Let's hope that the party doesn't finish too quickly.

in a market economy money and actions will follow the direction that leads to maximum economic benefit... banks and therefore bankers will do the same...

the problem really is two pronged...

1. policy - cheap credit... and lack of regulation...

2. the endless need for growth on the corporate side and endless materialism of western society...

The west should take example from countries like India where people live on a lot less, are less consumerist, will reuse a plastic bottle for weeks to fill and drink water from (for example)...

Being conservative helps...
I have no sympathy for the extravagant and greedy... Bankers!
I am one myself!!!... but one who lives a conservative life...

I work in the city, ive been doing it for 15 years, and I dont see how I wont be doing for anouther 15 more.
It simply comes down to supply and demand, everything goes down at some point only to go up again.
If you really want to reduce banking revenues, dont lend your money to a bank...

"such as a deceleration in the rampant inflation of central London property"

Looks like this is happening already if Rightmove's stats for September are to be believed.

Recessions are all in the mind.. The more people believe it will happen, the more it will. I've never seen such agreement before about there being a bubble and that it's about to burst. Everyone who thinks things are going to get bad: you should have thought of that five years ago, and got some pessimism going then. The higher we fly, the further we fall..

"Recessions are all in the mind.. " -- Chris

Nope. They're a mathematical certainty of the monetary system we use. The only questions really are when and how big.

#32 ........ or... create some new banks..

I've long been of the opinion that local authorities should get together, pool their cash and form a new bank. Small companies would flock to it.

If you define "wealth creation" as something that contributes to the standard of living of society, then it is not entirely clear that financial profit = wealth creation. After all, governments could just print money, but without taking into account inflation its meaningless. As another example Posh Spice legally makes tonnes more money than she would, say, being a policewoman, it doesnt really mean that her contribution to society is really that much more valuable. I'm not knocking city workers - they just play by the rules to maximise their benefit. The problem is that governments are too chicken to take control of those rules, as they like to be able to blame things on market forces instead. The fact is that each time we go through a financial crisis we retrospectively introduce more regulation. In the end there will be no point in having a "free market". The problem is that the economists - of all flavours - don't realise that what really matters to our standard of living are the rules of nature - they are god given and we can't change them. The rules of economics, on the other hand, are man made, and can in principle be changed.

The UK situation is different to that of the USA.If you look at the latest housing market reports, you would see the house prices are actually going up (2% increase in just one month), clearly the fundamental issues still exist i.e there are not enough houses to meet the demands.

Oh dear my heart bleeds for the poor golden handshake people ... come on they get enough cash in one year that would be a lottery win for most of the population , plus a golden handshake when they have managed to ruin companys etc , i know they have to take on responsibility etc but then so does a train or bus driver, or an airline pilot .. oh i forgot thats only peoples lives they are looking after not shareholders cash... silly me ..

The city hires the strongest and smartest people that are willing to subject themselves to the very long hours and exceptionally high levels of stress. In order to encourage people to this environment it is forced to offer the higher salaries than other companies where employees are not expected to work long hours or work in a highly pressurised situation. Only a tiny minority of people who start will make it to the top of the ladder where the bonuses are £1m+. Most will crash and burn and never earn more that the average person. These people who do survive then are expected to give a considerable proportion of there earnings to the Taxman. £9bn in bonuses equals £3.6bn in tax raised for the country. I do not work in the City and I will never receive a bonus but I will never criticise some of the smartest and hardest working people in the country for enjoying the fruits of their labours when the generate so much in revenue for the UK economy and that is not even taking into account the amount of corporation tax the actual organisations generate. Anyone who does is jealous, pure and simple.

In all this fiasco, may I ask what the Financial Services Authority has been doing alll this time ?

If the FSA is responsible for banks' supervision, then it has done a remarkably poor job!

One bank's poor lending decision can be a possibility but if the entire industry is in a crisis situation, then a serious review of banking supervision in the UK (and elsewhere) is due bebore any further delay.

To Mike (post 41), and all the others who talk about people who work hard in the city and "generate revenue" - your argument is flawed. I accept that many city workers are smart, ambitious, and hard working, and indeed they work long stressful hours for the rewards that they get. But this does not mean that the work they are doing is necessarily contributing to anything. Just because a task is challenging and hard work doesnt mean that it is beneficial. If get paid a billion pounds to solve a million rock solid sudoku puzzles next year then yes I would have worked hard, yes I would have to be smart, and yes I'd probably be stressed, it doesn't mean that there is any point to the activity. Many people (including myself) complain that the system under which these people work is flawed - because it fluctuates wildly when the real physical resources of the world change only smoothly. Why do we rely so heavily on such an unstable device as the market? You claim that the city "generates revenue" - well what does that really mean? Have they really contributed to an increased standard of living of society? I don't actually believe that they have - real growth is really only implemented through technological and scientific progress. Buying and selling corn futures is a long way removed from that.

"I accept that many city workers are smart, ambitious, and hard working, and indeed they work long stressful hours for the rewards that they get. But this does not mean that the work they are doing is necessarily contributing to anything..."

They are contributing to the company/bank they work for, thus they get paid, the managers deem their contribution to be worth millions to them... so they pay them millions, it's that simple really.

"real growth is really only implemented through technological and scientific progress. Buying and selling corn futures is a long way removed from that."

Who made this rule? You sound like a disgruntled science graduate. Ignorance and jealously and pulling successful people down seems to be the in thing at the moment.

I'd love to be a member of Northern Rock's Remuneration Committee as it ponders how best to abide by its own brief:

In carrying out its duties the Committee should have regard to the terms of the Combined Code which provide that the Committee should:

* provide the packages needed to attract, retain and motivate Executive Directors of the quality required, but should avoid paying more than is necessary for this purpose

* ensure that the performance-related elements of remuneration form a significant proportion of the total remuneration package of Executive Directors and are designed to align their interest with those of shareholders and to give these Directors keen incentives to perform at the highest levels

All those concerned in the running of a business which was only ever able to borrow from elsewhere to fund its own mortgage lending, yet which embarked on a massive expansion of lending regardless of growing anxiety in the capital markets, definitely needs the performance-related elements of their remuneration given the closest examination. . .

In response to Stewart (post 46), I'm not making personal comments directed against city workers. They are just playing by the rules established by others or simply historically.

You hit the point when you say that "They are contributing to the company/bank they work for, thus they get paid, the managers deem their contribution to be worth millions to them... so they pay them millions, it's that simple really.".
Just because a system generates a lot of money doesn't mean that we shouldn't question its contribution to our living standards - printing money, for example, is a waste of time because it just leads to inflation.

The city, and the market, is supposed to be a management system for the efficient allocation of resources and mitigation of risk. I do see that it has some value in this role, however, I also think that it is far from perfect. Just because someone questions whether it is really achieving that goal as well as it could doesn't mean that they are jealous. How do I know that it isn't that effective? Because it fluctuates wildly as a consequence of speculation when the real resources of the world hardly change.

And my comment about science and technology is basically a fact - the city believes that too, otherwise the cost of finite resources like oil would be way higher. The reason that oil is not more expensive is because everyone believes that technology will find a replacement by the time it runs out.

So you poor working class losers are glad that we bankers, alleged guiltly of wreaking a "trail of destrution", greed, drivers of inflation etc. may face job cuts?

Big deal, we earn enough to ride it out for months or years. The chance of sitting pretty on my savings for a while without having to work, while you lot file back and forth between your factories and your dreary wives? Yes please.

Let's face it, all the negative remarks are down to jealousy: you wish you were like me, but you never will be. And thankfully, that difference will feed into the next generation: my kids will prosper thanks to a good eduction, while yours go from filthy comp to young offenders' institutes and then to where you ended up. Still, someone's got to clean my car.

I'd very much agree with the comments shawshank has made. That some of what the City does is genuinely contributory to the general economy there is no doubt. But it's equally the case that much of what it does, if looked at objectively, is expensive, but valueless, activity that does nothing for the economy other than to make products and services cost more than they actually need to.

I'm sure most of us would agree that there will always be a significant number of people who are both clever and self-obsessed, and that some of these people will be drawn to places where there are the best opportunities to skim off sizeable chunks of what the rest of society has produced. In recent years, the City has been just such a place.

This is one of the less attractive aspects of humanity, but I think that what really sticks in the craw of the average person are the claims of the City's millionaires that their rewards are reasonably in balance with their contributions to society.

“Have they really contributed to an increased standard of living of society? I don't actually believe that they have - real growth is really only implemented through technological and scientific progress. Buying and selling corn futures is a long way removed from that.�

The City is inextricably linked to the real world and technological and scientific progress. For example, most people who invest their time and money into creating new technologies or starting small business etc do so, not to benefit society but to improve there own lives by making money. If they are successful they may want to expand there business. When a company is small this can be done through a bank loan but these are very expensive.

Another option is to sell a share in the company and reinvest this money into the business. This is normally far more economically sound than taking a loan from a bank due to the interest rates charged. As someone investing takes on the risk of losing their money there must be a reason for doing this hence the profit and therefore the equities (share) markets. If they are very successful they may want to raise more money through issuing corporate bonds which then are traded in the Fixed Income (bond) markets.

A small corn farmer may want to invest in the new technologies to improve his crop. Of course growing corn is a very risk business where the price can rise considerably if a hurricane wipes out 50% of your competitors but the price can fall considerably if all the farmers have exceptional large and successful harvests. Therefore our small farmer may take an insurance policy the guarantees that he will achieve a set price for his years work.

By taking out the policy someone else will take on his risk allowing him to invest in the new technology. Who ever takes on the risk will hope that the farmer does very well and everyone else does badly ensuring that they make a handsome profit on the price that the guaranteed price of course if the worst happens they will stand to lose everything. This insurance policy is called a future.

All this City does is provide the tools and facilitate the buying and selling of these financial instruments. (Excluding relatively small prop desks but that’s a different story). The people who they are buying and selling on behalf of are predominantly normally people in the form of pension funds and ISA’s etc as well as the tiny number of ridiculously wealthy people such as Bill Gates who invented the technology in the first place.

The City makes its money by changing a commission on these transactions. Due to the exorbitant size of these trades they therefore add up to considerable amounts. Those who make there clients the most money are then well rewarded by there clients.

There are areas that are questionable in regards bonuses but to say that the financial markets are not liked to the real world and does not provide tangible benefits to scientific or technological development is naïve, a poor attempt to disguise the green eyed monster and insult to the very basis of a capitalist society.

In response to Mike (post 51),

Indeed the markets are inextricorably linked to the real world, because we have constructed them like that. I'm also aware of the basic arguments as to the way the markets are structured to try to efficiently distribute resources and risk. However, I'm questioning whether that happens as well as it should or could. The turbulence of recent times is a sure-fire indication that the market can and does fail, at least in its present form. A system designed to optimally and efficiently allocate resources should not fluctuate wildly when the real levels of those physical resources have remained predictably constant. Given that, as you rightly point out, many aspects of our lives (including pensions) are strongly dependent on this system, it is only fair and rational to enquire whether the system is working well as it should.

Defences like "oh you're just jealous" or "stop insulting the capitalist system" are not really calm or rational forms of discussion.

"This is one of the less attractive aspects of humanity, but I think that what really sticks in the craw of the average person are the claims of the City's millionaires that their rewards are reasonably in balance with their contributions to society."

While i'm not sure how many city millionaires their are, i'm sure it is a comparable number to the amount of lottery millionaires. Is it fair that these people are millionaires by making virtually NO contribution to society (Except the few pennies from their £1 ticket that goes towards some random sports budget)

I think it would take some far removed from reality to claim that City millionaiare are rewarded in balance to their contributions to society (society being the keyword here) and i'm pretty sure no sane person would claim this but you need to remember they are not directly working for society. Very few people actually do work primarily for the benefit of society. Most people work to sustain a decent lifestyle for themselves and their family and the by-product of their work directly helps the company they work for.

Society doesn't pay the salaries of workers, the companies pay them so therefore the workers contribution to society is irrelevant when it comes to their salary, because they are not getting paid to contribute to society, but to do a specific job for their company. Society indirectly benefits from this contribution.

From what I observe in the media and just reading many of the comments on topics like these, it seems to be the new fad to attack the rich and/or successful and to revel in their downfall.

This is truly sad...