What does this tell us?
Senior manages at Northern Rock have been paid secret bonuses, doubling their salaries at a time when the stricken bank is being propped up with the help of billions of taxpayers' money, it emerged last night.
The bank has sanctioned millions of pounds in confidential "retention bonuses" to managers and management board directors deemed "essential to [its] continuing excellent operational performance",
Does this show that vulgar libertarians are wrong to claim that market forces and the threat of bankruptcy can constrain rent-seeking by private sector bosses? Might it be instead that the imminence of going bust can actually accelerate bosses' rapacity, as they leech as much as they can out of the firm before it enters administration?
Or could it be that Northern Rock's bosses are anticipating the company's nationalization, and are already starting to behave like "public servants"?
The 'senior managers' in question are 200 team leaders, not 10 people at board level. Another explanation might just be that, if any of these 200 people (most of whom are area managers, call centre managers, security managers, IT managers, etc with no involvement in the financial dealings that led to NR's collapse) are any good at their jobs, they might be reluctant to work for a bankrupt bank led by idiots, and therefore bribing them to stick around is the best way anyone can think of to stop the whole edifice falling apart...
Posted by: john b | January 14, 2008 at 10:16 AM
Oh, for crying out loud. The whole problem now with NR is that it was NOT left to market forces and bankruptcy. Blaming the consequences of intervention on the market is just bizarre.
Posted by: Peter Risdon | January 14, 2008 at 10:28 AM
Considering there's no free market in operation I think blaming it on the market is not particularly coherent.
The vulgar libertarians are if anything just confused over the nonexistence of a free market.
Posted by: Tristan Mills | January 14, 2008 at 11:34 AM
They are getting their pension shortfall compensation out early.
Posted by: dearieme | January 14, 2008 at 11:54 AM
I'd be interested to hear from our libertarian friends about what possible benefits the UK economy would have accrued by letting Northern Rock go to the wall.
Finance capital is the bedrock of ruling class power in this country. While the government are quite happy to let manufacturing go to the wall, it will move heaven and earth to save the financial sector.
Posted by: a very public sociologist | January 14, 2008 at 02:08 PM
"I'd be interested to hear from our libertarian friends about what possible benefits the UK economy would have accrued by letting Northern Rock go to the wall."
Justice, incentives and evolution. If it's OK for shareholders to take profits, it must be OK for them to take losses. Otherwise, their profits are in effect being subsidised by non-shareholders.
If failure and reckless lending have no ill-effects, or ill-effects that are cushioned, then the incentive to avoid recklessness is reduced.
Successful institutions and practices can only evolve if failure kills. The losses of one group take place in a context of overall success, adaptation and growth.
Posted by: Peter Risdon | January 14, 2008 at 02:39 PM
Well that's it Chris, I'm sure you are aware of the distorting effects of bank bailouts.
This could also be corporate irrationality at work. Managerialism strikes again.
Posted by: scumble | January 20, 2008 at 12:52 PM