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The most interesting events at Davos are those from which hacks like me are excluded.

They are the private meetings of business leaders and politicians, where matters of material interest to them are discussed, away from the nosey parkers of the media.

The meeting that always grips me - which I wrote about last year - is the gathering of senior bankers, insurers, hedge fund magnates and so on.

It goes by the name of the "governors" meeting, or some such.

Attendees include Stephen Green, chairman of HSBC, Bob Diamond of Barclays, Joseph Ackermann, chairman of Deutsche Bank, Peter Sands, chief executive of Standard Chartered, Lord Levene, chairman of Lloyd's of London, Tidjane Thiam, chief executive of the Pru, and assorted other big financial cheeses.

Anyway, as luck would have it, a few of those who attend have shared with me (as they did last year) some of the discourse of those whose business decisions affect most of us.

So in no particular order of importance, this is what they appear to have collectively concluded:

1) The global economy remains pretty fragile - and prospects are particularly poor for the heavily indebted economies of the west (a big hello to the UK and US). They felt there was very little immediate prospect of fast-recovering China and Asia lifting up the mature economies of Europe and North America.

2) There is a meaningful risk of sovereign debt crises in economies with large and rising deficits (you know who I mean - though to be clear, the bankers did not mention the UK by name).

3) They do not believe that President Obama will succeed in his plan to limit the size of banks or force them out of speculative trading for their own account.

It was the exchanges on bankers' pay which made me chuckle (and may cause a more violent reaction in others).

Deutsche's Mr Ackermann asked those present to vote for one of three propositions on what was most likely to transpire over the coming years in respect of how they reward staff.

The choice was between a) bankers don't change their ways, the fuss about bonuses dies down and there's no change to the way they pay their top people; b) they take steps to reform their practices and that placates politicians and the public; c) they do nothing and politicians force draconian changes to the way they pay.

After much contemplation, there were few votes for proposition a), and something of a dead heat between b) and c).

In other words, those who run our banks are divided between whether they'll voluntarily do what most of you would probably see as "the right thing" on pay or be compelled to do so - with almost no one believing that the status quo is tenable.

But if the status quo is unsustainable, why would they wait to be coerced into reform?

All a bit odd - and not redolent of an industry in charge of its own destiny.

Also there was an intriguing exchange between two of the most powerful bankers in the world (whom I won't name to spare their blushes).

One said there was no evidence that bankers were overpaid, because if that were the case the biggest payers of all would have been damaged as businesses over the years of lavishing excessive rewards on their people.

To which the other supremo made the point - or so I am told - that banks are a regulated oligopoly and are not subject to "proper" competition: they are therefore able to pass on the costs of their people to customers.

In other words, banks are able to pay their people more-or-less what they like, free from the market disciplines that apply to genuinely competitive industries.

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George Soros, the hedge-fund billionaire who made a fortune from speculating on sterling's weakness in the early 1990s, has warned that the outlook for the UK economy is "bleak."

In an interview with me this morning, he warned that growth prospects for the UK and US were poor -- because households and governments in both countries had borrowed far too much and would have to repay their debts in coming years.

Soros said that the prospects for the UK were worse than the US, because the British government is approaching the limits of what it can comfortably borrow from investors to finance public spending.

He added - which will not come as a surprise to readers of this column - that the sources of the UK's financial weakness were excessive borrowing by individuals for house purchases and a financial sector that had also borrowed and lent too much.

Mr Soros - who was one of the few financiers to predict the 2008 financial crash - says that the UK and the US face many years of low growth.

Citing Japan's fifteen years of recession that started in the early 1990s, he said that the return of normal economic conditions in the US and UK was happening perhaps twice as fast as in Japan - which meant, he said, that anaemic growth may persist in America for up to seven years or so.

He said that the British government would have to tighten spending within the next year.

However he also warned that cutting public spending too soon could tip the UK back into recession.

In that sense he probably can't be seen as backing either the "cut-early" Tories or the "delay-cutting" Labour Party.

He also made a number of other fascinating observations:

1) he said China had a serious problem of incipient inflation and should allow its currency to appreciate;

2) while welcoming President Obama's proposal to limit the size of banks and limit their speculative activities, he said that the reforms did not go far enough;

3) he would insist that banks that engage in so-called proprietary trading - or speculating in financial markets for their own account - should hold as much capital as typical hedge funds, which would mean that the likes of Goldman Sachs would have to massively increase the capital they hold as a buffer against potential losses;

4) like President Sarkozy yesterday, he talked about the need for a new "Bretton Woods" - or a revised system of controls on exchange rates and capital flows that would phase out the dangerous imbalance between the excessive saving and reserves of China and Asia and the huge indebtedness of much of the west.

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Adair Turner, the chairman of the Financial Services Authority, says that banks should be forced to rein in lending when there are signs that a market is overheating.

In an interview with me at the World Economic Forum in Davos, he threw his weight behind the creation of a new official body, which would have a mandate to assess whether financial bubbles are being created and would have powers to deter lending in those circumstances.

He used the example of the commercial property sector, which has crashed spectacularly over the past two years.

If in the future commercial property prices started to rise excessively fast, Lord Turner would want to see a new official body pushing up the cost for banks of lending to commercial property businesses and projects.

It would do this by obliging banks to hold much more capital relative to their property loans - which would have the effect of making such loans more expensive to provide because capital is scarce and costly.

A similar approach could be applied to the mortgage market, if there were signs that house prices were rising too fast.

Lord Turner said that in the case of an overheating housing market a superior approach might be to force banks to reduce the amount they could lend relative to the value of individual houses.

Either way, he has come round to the idea that there must be much more direct intervention by the public sector in the provision of credit by banks, to prevent boom-and-bust cycles.

What he is describing is typically known as macro-prudential policy.

It is being explored by the Treasury and the Bank of England. But neither the Chancellor or the Governor have yet come out as decisively as Lord Turner in favour of such explicit interference in commercial lending.

Adair Turner favours the creation of a macro prudential committee that would sit somewhere between the Bank of England and the FSA. It would draw on the resources of both the FSA and the Bank.

As he admitted, in some ways he is advocating a return to the rationing of loans, which we haven't seen in the UK for some 30 years.

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A year ago the was a drama lacking a central character.

The bankers, business leaders and politicians who gather in the Swiss Alps every January to schmooze and deal were interested only in what the new young American president would deliver, but neither he nor any of his inner circle turned up to enlighten them.

Today, Davos man - typically a senior banker with an interest in politics, or a politician with a background in banking - is wiser and sadder about Mr Obama.

It was almost as he timed his historic announcement - that he wants to force big American banks out of speculative investing and trading for their own respective accounts and to limit their size - to cast a long, gloomy shadow over this Alpine resort (Bognor aux montagnes).

Here is a smattering of what bankers are saying about his plan to force banks to concentrate on serving their clients rather than gambling with depositors' money:

1) the scheme is vague, confused and we don't know what he's on about;

2) it won't achieve its stated aim of reducing the risks of another meltdown in the banking system (although quite how they know that if they don't understand what he's saying is beyond me);

3) if President Obama's aim is to savagely reduce banks' direct holdings of tradeable securities, it will lead to a second devastating wave of banks dumping assets - and will risk a return of the credit crunch;

4) the confidence of bankers - which the bankers themselves say is so important to any serious revival of lending (so aim off) - has been knocked by the perception that the US and Europe are divided on the future structure of their industry;

5) bankers' confidence has been knocked further (the poor dears) by confusion over who in the US administration has the ear of the president on financial policy-making (the scheme to shrink the banks was the brainchild of Paul Volcker - that rarity, a central banker with reputation in tact - rather than the supposedly banker-friendly Treasury Secretary, Tim Geithner).

Long story short, bankers here are dazed and confused.

To which many of you may say diddums. And, as the governor of the Bank of England says, arguably there has not yet been adequate structural reform of the banking industry to put it on a sustainable footing.

But the awful truth is that precisely because banks remain vulnerable - though you wouldn't know it from their lush bonus payments - we need them to have a sense of where they're going, lest the businesses and households that depend on their credit founder too.

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The Bank of England today applauded President Obama's attempt to reduce the risks taken by banks that look after individuals' deposits.

In evidence to the Treasury Select Committee, Paul Tucker - a deputy governor of the Bank - said "I agree with the spirit of the president's proposals...It is the spirit that matters".

He then threw his weight behind what he believed President Obama was trying to achieve:

"Banks should be less risky businesses if they are going to be funded by insured deposits and if they are going to be highly leveraged".

What he meant was that there should be new constraints on the risk-taking activities of commercial banks, like Royal Bank of Scotland and Barclays, that look after the savings of millions of people.

Mr Tucker said that banks should concentrate on serving the interests of their customers and should not be "betting on the tos and fros of the market".

He and the Governor of the Bank of England, Mervyn King, said that the prospects for international agreement on the appropriate reforms for the bank system had been improved by President Obama's intervention.

Simply increasing the capital which banks have to hold, as a protection against future losses - which has been the thrust to date of protective measures forced on banks - was not enough, they said.

There needs to be structural changes to the banking industry, they added.

Strikingly - and in contrast to the positions taken by both the government and the Tory party - they said that if international agreement on the appropriate structural reforms could not be reached, the UK should take unilateral action.

However neither Mr King or Mr Tucker yet had a detailed blueprint for the necessary changes.

Mr Tucker said that limiting the size of banks, which is one of President Obama's proposals, would be helpful.

But he and Mr King said it would be premature to support the detail of President Obama's plans because there was not enough clarity on what he meant when he said that banks should be forced to withdraw from involvement in proprietary trading, hedge funds and private equity.

"No one has the faintest idea how to define proprietary trading" said Mr Tucker.

The ultimate aim of bank reforms, said Mr King and Mr Tucker, was to abolish both the explicit and implicit taxpayer guarantee against losses for institutions, companies and professional investors that lend to big banks.

It was crucial that providers of this so-called wholesale finance should be exposed to losses if banks ran into difficulties - because these lenders to banks could then deter banks from taking excessive risks.

However this taxpayer support could not be withdrawn rapidly, because to do so would almost certainly lead to a rapid and massive withdrawal of funding for banks - which would precipitate a second credit crunch and tip the world back into recession.

Mr King said that the banking industry had become too dominated by enormous institutions that strove to be in every activity and in every country.

The rise and rise of these vast banking conglomerates had increased the probability of the kind of catastrophic banking crisis that occurred in 2008.

Over the longer term, he wanted to see a much more diverse banking industry composed of smaller banks and more specialist banks.

UPDATE 17:07

Here's my 60 second summary for Radio 4 news of the significance of the evidence given to MPs today by the Bank of England

There is a small reason and a big one why it matters that the Bank of England has thrown its weight behind the spirit - if not the detail - of President Obama's plans to break up banks and limit their size.

First it aligns the Bank of England a bit closer to the Tories than to the Government on the future of banking.

And, more importantly, it confirms that Britain's central bank - which will take the lead on regulating and supervising banks if the Tories win the election - doesn't believe that the banking system has yet been made safe.

The Governor and his deputy want to see further restrictions on the risks that can be taken by banks that look after retail depositors' money.

They also believe companies and professional investors that lend to banks should no longer benefit from any kind of guarantee against losses provided by taxpayers - in the hope that these lenders would then keep banks on the straight and narrow.

Easier said than done, as they admit. Eliminating these guarantees right now could well trigger a banking crisis as bad as 2008's devastating debacle.

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"We will see a market we don't need to be ashamed of," says Stephen Green, the chairman of HSBC, in an interview with the FT to set the scene for this week's World Economic Forum.

He's talking about how banks fix the size, form and delivery-time of bonuses for their staff.

The implication is that he - at least - has been ashamed of bankers' bumper remuneration of recent years.

Which takes us into slightly new territory. Pre-Green, I can't recall any senior banker using the language of guilt and shame to describe bonus practices.

So he's never going to win a popularity vote among his peers. But then I think he already knew that.

Even so, some would say that Green has only a partial view of the problem. He says:

"You've had bonuses paid off gross income, you've had bonuses paid off first-day [profits], you've had bonuses paid without any capital charge, and so you can see how that gives rise to the wrong and frankly inflated numbers [we've seen]."

Or to put it another way, his main charge against his industry is that it paid individuals more than was justified by the sustainable, risk-adjusted profits they were generating for their firms.

Few would disagree.

But there is arguably another more fundamental flaw in the market for bankers and the mechanisms for setting their pay - because there is absolutely no sign that most top bankers are anticipating a permanent diminution in their multi-million dollar packages (and as I've pointed out many times in recent weeks, even with the restraint that banks claim to be showing, many thousands of bankers in the UK and US are receiving huge rewards for their performance in 2009).

So here is the question that the FT didn't put to Stephen Green - which I intend to put to assorted bankers at the World Economic Forum: "do individual bankers pocket a disproportionate share of revenues generated by their respective firms, and should there be a redistribution to customers, in the form of lower charges, and to shareholders, in the form of an increase in retained capital and dividends?"

Most citizens would take the simple view that bankers have been paid too much. That's a given of today's political discourse - which is why Lord Myners, the City minister, refused to make any judgement on the Β£1m-per-head being distributed by Goldman Sachs to its 100 UK-based partners, when I pressed him on whether he applauded what for these partners is a significant financial sacrifice.

Is the public's distaste for the magnitude of what bankers' earn simply an example of envy - which some would say is as toxic and unattractive as the pay itself?

Possibly not. Many of those who write to me have an intuitive sense that bankers' lavish pay is the result of an absence of proper competition and transparency in financial markets and also in the market for so-called banking talent. They may have a point.

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Goldman Sachs' 100 UK-based partners are capping their pay and bonuses for 2009 at Β£1m each.

For many of them, this represents a significant sacrifice. I am told that in aggregate they are giving up pay worth several hundred million pounds.

They are doing it, according to one executive, because they wanted to be seen to be exercising the restraint on remuneration which the Chancellor of the Exchequer has urged on all bankers.

That said, many executives ranked below partner will be earning much more than Β£1m each. Goldman did not feel it could insist they take a pay cut, because that might have damaged its ability to recruit and retain more able bankers.

Goldman will be paying many hundreds of millions of pounds in bonuses to staff ranked below the level of partner who are based in Britain.

That is incontrovertible because Goldman has again confirmed to me that it will be paying the Exchequer several hundred million pounds for its contribution to Alistair Darling's one-off bonus tax - and that tax is levied at a rate of 50 per cent of the total value of big bonuses.

Goldman employees will this week be told precisely how much each of them earned for the firm's near record trading performance in 2009.

The big British banks, Barclays and Royal Bank of Scotland, have not yet fixed the size of its employees' bonuses. However Barclays has decided that its top executives will receive 75 per cent of their bonuses - and 100 per cent for the most senior people - in staggered payments over three years.

The UK watchdog, the Financial Services Authority, is vetting all bonus payments worth more than Β£1m for British-based bankers. The FSA is insisting that at least 60 per cent of such payments should be deferred for up to three years.

The bankers to whom I've spoken over the weekend are still reeling from President Obama's announcement that he wants to limit the size of banks and force them out of a series of activities - hedge funds, private equity and proprietary trading - that he regards as too risky and speculative.

Bankers intend to fight the reforms, with a lobbying effort that will begin at the World Economic Forum, the annual shindig at Davos in Switzerland of business leaders and politicians that takes place this week.

"I really wouldn't assume that Obama will get this stuff through Congress" said one banker.

British based bankers say that Obama's reforms - and his announcement earlier in the month of a new tax on banks' wholesale liabilities to raise more than $100bn - has slightly lessened bankers' ire at the British government over the imposition of its bonus tax. But only slightly.

"With regard to Darling's tax, the way I would put it," said one banker, "is that it is like finding out your wife has been having an affair. You forgive her, but you never forget."

This weekend, Alistair Darling confirmed - in an interview in the Sunday Times - that he is profoundly unenthusiastic about President Obama's plans to break up banks and limit their size.

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President Obama certainly brought the recession to an end for political lobbyists yesterday.

In the past year, Wall Street spent around $500m on lobbying and in contributions to US legislators. That will probably sky-rocket this year, as Wall Street battles to prevent from being passed into law by Congress (and as luck would have it, only yesterday ).

But let's assume that the president's reforms stand a better than evens chance of being implemented in some form or other, simply because the banks have done such an impressive job of alienating themselves from the public.

What would it mean for there to be a prohibition on banks' involvement in running hedge funds, private equity and proprietary trading, and a new limit on the size of banks?

Well it depends on whether President Obama is using words with regulatory precision, or whether it is the spirit of the plans that matter.

Actually in the US, that distinction is less important: what he has in mind would plainly lead to a complete reconfiguration of the likes of JP Morgan, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs.

Goldman Sachs and Morgan Stanley would have the option of escaping the constraints by giving up their newly won banking status. But if that also deprived them of access to emergency funding by the US central bank, the Federal Reserve, well they would probably find that it became much more expensive for them to borrow (because creditors would see them as a much worse credit risk).

And that would significantly impair their profitability.

By contrast, in the UK that distinction between letter and spirit would be crucial. Because none of our banks are huge in the areas spelled out by Obama: Barclays has a private-equity fund specialising in the takeover of medium-size companies and tells me it closed down its prop trading desk a few years ago; RBS announced a few months ago it would be pulling out of prop trading.

If however Obama means - in a more general sense - that he wants to prevent banks that receive any kind of explicit or implicit taxpayer support from speculating for their own account and benefit, rather than on behalf of clients, well that would represent a profound cultural and economic shift for all the world's biggest banks.

The market seems to think that what Obama has in mind is specific rather than general - so Barclays' shares this morning have fallen just a bit, and RBS's are almost unchanged.

But that may be naive. Bankers tell me that they recognise Obama's intervention has profoundly changed the weather for international negotiations on the future of banking.

If America has abandoned its conservative approach to bank reform, which it has, there is a substantial probability that the model of the universal bank - one that takes substantial speculative risks underpinned by the insurance of emergency funding from a central bank and with access to cheap insured retail deposits - will be killed off.

Which is not the same thing as saying that the world will divide into pure retail banks and pure investment banks. The French, Germans and Swiss - with their long universal-banking traditions - will probably resist such a bifurcated banking industry with every last breath in their bodies.

But I think we can assume that in a general sense banks will be forced to go back to the basics of making money from the long-term risks of lending. Their involvement as traders on their own behalf in liquid markets will be reduced. And their role as providers of equity or quasi-equity to businesses from their own funds will diminish.

However let's be under no illusion that such reform would immediately sanitise financial markets for generations. It would serve as a spur to what has become known as shadow banking.

Much of the speculative risk-taking and clever-clever financial innovation would be driven out of banks and into proxy banks - and unless these proxy banks were supervised and regulated as closely as banks, chances are that the next financial crisis would simply have been shipped to institutions with different names (structured investment vehicles, hedge funds and so on).

Finally, , there may not be any point in the UK leaping ahead of the US with a unilateral reform agenda.

If a UK government massively restricted the activities of British banks in a way that was very different from the constraints of their overseas competitors, you can probably guess what British banks would do.

There's a fair chance that Barclays would move its legal home to Dublin or Amsterdam (where it almost went, when negotiating to buy ABN Amro a few years ago), Standard Chartered would up sticks to Singapore and HSBC could relocate to Hong Kong.

Only Royal Bank and Lloyds would be unable to budge, because the state as the biggest shareholder could order them to stay put.

UPDATE 12.01

The share prices of European banks, from Barclays and RBS to Deutsche and Credit Suisse, have now fallen quite sharply.

Which implies that investors have clocked the general significance of Obama's readiness to have a serious scrap with banks.

it means, as I noted earlier, that the global climate for bank reform has been changed by the American president very considerably, and not in a way that favours the status quo.

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Banking reforms do not come bigger than those proposed today by President Obama.

In an echo of the break up of banks that was imposed in the United States after the Great Depression, he wants a limit on their overall size and he also wants them banned from three activities that in recent years have been central to many of them.

He is pushing for them to be prohibited from involvment in hedge funds, from buying and selling whole companies in what's known as private equity and from buying and selling securities for their own benefit on so-called proprietary trading desks.

In simple terms, he wants to prevent banks from taking speculative risks to generate colossal profits, while knowing that if their bets go wrong taxpayers will pick up the bill.

It means that some of the biggest banks in the US - from Bank of America, to JP Morgan and even Goldman Sachs - may have to be broken up.

Of course its possible (perhaps even likely) that pure investment banks, such as Goldman Sachs, will be largely exempt.

But President Obama did not say that the reform would only apply to those banks with a retail presence, such as JP Morgan and Citigroup (although perhaps it is what he meant to say). He said it would apply to "banks" as defined in US law - and Goldman became one of those in the autumn of 2008.

The big banks will hate his proposals - and will doubtless use their formidable lobbying power and financial resources to persuade Congress to water down the reform plans.

But Obama is up for the scrap. "If these folks want a fight, it is a fight I am ready to have".

The US President believes that banks are back to their bad old ways too soon after their woes led to the biggest bank global bail out in history.

Goldman Sachs would deny this, but its near record revenues of $45bn for 2009 and 50% rise in staff pay to $16bn - or $500,000 per head - shows that the banking crisis, for it at least, is a dim and distant memory.

UPDATE: 18:09

George Osborne, the shadow chancellor, has just told me that Obama's plan to break up the banks is consistent with the views he expressed in his recent bank reform paper.

His condition for implementing such a radical plan was that it needed international agreement.

Well, he has got that now. So he has told me - explicitly - that a Tory government would impose an identical dismantling of British banks to those suggested by President Obama.

Which will generate profound fear in the boardrooms of Royal Bank of Scotland and - more especially - Barclays.

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Average take-home pay for Goldman's 32,500 permanent and temporary employees is a mere $500,000 for their performance in 2009.

Which may sound a lot - and it is a lot - but it is a lot less than it would have paid had it followed its normal remuneration procedures.

Believe it or not, if it had followed past form and paid out 50% of net revenues to staff - which is its ceiling for what employees can pocket - pay per head would have been over $700,000.

So what's gone wrong (or right - depending on your perspective on bankers and their pay)?

Well a number of things, one of which is Alistair Darling's special one-off bonus tax.

This has led to a bit of a reduction in bonuses for senior UK based staff.

That said, Goldman's top bods tell me they still expect to pay the British taxman "several hundred million pounds" - perhaps half a billion pounds - as its share of Darling's bonus levy.

Which implies that just those bonuses paid in the UK by Goldman (in addition to salaries and benefits) will be in the region of Β£1bn in aggregate.

Not too shoddy.

And it means that a fair number of London based execs will be banking many millions of pounds each.

That said, Goldman execs tell me they are trying to respond to the public mood and are therefore exercising some restraint over what all their top people are paid throughout the world.

It has chosen to allocate just 35.8% of its net revenues to compensation and benefits, the lowest proportion since it became a public company just over ten years ago.

And it points out that in 2009 it has contributed more than $1bn to charitable causes and financial support for small businesses.

Even so, as a proportion of revenues, JP Morgan appears to have paid out a bit less than Goldman (and Morgan Stanley paid out miles more as a proportion, though massively less in absolute terms).

Goldman's remuneration pot of $16.2bn is still a handsome 49% more than it paid out in 2008.

How so? Well it's boom time for investment banks and for this one - the world's most successful - in particular: net revenues in 2009 were up more than 100% at $45.2bn, and pre tax earnings increased by a factor of almost nine to $19.8bn.

Here's the thing: in the autumn of 2008, all big banks were just hours from meltdown; and here is Goldman, a year later, generating a fraction less than its all-time record 2007 revenues.

It's a funny old world.

UPDATE 15:55

Goldman is keen to point out that JP Morgan employs a different methodology when comparing remuneration to revenues. And it says that if it used the same approach (with admin workers excluded) its ratio would be similar or lower to Morgan's.

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Something slightly odd has happened to President Obama, in respect of his attitude to the banks.

For the first year of his presidency, his approach to reforming and punishing them was conservative and cautious.

But in the past few days, he has become something of a radical and a firebrand - or, at least, that's how Wall Street would see his tax on banks' wholesale liabilities (see my notes of last week on all that) and proposals due later today to shrink their speculative trading activities.

We'll have to wait for the detail to assess the significance of Obama's new plan to restrict the size and complexity of banks so-called proprietary trading.

Will it go further than the global reforms being developed by the Basel Committee to massively increase the amount of capital that banks everywhere would have to hold against the trading of securities for their own account - which would have the effect of increasing the cost of such activities and should therefore shrink them?

It certainly sounds as though the Whitehouse wants limits on prop trading - and perhaps even on the overall size and scope of banks - that would be simpler and more rigid than what Basel is likely to ordain.

Why does any of this technical stuff matter?

Well one cause of the global financial crisis was that commercial banks were stuffed to the gunnels with AAA-rated securities created out of poor quality US housing and corporate loans that turned out to be junk - and losses running to many hundreds of billions of dollars on these securities mullered their capital and were a significant contributor to the near-collapse of the financial system.

And, in the past year, the recovery in the price of these securities has generated massive profits for the banks that survived thanks to taxpayers' generous bail-outs - thus helping them to pay out those big bonuses that don't seem to be all that popular with ordinary non-banking folk.

Prop desks are the heads-I-win, tails-you-lose bit of banking for two reasons.

First, the biggest banks that have prop desks have been able to take crazy risks secure in the knowledge that governments and taxpayers would rescue them if their bets go wrong.

Second, the really smart banks are able to exploit valuable information from their advisory businesses - not illegal inside information but a sense of general trends - to give their trading activities an edge not available to ordinary mortals operating in the markets.

It's what the City minister Lord Myners has referred to - with evident distaste - as banks' use of market colour to ensure their traders are always one step ahead of the competition.

To be clear, using market colour is not illegal. But if you are a client of a bank that trades using market colour, you might wonder if the bank has your interests as paramount or its own.

Anyway, it's curious that Obama is making his new assault on the structure of banks on the day that the world's most successful investment banks, Goldman Sachs, is announcing its results for 2009.

It is likely to announce record net revenues of not far off $50bn - and some 80 per cent of these will stem from trading and principal investment.

Which sounds like the kind of prop trading which President Obama wants to restrict.

Hmmm.

Oh, and by the way, we'll also learn from Goldman whether compensation (bonuses, pay and benefits) for its 31,700 employees will be a bit more or a bit less than $20bn (of which about half would be bonuses) for their performance over the past year.

My guess is that it will significantly reduce the allocation for employee "comp" for the fourth quarter of 2009. The bank isn't totally deaf and blind to the bubbling volcano of anger among citizens about banks' bonuses - which could well erupt into something spectacular if banks are seen to be ecstatically writhing in mountains of cash.

So Goldman's people would have to get by on nearer to $600,000 on average for their toil over the past year than $700,000.

And here's an interesting and resonant statistic about the balance of financial power in the world: just one thirtieth of what Goldman is likely to pay its staff is equivalent to all the debt (of $641m) that Haiti owes the rest of the world.

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Cadbury's defence document against the takeover by Kraft, published at the end of last year, contains the following statement:

"The amount of fees which would become payable to the banks in the event of a transaction being completed with Kraft (or another third party that makes an offer for the company during the offer period) are higher than those payable if no transaction is consummated".

What this means is that Goldman Sachs, Morgan Stanley and UBS - the banks hired to "defend" Cadbury against Kraft's hostile bid - are to be paid more for selling Cadbury to Kraft than for preserving its independence.

So success, as defined in their contracts, is what happened on Tuesday - an agreement that Kraft would buy Cadbury.

Is it any wonder therefore that Cadbury has surrendered its independence? As one City veteran said to me: "you get what you pay for".

The nature of Cadbury's contract with the banks surprised me - especially in view of the rhetoric of Cadbury throughout the takeover battle that it had an exciting and viable future as an independent business.

And I have checked out my intuition that the incentive structure for the banks is a bit odd by talking to a number of City grey beards.

They too were a bit bemused that Goldman, Morgan Stanley and UBS were being rewarded to complete a sale of Cadbury.

It was perfectly open to Cadbury, for example, to pay the banks a so-called success fee simply for securing an increased offer from Kraft, regardless of whether the takeover is actually completed.

Actually when I first started as a cub reporter more than 25 years ago, it was the norm for defending banks to receive maximum fees for keeping a business independent.

This practice was abandoned a few years ago, because investors viewed it as counter to their interests.

But some would say that paying your advisers to sell your company, rather than to maximise the share price (which is not the same thing), surely tilts the playing field too much to the advantage of the bidder (and for other reasons the playing field is already skewed in favour of acquirors).

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• - What's this?

on an Β£11.5bn takeover of the 200 year old British confectioner.

After a six month battle, Cadbury's board has - in fraught negotiating overnight - accepted a bid price of 840p per share, valuing the business at Β£11.5bn.

This will consist of 500p in cash - meaning that Kraft is borrowing around Β£7bn to finance the deal - and the rest in Kraft shares.

Cadbury shareholders will also receive a dividend of 10p.

Bankers are working frantically to put the finishing touches to the paperwork. An announcement will be made by lunchtime - and possibly as early as 9am.

The increase in borrowings to finance the bid is designed to placate Kraft's biggest shareholder, Warren Buffett's Berkshire Hathaway - which had said that it did not want Kraft issuing too many new shares, since it regarded these as under-priced.

However the increase in Kraft's debt to pay for Cadbury will doubtless worry its employees.

Kraft is likely to give a commitment to protect British jobs for some years in Somerdale and Bourneville. But there are bound to be job losses at Cadbury's Uxbridge head office.

Also, Cadbury employs just 5,600 in the UK and Ireland. The future of a further 40,000 staff outside the UK may be uncertain.

UPDATE 16:07:Few would argue that Britain's economic future depends on whether we make our own chocolates.

But in recent years overseas buyers have bought a far bigger chunk of the British economy than of other developed economies such as the US or Germany or France.

There was a time when British ministers took pride in that - because it brought superior managers to the UK.

And there was a conviction, which may have been wrong, that those who sold their stakes in British business would re-invest the proceeds here.

Today however there are growing fears that there will be a price for Britain from what some see as the surrender of control over our economic destiny.

So for example when Kraft is choosing to create jobs or make important investments, its instinct is likely to be to favour its home territory of the US rather than Britain.

And when Kraft has business to offer to suppliers or consultants, it may have a tendency to favour American firms.

In favouring its compatriots, Kraft would be doing only what comes naturally.

Which is why the ownership by foreign interests of so many British industries - from motor cars to steel to nuclear power and telecoms, among others - may in time reduce the productive capacity of the UK, and make us all a bit poorer.

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• - What's this?

Kraft may increase its takeover offer for Cadbury by more than the market expects, to between 840p and 850p per share, I have learned.

At that level, Cadbury's board may recommend the bid by the US food giant.

This would bring to an end the intense animosity between the companies that has been manifested since Kraft announced its desire to own Cadbury last autumn.

It would also end any doubt at all that Cadbury will lose its independence.

There would still be a theoretical possibility that the US confectioner Hershey would come in with a higher offer.

But if Cadbury's board recommends Kraft's bid, it means that the company will be taken over.

Negotiations between Cadbury's bankers and Kraft's bankers are taking place overnight.

If a deal is agreed between Kraft and Cadbury, which seems highly likely, it will probably be announced at 7 tomorrow morning.

Under British takeover rules, an announcement by Kraft of its intentions has to be made by close of business tomorrow.

At 850p, Cadbury would be valued at Β£11.7bn.

Please see my earlier note for more on the implications of a takeover of Cadbury.

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• - What's this?

Here's one definition of this government's industrial policy.

Foreign companies are welcome to buy our airports, our nuclear power industry, our motor car manufacturers, our steel manufacturer, our mobile phone providers, and so on. But they mess with our leading chocolate maker at their peril.

This is not my acerbic reflection, but that of a chap who - in less meritocratic times - would perhaps have been called a City grandee.

He was of course nodding in a rhetorical sense at the Business Secretary, Lord Mandelson, .

By the way, I say "imminent takeover of Cadbury", because fund managers tell me that it would take little short of a miracle for Cadbury to remain independent.

"It's over, to all intents and purposes", one hedge fund supremo told me. "Cadbury's days as a British company are over."

How so?

Well in the next 24 hours Kraft, the American food giant, is expected to increase its offer for Cadbury to a level close to what Cadbury's shareholders would accept (perhaps 830p a share). And Hershey, the US confectioner, is then likely to enter the auction.

If Hershey offers 850p or 860p, Cadbury's board will feel obliged to recommend the offer - because it won't be able to prove beyond reasonable doubt that the shares will command that price in the market any time soon, in the absence of a takeover.

And at that point, Cadbury is going down the gullet of Kraft or Hershey, depending on which one finally pulls the most pennies out of its pocket.

Nor is there anything that Lord Mandelson could do about it - short of enacting emergency legislation to take back powers that his own government gave up that would allow him to intervene in takeovers on the grounds of national interest.

Which is not going to happen.

That said, Lord Mandelson has given a public warning to foreign buyers of British companies that he does not want to see them stripping assets or going for short term returns at the expense of jobs and investment.

It was both megaphone diplomacy with Kraft and a significant re-working of the government's approach to the ownership of companies, which had been that overseas takeovers are generally good for the UK, in that they inject new management talent and capital into the UK.

So here's a paradox which won't necessarily please Mandelson.

The impact of Cadbury's energetic defence against the takeover may actually increase the immediate pressures on any acquirer to relocate its operations to the lowest cost parts of the world, with unpleasant consequences for jobs here.

Because the more that any bidder pays - and the more that it funds any bid with debt (and Kraft is being urged by its own shareholders to use more debt and fewer shares in its offer) - the greater the imperative to maximise cash flow as soon as possible.

And if short-term cash flow has to be maximised, that tends to squeeze investment and employment.

Those pressures are of course present whenever any business is taken over for a fat price financed by borrowing - and are unrelated to the nationality of the bidder.

The foreign identity of an owner is relevant for a reason that is particularly pertinent at a time of global recession or low growth: when investment and jobs are being rationed, a multinational company will tend to locate those jobs and new capital at home, all else being equal.

So when the chocolate bar crumbles, Hershey and Kraft would tend to protect or reinforce their US operations in preference to their UK ones. So even if Cadbury's workforce were not shrunk by a new owner in the first months or years after a takeover, there can be no guarantees over what may happen when the bid battle is just a dim memory.

What's more, there's no reason to assume that the capital released by a takeover for Cadbury's shareholders would be reinvested by them in the UK rather than in China, Russia or anywhere else in the world. In this age of global markets and global ownership, Cadbury's owners will place their wonga wherever the returns look best.

Some would say, therefore, that Lord Mandelson's interventions in this takeover have only served to highlight quite how powerless the government has become in respect of who owns what.

Although if he is going to try and acquire a role for government through soft influence rather than hard ordinance, he needs to have the relevant players around his table.

What struck me as slightly odd was that in his great confab with shareholders last week about their putative responsibility to eschew the fast buck, there appeared to be no hedge funds present (according to those at the meeting). Which is a bit like keeping the alcoholics outside of an AA meeting.

Although, for what it's worth, my own experience is that the better hedge funds have a much deeper and more sophisticated knowledge of the companies they own than most pension funds and insurers.

So it is perhaps even stranger that Mandelson has not been engaging in debate with hedge funds about how to make sure that takeovers occur when management fails (which does not seem to be the case at Cadbury) rather than when markets fail to price those companies properly.

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• - What's this?

President Obama's levy on bank leverage or wholesale funding - and the way he explicitly linked it to the "obscene" (his word) bonuses being paid by banks - has surprised European ministers, central bankers and regulators.

They note that it was America which was most reluctant to agree global rules on how bonuses should be paid in recent negotiations between the heads of the G20 leading economies.

What's more, although the US is implementing the new rules - ordaining that bonuses should be paid largely in shares, released to recipients in tranches over a few years and subject to clawback for poor future performance - it is doing so a year later than everyone else (so for next year's bonus round, not this one).

Maybe it was just the proximity of the bonus announcements which persuaded the president that he had to signal his displeasure with the magnificent size of bankers' rewards.

According to calculations by the Wall Street Journal, 38 big US banks and securities firms are likely to pay their employees a record $145bn for their performance in 2009.

That's almost a fifth higher than 2008's haul and even more than in the boom boom year of 2007.

Now not all of that is bonus. But bonuses are back - and big.

At just three leading investment banks, Goldman Sachs, JP Morgan and Morgan Stanley, aggregate bonuses will in aggregate nudge $30bn.

Phew.

That crisis in banking, when almost all banks were on the verge of collapse, was it just a dream?

President Obama probably doesn't have to worry about whether his bank levy is intellectually coherent: bashing bonus-bulging bankers probably won't alienate many US citizens.

That said, as I mentioned yesterday, there is a logic to the tax.

For those who complain that the big US banks have largely repaid the funds they received from taxpayers, with interest, there are two responses.

First that the massive costs of bailing out AIG were in large part the costs of protecting the banks from the huge losses they would have suffered if AIG had reneged on its enormous financial contracts with them.

So - arguably - it's reasonable that the banks should be asked to pay back what taxpayers have lost on AIG.

But perhaps more importantly, the taxpayers' guarantee to the biggest banks, that they won't be allowed to fail, is worth a great deal to them.

Why should they alone - of all the businesses and industries in the world - have that catastrophe insurance for free?

The logic of Obama's levy would probably be more compelling if this retrospective 12-year tax to raise just under $120bn were made permanent and were adopted by other countries.

Obama says he wants his money back for the cost of the last bailout. But arguably it is more important that banks pay an explicit fee for their protection by taxpayers against future failure.

As it happens, the International Monetary Fund has been asked by the G20 to examine how banks can best contribute to the costs of insuring them against failure.

There can be little doubt that it will have more confidence to make bolder recommendations in the wake of Obama's impost.

It will be fascinating to see how the British government reacts.

Ministers are doubtless mightily relieved that their one-off super-tax on bonuses no longer looks like a serious threat to the competitive position of the City of London.

America's taxation leapfrog provides both the Labour administration and Tory opposition with an interesting dilemma: at a time when the money is painfully tight for the public sector, they could whack yet another tax on the banks; or they could eschew such a move, to reinforce the City and financial services.

Oh dear, I see you smirking.

On the basis of the popular mood and the recent behaviour of politicians, any smart banker will bet huge that bank taxes are still firmly on a rising trend.

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Spare a thought for Lloyd Blankfein, chairman of Goldman Sachs and lightning conductor for the aphorisms that many would say define the surreal economics of the modern financial economy.

First he inadvertently devised the phrase - "Goldman Sachs, doing God's work" - that perhaps best captured the miracle of banks' astonishingly short journey from crisis and rescue to boom revenues and bumper bonuses.

And yesterday he was on the receiving end of a resonant jibe about investment banks' ethics in selling mortgaged-backed securities to clients and then betting the firms' capital that these securities would fall in value.

"It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars," Philip Angelides, chairman of the historic Financial Crisis Inquiry Commission told Blankfein yesterday. "It doesn't seem to me that that's a practice that inspires confidence in the markets."

Mr Blankfein's defence was that Goldman's clients are investment institutions, professionals capable of making up their own minds about what to buy and sell. The regulators allow the principle of caveat emptor to operate in this market - so if Goldman fed stuff to its clients that it was reluctant to eat itself (to adapt a metaphor employed by the chairman of Morgan Stanley, John Mack), that's just how it goes.

Those clients could choose to take their business elsewhere. And what's striking - if Goldman's bumper revenues for 2009 are any guide - is that they haven't done so to any demonstrable extent.

What a world!

It all makes perfect sense to investment bankers but does look a bit odd - and not desperately attractive - to outsiders.

Which is the political explanation for why President Obama is today expected to join Gordon Brown and President Sarkozy of France with a special new tax to bash the big banks.

There are very important differences between the fiscal retribution on banks being inflicted in the three countries.

Perhaps most striking is that Obama plans to raise $120bn from his planned impost, to pay for the cost of the US banking bailout - which is massively more than either the French or British bonus taxes will yield (even on the assumption that the British Treasury receives the few billion pounds that I expect, rather than the Β£500m odd it has forecast).

There is also a big difference in respect of precisely what is being taxed. Brown and Sarkozy are levying 50 per cent taxes on bonus payments. Obama will be levying - according to initial reports - a charge related to the size of banks' balance sheets.
There is a neat logic to the Obama approach.

He is apparently planning to levy the charge in proportion to banks' dependence on wholesale finance, the credit provided by financial institutions and professional institutions.

Why does this make sense?

Well, when the banking crisis was at full throttle in late 2008 and early 2009, no provider of wholesale finance to the banks lost a penny.

In practice, the banks drew on insurance provided by taxpayers - who rescued both individual banks and the entire banking system - although this was insurance for which neither the banks nor the providers of finance had ever paid a penny.

So Obama has decided to send them a retrospective bill for the insurance. Which is a bit like paying the firemen after they've put out the fire that was engulfing your house.
It is very striking that the levy will be most painful for the likes of Goldman Sachs and Morgan Stanley, which are very dependent on wholesale finance, and less so (relative to their size) for the likes of Bank of America and JP Morgan - because B of A and JP Morgan fund themselves to a significant extent from retail deposits.

This may be irksome for Goldman and Morgan Stanley but it is logical - because retail deposits have since the Great Depression been explicitly insured by an insurance scheme. Levying a second charge on these retail deposits might not seem desperately fair.

That said, many bankers will feel that the Obama bank tax is unfair in any case, because it is retrospective.

If the tax has a sunset clause - such that it will be abolished when the full $120bn is raised - they would have a point (although not one that is likely to resonate with most US citizens).

Funnily enough, and as no less an authority than the deputy governor of the Bank of England, Paul Tucker, has pointed out, there is a strong case for imposing a permanent tax on big banks, to cover the likely cost of potential future bailouts (it is what Tucker would describe as a fee for access to "capital of last resort").

But if bankers will be wincing, Gordon Brown and Alistair Darling will be cock-a-hoop. Their bonus tax doesn't any longer look as though it will massively harm the City's competitive position in relation to Wall Street.

UPDATE 11:54

The Whitehouse has been briefing this morning that the tax is expected to raise about $90bn over ten years.

That $90bn is its estimate of the final cost of the Trouble Asset Relief Program, the cornerstone of the US authorities' rescue of its banks.

Some 50 banks will be liable, of which ten to 15 would be the overseas subsidiaries of non-US banks.

I would therefore expect the US arms of Barclays, Royal Bank of Scotland and UBS to be caught by the tax.

The liable banks are those with more than $50bn in assets. And the levy itself will be calculated as I described earlier today.

Insured retail deposits and equity capital will be exempt from the charge. It will in effect be a levy on wholesale finance, at a rate - according to the Wall Street Journal - of 15 per cent (I am a bit puzzled by that figure, because a 15 per cent tax rate would raise well over $90bn).

So, as I have already said, the likes of Goldman - so dependent on wholesale finance - will pay proportionately more than banks with large numbers of retail depositors.

UPDATE 13:24

Reuters says the levy will be at a rate of 15 basis points, or 0.15 per cent - which makes a lot more sense.

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For many, what's endearing about Google is that it doesn't conduct business like most big multinationals.

Most big multinationals, for example, wouldn't go to war against China's freedom-of-speech policies via a blog - which is what Google has done.

Some might also argue that Google's argument in its blog isn't over-burdened with logic.

The "don't-be-evil" company starts by disclosing that "in mid-December, we detected a highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google".

Google investigated and discovered there had been similar attacks on "at least twenty" other big companies (unnamed), in a great range of sectors (finance, chemicals, technology, media).

So far so chilling.

But, apparently, this wasn't a classic attempt to steal industrial secrets. The prime motivation was it seems to hack into the Gmail accounts of "Chinese human rights activists" - although Google has not made explicit whether that was the purpose of the cyber raids on all the affected companies, or just the attack on Google.

That said, Google is confident that the hackers were unable to retrieve any material information from this malign initiative. But its probe did discover that "the accounts of dozens of U.S.-, China- and Europe-based Gmail users who are advocates of human rights in China appear to have been routinely accessed by third parties."

It says that these accounts were probably accessed using phishing scams or malware rather than through a breach of Google's own security arrangements.

All of which is pretty shocking.

But Google then makes a slightly curious leap.

It says "these attacks and the surveillance they have uncovered - combined with the attempts over the past year to further limit free speech on the web - have led us to conclude that we should review the feasibility of our business operations in China."

It says it will pull out of China unless the Chinese authorities belatedly allow it to run an "unfiltered" search engine there. No longer will Google collaborate in censoring access to websites and online information deemed by the Chinese government to be harmful to the state.

Which, on the face of it, is not a logical reaction. Some Google shareholders (those who put a higher premium on profits than on democratic rights) will see this as a commercial example of cutting off your nose to spite your face - because it is not remotely clear how a withdrawal from China by Google would enhance the privacy of Chinese human rights activists.

Of course, there is the power of theatre. Google's statement that it wants an unfettered Chinese search engine or none at all is certainly a big bold gesture that shines a light on systematic infringement of freedom of expression in that country.

But most campaigners for this freedom would argue that Google should never have agreed to be censored when launching its China service in January 2006.

And I suppose cynics would point out - and I'm not one of them - that China is an unusual market for Google in a second sense: Google doesn't dominate the search market there; it's the number two with a 31% share, way behind Baidu's 64%.

So Google's discovery that there are moral imperatives which outweigh the profit-motive should not be as expensive as it might have been.

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The chief executive of Royal Bank of Scotland told MPs on the Treasury Select Committee that he did not want "to pay a penny more [in bonuses] than we need to".

Which struck the right kind of regretful tone for his audience, even if he steadfastly refused to give any steer on how much that painfully necessary minimum would be.

When asked about the disclosure made in this column that RBS's board members in December were reckoning they would need to shell out about Β£1.5bn in bonuses for the bank's performance in 2009, he kept mum.

Although on the subject of mums, he did reiterate what he told me in the summer - that his own mum and dad think he personally is paid too much.

Bonuses would be determined at RBS in mid to late February based on two factors:

1) the financial performance of individual bankers and their respective teams;

2) what other banks decide to pay their bankers, otherwise known as the market price of bankers.

Hester's commitment is that he won't pay more than the market price.

Now that may be easier said than done.

Some bankers tell me that RBS has been paying over the odds, because it is finding it hard to lure talent to a bank tainted by recent disasters and its semi-nationalised status.

And what about the windfall nature of an element of investment banks' profits?

How much profit was earned in 2009 as a direct result of the cheap money thrown at the financial system by central banks to avert economic Armageddon?

Hester insisted the scale of this has been exaggerated.

He believes that the "carry trade" I mentioned yesterday - of banks borrowing from central banks to finance the purchase of high yielding assets - is less prevalent than many bankers tell me, and de minimis for RBS.

However, he conceded that the margins on lending have widened very considerably. So for those in investment banks working in what's known at FICC - or fixed income, credit and commodities - this very much helps to pump up the bonus pool.

That said, for RBS as a whole, the widening in lending margins has been offset by a squeeze on the profitability of deposit taking.

Which may be unfortunate for RBS as a whole - and for its battered shareholders - but is irrelevant for investment bankers at RBS (and at other banks) whose activities and bonuses are inside a cordon sanitaire.

As for the asset inflation sparked by the creation of all that lovely new money by the Bank of England, Hester says that for RBS - if not for others - this hasn't generated huge profits.

But there has certainly been a boom in revenues from arranging new loans and capital for big companies, that was induced by central banks' reduction of interest rates to record lows.

Is that a massive unsustainable windfall or just a bit of extra fruit?

And does that distinction matter when it comes to determining how much of that revenue should go to employees as bonus or to shareholders as retained capital?

Hester wasn't pressed on this. And maybe he would take the view that it's not relevant, given that his main line on bonuses is that he would pay what the market for bankers determined to be appropriate.

Which is all very well.

Except that I wonder whether he would argue that the market in bankers is a model of transparency or efficiency.

If he did, he would be unusual.

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Those who were writing the obituaries of Tesco's boom years, and of the propensity of the great British shopper to spend, may have to re-think.

during the oh-so-important six weeks to 9 January.

Sales in the UK rose a remarkable 8.3% - and 4.9% per unit of selling space, adjusted for the VAT changes and excluding petrol.

This was Tesco's best performance for three years. Recession, what recession?

And it looks a better performance than Sainsbury, whose sales rose 4.2% on a fully adjusted, underlying or like-for-like basis during the 13 weeks to 2 January.

So Sainsbury's plucky attempt to catch up with Tesco may have been staunched a bit.

Equally striking are the which showed a total sales rise by its assorted retailing members of 6%.

It certainly looks as though British consumers pushed the boat out at Christmas and just after - which thanks to the record low interest rates we've been enjoying, we had the resources to do.

Is it all good news?

Not in general and not for all stores groups.

First, Marks and Spencer will face even more challenging questions about why its Christmas has apparently been rather worse than the average (though Debenhams' sales figures today don't sparkle either).

Second, as I have been banging on about for an age, British households remain massively in debt by historic standards, having borrowed more than the value of everything we produce. If there has been a hiatus in paying down that debt, which there may have been, it can only be temporary.

Which means that retailers will probably soon find again that extracting wonga from our pockets is challenging.

Third, interest rates will one day increase (oh yes) - which will only boost shoppers' propensity to spend less and save more.

Fourth, taxes are absolutely certain to rise, which will inevitably dampen spending.

So it's a happy but slightly anxious new year on the High Street.

Oh, and for the record, on the basis of these numbers - and in a technical sense - the recession must have ended.

UPDATE 14:24

Apparently the comparison between the underlying sales performance of Sainsbury and Tesco is muddied by their different treatment of purchases made by customers with loyalty vouchers.

These are included in Tesco's like-for-like figures but not in Sainsbury's - so Sainsbury insists that on a strict interpretation of underlying sales, it is still doing as well (if not better) than Tesco.

I'm not going to adjudicate on this spat, except to point out that the difference between the sales peformance of the two in the latest period plainly isn't very significant.

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If you and I had the power to hire and fire investment bankers (that would be quite a thing, wouldn't it?), there are a few questions we would probably ask before lavishing bonuses on them.

Hang on a sec. We do, in a way, employ them, since taxpayers own not far off the whole of Royal Bank of Scotland. So here are a few pertinent questions for RBS - which will perhaps be asked on our behalf tomorrow by MPs on the Treasury Select Committee, when they interrogate RBS's chief executive Stephen Hester.

First, what proportion of investment banking profits can be seen as an exceptional windfall, stemming from the unprecedented financial and economic support provided by governments and central banks to lessen a recession that was caused in large part by the recklessness of banks?

This question can be broken down into two parts.

(1) How much has been earned by what investment bankers style as a "carry trade" with central banks? This is the business of buying assets that yield 5, 6, 7 or 8 percentage points over the official lending rate, and then refinancing those assets with the central bank at that official lending rate. Borrowing at close to zero from the central bank and lending almost risk-free at 6 or 7% is not the most stressful or challenging way to generate bumper profits. Investment bankers tell me this carry trade has been happening on a system-wide scale, in spite of central banks' precautions to prevent it.

(2) How much of the investment banks' profits is the result of a generalised rise in asset prices, caused by the easiest monetary conditions for a century, which has led to a recovery in the price of securities that in the previous year generated spectacular losses for the banks? This gain from marking investments to the market price should not be seen to be the consequence of management genius, since the main reason the banks didn't sell the securities in the previous year is that they were unsellable.

Bankers tell me that a vast proportion of all investment banks' profits stem from these factors. It is visible in the sharp increases in revenues from so-called trading and principal investments - a doubling in some cases - which in turn is the main driver of banks' overall profits growth.

There is an acknowledgement by some bankers that these gains are in effect an unrepeatable jackpot, the consequence of the authorities' bail-out of the economy, and not the result of their great prowess.

Or to put it another way, only the generation of losses in these benign market conditions would require a very special talent. Making profits? A suited monkey could do it.

So bank bosses accept that in an ideal world they wouldn't pay bonuses from these windfalls. But my own estimate is that bonuses paid in the coming weeks by the world's main investment banks - from the US, UK, Switzerland, the eurozone and Japan - will be greater than $80bn in total.

How so? Well, it is a classic example of competition leading to a mad outcome. No bank wants to be the only one in the world to pay less than what all the others pay, so they all pay too much. You might argue, of course, that there's a bit of vested interest in play here, in each banks' refusal to take a lead in cutting pay.

Oh, and by the way - as the . However, that doesn't mean the banks are being hideously penny-pinching in respect of staff rewards.

At Goldman Sachs, for example, compensation and benefits for employees will be nearer to 40% of net revenues for 2009 than its typical payout ratio of 50%. But with revenues soaring, Goldman will still provide around $20bn in remuneration - including about $10bn in bonuses - or more than $630,000 of remuneration per employee.

Which brings us to question number two for the banks, and for Royal Bank of Scotland in particular. Since bonuses are discretionary, on what basis have they decided to pay record amounts to some executives, just months after more-or-less every bank in the world was minutes from meltdown?

At RBS, for example, I am told that executives in its Global Banking and Markets division who have previously never earned more than Β£1m at the bank have this year been told they'll be pocketing over Β£5m. And that a small number will be making over Β£20m.

As I mentioned well over a month ago, in total RBS's management feels it has to pay bonuses worth in aggregate over Β£1.5bn. I guess with an anxious Treasury breathing down its neck and in the full glare of publicity, RBS's board might scale this back a bit when it signs off the remuneration package in mid February.

But I would still expect it to pay very substantial bonuses. And it'll have the backing of UK Financial Investments, the arm of the Treasury which manages taxpayers' investments in banks, in doing so: UKFI accepts the argument that taxpayers would be worse off if RBS was perceived to be a lousy payer and lost its best investment bankers.

Which brings me to my final question. Are these investment banks as dependent on the skills of "special" individuals as they think that they are?

I am told that a good chunk of Royal Bank's revenues from investment banking - and this is very much to its credit - is in effect an annuity: it is foreign exchange and debt business provided by medium-size companies that are loyal to the firm, not to any particular individual.

But if that's the case, there would be less need to provide enormous rewards to the individuals who look after those clients, because the clients would probably stick with RBS, even if the individual bankers defected.

There are, of course, brilliant bankers who have exceptional abilities and can make the difference between a mediocre performance by their organisations and a good one.

But do we really think that collectively the investment bankers of the world should be paid bonuses for 2009 equivalent to considerably more than the annual economic output of Slovakia, Morocco or Vietnam?

PS: For the effect on bonuses of the chancellor's super-tax, see my post of last week, Bumper bonuses mean bumper tax.

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The Icelanders have risen up and humiliated their political class over its handling of the financial crisis, as I mentioned on Thursday.

But there's nothing terribly unusual about their sense of powerlessness and alienation from the writing of the rules of the banking and finance game.

When it comes to how banks are allowed to behave, sovereignty over decision-making rarely rests with citizens.

Did anyone actually ask us whether we wanted our banks rescued to the tune of Β£1.2 trillion during and after the crisis of 2008?

If they had, we might have said no.

So perhaps it's a good thing that politicians and central bankers simply did what they thought was best for us, without consulting - because if the banks had gone down, the contraction in our economy would have been far far worse than it turned out to be.

Better to leave it to the experts, eh?

But hang on a tick: who actually got us into this mess in the first place?

It wasn't the fault of ordinary citizens like you and me.

It was those self-proclaimed experts who allowed our banks to become too huge, too complicated, too addicted to taking crazy risks, and too poorly endowed with life-preserving capital.

We trusted the Treasury, the Financial Services Authority and the Bank of England to make the right decisions about the structure and stewardship of our banking industry - and they got it spectacularly wrong.

That's representative democracy - but actually normal representative democracy doesn't really operate in this sphere,

How so? Well, most of our elected representatives - including ministers - understand less about banking and finance than even those who actually ran the banks.

So, little did we know, we have been delegating most of the really important decisions about all this to a financial priesthood: faceless, unelected, unaccountable technocrats who make up a committee that meets in the picture-postcard Swiss town of Basel - what's known as the Basel Committee on banking supervision.

These financial priests let us down too.

The rules they imposed on banks that were intended to limit dangerous risk-taking actually had the effect of encouraging banks to behave imprudently.

Their rules made the financial system more fragile, not less.

Here's the funny thing. Although we as taxpayers have come to the rescue of the financial system on an unprecedented scale, we're allowing those aloof financial priests to design the new system.

It's true that ministers have published policy papers on the structure of regulation and the method for limiting the contagion when a bank gets into difficulties.

And the Tories have proposed that the Bank of England should have much more power to police banks.

As for the Basel Committee, it has set out plans to revise and rehabilitate its own flawed rules for the banking industry (and this weekend, the Basel Committee's host, the Bank for International Settlements - known as the central bankers' central bank - will warn commercial bankers that they may already be taking silly risks again).

But none of this represents a proper public debate on the big questions that matter, such as:

• whether there should be a limit on the size of banks;
• whether those banks that take our deposits and lend to business, and will always be supported by taxpayers because of their importance to the economy, should be prohibited from engaging in certain kinds of more speculative business; or
• whether our economy is excessively dependent on the City.

Since we've picked up an enormous bill for the banks' recklessness and fecklessness, you might think we should be having a proper say over what kind of banks we want, for our money.

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If voters in the US or the UK had been given a vote on whether their governments should inject trillions of dollars into their banks (in the form of loans, guarantees and investments), it is pretty likely that those referenda would have been lost.

Most opinion polls indicated that citizens were furious with their banks - and were not persuaded that letting them fail would wreak the kind of economic havoc that would impoverish all of us.

So most economists, central bankers and finance ministers would probably say that we should be grateful that in America and Britain the people aren't quite as sovereign (if that makes sense) as in Iceland.

However most of us should surely empathise with the majority of Icelanders who don't see why they should be punished for the greed and stupidity of a handful of banks and bankers.

Actually, let's be clear: they will vote in their referendum on whether they should be punished yet more for the mistakes of their banks; there's no doubt that Iceland and its citizens have already been firmly spanked for the failures of their financial system.

Icelanders' real disposable incomes fell almost 20% last year and are forecast to fall a further 15.8% this year.

In other words, each of them will be a third poorer on average as a result of the deep dark recession caused by the collapse of their over-stretched banks.

Of course, they all became unsustainably wealthier during the boom years of the early-to-mid noughties, when hot money gushed into high-interest rate Iceland as part of the global carry trade and was re-lent and re-invested all over Europe, but especially in the UK.

That said, losing income is always painful, irrespective of whether that income is sustainable and deserved in some fundamental economic sense.

And by the way, those of you who put your money into Icesave accounts for the extra increment of interest that wasn't available from more mainstream banks: well, you too could well be charged with fecklessness and with receiving unsustainably high returns.

Yet you have been bailed out, by Her Majesty's Treasury - which is now insisting that Icelands' beleaguered citizens pay it back.

So let's be honest, Icelanders' reluctance to dig into their pockets to the tune of Β£3.4bn to repay Britain and the Netherlands is understandable.

And for me what this saga illustrates is something I've been banging on about for ages, which is the democratic deficit between people and finance, between citizens and big banks.

Icelanders now know, more than any nation on earth, that when banks run into difficulties, they have to be bailed out by all taxpayers.

We've learned that too.

But we weren't as aware of it as we should have been, before the crisis.

And, arguably, we haven't yet been properly consulted on what kind of banking system we want, what kind of risks we think the banks should run, for the future.

Given the economic price we've all paid for the reckless behaviour of banks, it's perhaps surprising that we're not all as angry as the Icelanders.

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Is Alexander Lebedev about to do to the newspaper industry what Roman Abramovich has done to association football?

What I mean is this: the ex-KGB billionaire may be on the brink of destroying any residual hope for newspapers at the quality end of the market that they can make a respectable financial return.

My question is prompted by recent conversations with some of those who know Mr Lebedev well. They confirm that he remains in deadly earnest about buying the Independent and - more germanely - that he would turn it into a free newspaper.

This possibility is putting the fear of something very unpleasant into those who run the other quality papers.

As you'll recall from my notes of last summer, news groups' fervent hope is that they can engineer something of a revival in their ailing financial fortunes by starting to charge for online services.

So the last thing they need or want is the loss of the cover price on their titles, which is one of their few reliable sources of revenue.

What a bizarre industry. And I say that as someone who spent more than 20 years immersed in it.

At just the moment that newspaper publishers try to charge for their web content, the inky stuff may become a freebie.

The industrial implications would not be trivial, for organisations whose profitability ranges from slim to big minus numbers.

Most vulnerable would presumably be the Indie's closest competitor, the Guardian: how many paying customers could it retain if the Indie were gratis?

What's more, almost no newspaper could claim to be invulnerable to what would be the mother of all price wars: the Times would be exposed; as would the Mail and Telegraph.

I'd love to know the private thoughts about Mr Lebedev of those at the Daily Mail and General Trust who gave Mr Lebedev his first opportunity to shake up the UK media industry, by selling him the Evening Standard a year ago.

The Standard has been reinvented and redesigned under his ownership, prior to becoming a free title. And most would probably say that it doesn't read or feel like a free newspaper (you know what I mean).

So here's the big and obvious point which is so scary for other news groups. Mr Lebedev is prepared to spend and invest proper money.

One of his colleagues says he has already disbursed about Β£20m on the Standard, which is considerably more in such a short time than he originally flagged up that he would do.

What's changed for him? Well I am told that he no longer suffers from the cash-constraints that limited his ambitions when he first bought the Standard.

Although he is allegedly worth two or three billion dollars, a year ago he conceded that his wealth was not in liquid form, that he could not lay his hands on an inexhaustible supply of readies.

But the cash drought is over, apparently. He has the wonga and is prepared to spend it in Britain and on newspapers.

Why is it raining money for him? I can't quite fathom.

That said, if the money is as real as it seems, I can understand why the rest of what used to be called Fleet Street are shivering at the prospect of the icy financial blast from Russia.

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Today is the first serious test of investors' appetite to lend to the British government, since anxieties about the creditworthiness of the British government ratcheted up in mid December.

There's a conventional sale of UK government debt, or gilts, by the Debt Management Office (DMO).

The fund-raising is fairly substantial, Β£4bn - although less than 2% of all the gilts the DMO has to sell this year.

That said, it is a so-called short-dated gilt, repayable in 2015, which have to date proved easier to sell than gilts of longer maturity.

Perhaps understandably, investors have for some time been keener to lend to the government for five years than for 30 years.

So in a way the more important test of borrowing conditions for the government will be when the DMO tries to sell a gilt repayable in 10 years.

There are of course shades of grey in all of this, in that it has become quite a lot more expensive for the government to borrow this money over just the past six weeks or so.

Based on the market price of this gilt, the Treasury would have paid 2.75% interest for the money in early December, when this maturity of gilt was trading at par. Today it will pay around 3.1% interest, because the price has fallen fairly sharply.

That may not sound like a big change. But if that interest rate increase were replicated across every single pound of the Β£225bn to be borrowed on markets this year, it would mean the government would be shelling out around Β£800m extra a year in interest.

And, in fact, most forecasters believe that the rise in what the government will have to pay will be much steeper than that.

Right now I cannot find a banker or analyst who isn't actually or intellectually short of gilts. They all expect gilt prices to fall sharply in the run up to the election, which means of course that the cost of borrowing rises for HMG - which is of course an unpleasant incremental burden for all of us, as taxpayers.

There are those who fear that the interest bill for the government will rise in the coming years by several tens of billions of pounds.

There is of course a more apocalyptic risk - which is that at some point investors lose patience with the government's failure to spell out precisely how it plans to cut public borrowing to more sustainable levels (which I've bored on about in assorted notes) and simply refuse to lend what the government needs.

It is striking that the Greek government, which is rather further down the path to fiscal disaster than the British administration, is employing slightly unconventional means to raise the cash it needs - though is not at the stage of having to request emergency help from other EU members or the International Monetary Fund.

Whatever happens in today's auction, the government would probably be ill-advised to allow market confidence in its commitment to reduce the deficit to continue to drain away.

As has been widely pointed out, the price of gilts would be lower still, if many investors did not believe that there's likely to be a budget-slashing Tory government elected later this year.

Which means that if the popularity of the incumbents were to increase, that could trigger a further fall in sterling and a funding crisis - which would presumably de-rail any gains being made by Labour in the opinion polls.

So the political survival of Labour may well hinge on the credibility of its deficit reduction plans - which is why Peter Mandelson will today attempt to dispel the conspicuous impression of a cabinet divided on the importance of restoring sound public finances.

UPDATE, 10:48: There's no strike of lenders to the government, or buyers of gilt, as yet.

Today's gilts auction went pretty well.

The Debt Management Office sold all the Β£4bn on offer - and in fact received bids for Β£10bn, so may increase what's available by another Β£400m.

But as I said in my earlier note, the Treasury is having to pay a 12% higher interest rate than only a month ago to raise the money.

So it would be wrong to say that conditions for borrowing by the Treasury haven't deteriorated.

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Kraft's plans to buy Cadbury are in jeopardy, following the decision of Berkshire Hathaway to vote against its plan to issue 370m new shares to pay for the confectionery company.

Berkshire, founded by Warren Buffett, owns 9.4 per cent of Kraft. It is also probably the most respected investor in the world.

So it is embarrassing for Kraft that Berkshire will not authorise the transaction.

Berkshire has two concerns. First it says that Kraft should not be issuing shares at the current price of $27, because it sees this as a "very expensive 'currency'".

Second it is concerned that if it were to authorise the issue of the shares, it would in effect be authorising "a huge transaction without knowing its cost or the means of payment".

There is a paradox here of course.

Berkshire fears that Kraft would be paying too much for Cadbury.

Whereas Cadbury's board fears that the offer from Kraft is inadequate.

Roger Carr, chairman of Cadbury, says: "In essence Kraft's offer is limited by powerful Kraft shareholders restricting what they can offer in stock and is constrained by Kraft's rating agency limiting what they can offer in cash.

The so-called discipline of Kraft [in not wanting to pay more for Cadbury] is a smokescreen to justify an attempt to steal the Cadbury from its shareholders".

Hmmm.

Unless you are a conspiracy theorist who believes that Berkshire is in cahoots with Kraft's management to secure Cadbury at a knockdown price, you'd have to assume that the game is up - and that Cadbury will remain independent.

But would "friends" of Kraft's board point out - as Berkshire has done - that this company spent $3.6bn on its own stock at $33 per share in 2007, presumably on the basis that $33 was too cheap for the stock, and now wants to issue shares when they are even cheaper.

These are the observations of a shareholder who doesn't appear to have huge respect for the judgement of management.

It is therefore reasonable to assume that Berkshire really doesn't like the look of the Cadbury takeover.

So Kraft now has till January 19 to persuade Berkshire that its price for Cadbury represents very good value and to persuade Cadbury shareholders that they are getting a fabulous price.

Those two ambitions don't look altogether consistent.

In other words, there must be a pretty good chance that Cadbury - against prevailing opinion - will remain independent.

That said, I am not sure the penny has dropped in the market place, because if it had surely Cadbury's share price would have fallen by more than today's 3 per cent.

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This week's epistle to fans from Arsene Wenger muses on whether Manchester Utd will derive advantage from being knocked out of the FA Cup by Leeds Utd.

The always counter-intuitive Arsenal supremo points out that FA Cup matches tend to be hard on the heels of Champions League games - which implies that Man Utd's players will be fresher for the matches that really matter.

Bankers however take a different view of Man U's humiliation by a team two divisions below.

They point out that debt-laden Man U needs posteriors on seats in as many games as possible to service the interest charge - and that the 3rd round exit from the cup deprives the club of important revenue.

One banker with a close knowledge of the club put it like this to me: Manchester Utd as a business is a delicately balanced financial machine, which works when the team is winning and revenues are pouring in, but where there is not much of a financial cushion to absorb the inevitable occasional flop.

He said that the huge debt that was taken on when the Glazer family bought the club was predicated on the basis that Man Utd would have decent runs in the Champions League and FA Cup in most years - which of course is typically what has happened.

The important numbers are these, as of 30 June 2008, the date of the last published accounts for Man Utd's holding company, Red Football Joint Venture Ltd.

Red Football JV had Β£519m of secured bank loans, on which it paid Β£45.4m.

And it had Β£175.5m of so-called payment-in-kind notes, where the interest is rolled up into the principal rather than paid in cash. The interest rate on these is 14.25%.

So the total annual interest bill was just under Β£70m (including rolled-up interest).

That compares with a net cash inflow from operating activities (largely profit before interest and taxation) of Β£88m.

So in that year, if Man Utd did not want to increase its overall level of debt, it had less than Β£20m to spend on players and other investments.

In fact, it spent Β£43m - so its indebtedness increased, by just under Β£33m to Β£699m gross in total.

Now Man Utd fans would presumably say that was money well spent, since the club won the Premier League for the umpteenth time last year.

But the big question is whether the current level of indebtedness is excessive for this point in both the footballing cycle and in the economic cycle.

To state the obvious, post-Ronaldo Man Utd does not look as invincible as last year's team. And a weak British economy deprives all clubs of incremental revenues.

Which is why Man Utd is looking at ways to reinforce itself in a financial sense.

As has been widely reported, Man Utd is considering taking on new debt to pay off some of the old debt.

According to bankers, it would like to raise around Β£600m through a bond issue.

The reason is that - in theory at least - the interest payable on the bond would be significantly less than the interest on the payment-in-kind notes (PIKs): Man Utd would probably have to pay around 8% interest on a bond, which looks very attractive compared with the 14.25% interest on the PIKs.

But here's the funny thing. The interest on the much bigger bank loan of Β£519m is very competitive. It ranges between 2.125% and 5% over Libor. So right now it should be paying no more than 5.5% - which is cheap money.

It does not seem to make sense to pay off that low-interest debt with the proceeds of a bond paying a higher interest rate.

But that's to ignore the problem that the burden of the PIK is growing exponentially, because the 14.25% interest rate applies to the original principal plus the rolled up interest.

In other words, Red Football JV is this year probably paying 14.25% on PIKs with a value of Β£200m - or more than Β£28m in interest. Which would imply that next year it will be paying 14.25% on almost Β£230m, and so on, to financial ruin.

The other important point is that Man Utd's banks are the so-called senior creditors and have first claim on any money deployed to repay loans, so they would probably not allow the PIKs to be redeemed unless some or all of their loans were also repaid.

So there is a logic to a comprehensive refinancing via a bond issue.

This is a long-winded way of saying that the UK's most formidable football team is not without its financial issues.

Which is also to say that the relative immunity of top-flight football from the impact of credit crunch and recession has been delayed, not avoided.

The simplest way for Man Utd to alleviate the immediate financial pressure would be to spend very little in the January transfer window.

And it certainly would not be the only club to sit on its hands rather than buy new players.

With clubs like Portsmouth and Crystal Palace in serious difficulties, right now there are arguably more forced sellers of players than buyers with deep pockets.

Man City may have a bottomless purse. But the noises from Chelsea suggest even it isn't likely to spend like it once did.

Perhaps this is the moment when the transfer market will crack and player prices fall significantly.

Which - of course - would further weaken the finances of clubs where the value of players represents a significant proportion of balance-sheet assets.

The finances of the Premier League are probably as perilously poised as the finances of the British government.

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It's probably a serious forecasting error that means the public finances will be in marginally better shape than feared (which makes a change, you might say).

Just a few weeks after the Treasury predicted that the revenue from its one-off bonus super-tax would be Β£550m, bankers are lining up to tell me the government will receive many times that amount.

In fact, it is highly likely that just two international banks, Goldman Sachs and JP Morgan, will each pay more than Β£550m.

The numbers work like this.

A 50% tax is being levied on bonuses greater than Β£25,000, which is payable by the banks as a "payroll tax".

Goldman and JP Morgan are expected to declare bonuses for UK-based employees worth $2bn in aggregate each (and roughly $10bn respectively for executives across the world).

On the reasonable assumption that most of that $2bn consists of bonuses greater than Β£25,000, Morgan and Goldman would each pay around $1bn in tax, or more than Β£600m.

Other international banks, such as Bank of America, Credit Suisse, Morgan Stanley and Deutsche, would be expected to pay about 25% less.

So the yield from just those banks would be around Β£3bn.

And then on top of that, there should be whopping contributions from the genuinely British banks, Barclays and Royal Bank of Scotland.

Just like Goldman and JP Morgan, the tax take from each of Barclays and RBS could be more than the Treasury's Β£550m estimate for the entire banking industry (see my note of a month ago, RBS board to quit if Chancellor vetoes Β£1.5bn in bonuses).

Now, I am sure that when it comes to the expensive moment of truth, the banks will find ways to reduce what they pay.

But even if they slash this year's bonuses and also take aggressive steps to avoid the levy, the Treasury should be able to garner several billion pounds in total.

Which would be useful to it, though (not that you need reminding) nowhere near enough to fill the black hole in the public finances.

As it happens, a Treasury official, Edward Troup, said shortly before Christmas - in evidence to MPs on the Treasury Select Committee - that he expected the gross take from the tax would be around Β£1bn.

He said that the Β£550m figure announced by the Chancellor was a "net" figure: the Treasury expected the new tax would persuade some banks to reduce bonus payments, which would mean that mainstream income tax and national insurance would be reduced.

But even the Β£1bn looks wrong by a wide margin.

So how and why did the Treasury make this error?

Cynics in the City think it was a deliberate piece of political opportunism. They say ministers want to be able to announce some "good news" in the budget, and a bumper harvest from unpopular bankers would be classified as such.

Maybe so.

Although some say that a more plausible explanation is that the authorities still have worryingly little knowledge of the vast sums generated and earned in the City.

I should also point out that the anger about the tax among bankers is still rising - which they won't forget (they say) next time their organisations have decisions to make about where to base a new office or new business.

The tax may be their just desert for their role in helping to cause the global financial crisis. That's certainly how millions of citizens see the impost. But no turkey ever helped to turn the oven on, come Christmas morning.

If you take a US bank like JP Morgan, for example, I am told that more than 90% of its big profit generators in London are not Brits (that's to ignore Cazenove, its venerable British stockbroker).

These proudly cosmopolitan types simply don't understand why they are being clobbered by the British taxman, and won't easily forget or forgive.

That said, most of the big banks are likely to protect their British-based employees from the full burden of the tax.

The banks' bosses don't see why staff who happen to be located in London should be penalised for what is perceived to be the bad luck of sitting at a computer screen in the one country that has announced a special bonus tax.

So the likes of JP Morgan, Goldman and Deutsche are likely to treat the tax as a cost for their firms as a whole, not just their UK operations.

The effect of that would be to reduce the bonus pool available for all employees.

Some like Goldman may also pass perhaps half of the cost of the tax to shareholders, in the form of lower dividends.

In other words, this 50% British tax on bonuses will in practice lead to a reduction of between 5% and 12% in bonuses paid to all bankers, wherever they happen to be living.

Which means that the fame or infamy of Alistair Darling and his bonus tax is spreading to bankers in every nook and cranny of the global market place.

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