An interesting point from Gillian Tett who observes that the real populist backlash against the financial industry is likely to come when the bill genuinely comes due in the form of the need to massively reduce deficits in the 2011-13 period:
Perhaps that will occur when income taxes are hiked above 50 per cent. Or maybe when hospital budgets are cut, or military spending slashed. Either way, the potential list is long. While that might cause political instability (which, of course, would be bad for bond markets) it might trigger a renewed, vitriolic round of bank-bashing – particularly if voters in 2011 or 2012 know that 2010 was a year when banks paid out more, massive bonuses.
No wonder that some financial officials and politicians are frantically pleading with bankers behind closed doors to show more restraint in their current bonus round. “Don’t the bankers realise what could be coming?” I heard one senior western finance official tell a room full of bankers this week, as he argued – with passion and a sense of desperation – that it would be a mistake for banks to pay big bonuses.
But even if one firm’s management accepted the logic of this claim, there would be a collective action problem. People would want to go work at the firms that were still paying out the big bonuses. Under the circumstances “frantically pleading” couldn’t possibly work, you would need to actually force them to stop, perhaps through the kind of bonus windfall tax proposed by Martin Wolf.