Marketplace Scratch Pad

You be a good boy, Johnny

Scott Jagow Nov 3, 2009

The US isn’t the only government that continues to shovel money into banks. Today, Britain agreed to infuse two of its financial institutions with another $51 billion. The British government now owns 84% of RBS. Eighty-four percent.

From Bloomberg:

The Treasury will inject 25.5 billion pounds ($42 billion) of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds’s 21 billion-pound fundraising…

“There is now a very fine line between RBS being nationalized,” said Danny Gabay, director of Fathom Consulting in London and a former Bank of England economist.

Where is this line you speak of?

In exchange for de-facto nationalization, RBS has agreed not to pay cash bonuses to bankers making more than $63,000 this year. Lloyd’s, too. This year’s bonuses will be deferred until 2012. The Bank of England says banks also need to “radically simplify their structures and provide more information about what funds they would use in an emergency.” More:

“We don’t want to demonize people in banking,” City Minister Paul Myners said in an interview with BBC television today, adding that most people in banking are not highly paid. “But at the top of banking, we’re going to bear down on remuneration.”

“We will be extensively using deferral mechanisms and using shares as part of over bonus delivery this year and indeed not paying cash, as was the case last year,” RBS’s Hester said in a conference call with journalists today. However, the surest way for the taxpayer never to see value for its support is if RBS is unable to have good people.”

That argument never gets old…

This situation reminds me of a kid I knew in school. He was always getting in trouble, and his parents would always tell him he needed to clean up his act. Make sure we know where you are and what you’re doing (provide more information). Then, he’d get in trouble again, and they’d say the same thing. But they never punished him or stopped giving him money.

When he turned 16, Johnny got in trouble again. What did his parents do?

They bought him a car and told him to be careful.

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