> This is the second part of a three-part series – following up yesterday’s analysis of escalating CEO pay
78% of Americans and 76% of Brits believe “the economy of my country is rigged to advantage the rich and the powerful”.1 Over 70% of Germans, Australians, Canadians and the French agree. The financial crisis exposed a fundamental flaw in today’s capitalist model: it favours an undeserving rich. Capitalism is in crisis because people no longer believe it works for the many.
The bankers responsible for the crash have not been punished
When the financial sector imploded due to the reckless behaviour of some bankers, serious consequences were expected. The public understood the immediate need to stabilise the financial system (more people than not believe the crash would have been worse without the bailouts),2 but they also expected those responsible to be held to account. Wrongdoing, it is commonly understood, should be punished. Instead, while the banks received billions of taxpayers’ money and senior executives generous exit payments, millions of those taxpayers lost their jobs, their homes and their life savings.
The top five executives at Lehman Brothers and Bear Stearns, two investment banks that collapsed, were paid around $2.4 billion between 2000 and 2008. Harvard academics who analysed this eye-watering pay concluded that while the executives made considerable personal losses when their firms failed, these losses were outweighed by the huge “performance” bonuses they had already received.3 Richard Fuld, CEO of Lehman Brothers, earned $466 million in the eight years before the 158-year-old bank filed for bankruptcy.4 He took home over $61.5 million in cash bonuses alone between 2000 and 2008. James Cayne, who as CEO of Bear Stearns presided over a £1.7 billion loss, received almost $390 million between 2000 and 2007 – over $87.5 million in cash bonuses.5
Almost a decade on, those involved in precipitating one of the biggest recessions in history appear to have got off scot-free. In the US, just one Wall Street banker, a senior trader at Credit Suisse, has been jailed for his actions. As yet, not a single UK banker has been jailed as a result of the crash. Prosecutors have argued that poor judgement, or immoral behaviour, does not mean laws have been broken. But questions are rightly being asked about their willingness to press charges. The authorities in Iceland have successfully jailed 26 bankers, including the most senior executives.
Analysis by investment bank Keefe, Bruyette and Woods in 2015 found 49 financial institutions had collectively paid government entities and private individuals $190 billion in fines and settlements since 2009.6 The scale of these payouts suggests pretty sizeable wrongdoing.
America’s Department of Justice has itself extracted huge financial settlements. JP Morgan Chase, for example, paid $13 billion in 2013. And in the process, like many other banks, avoided public exposure of the activities that warranted such a large payout. Fortune magazine estimates JP Morgan Chase made a profit of $22 billion that year – and the bank’s stock price rose by 30%.7
The idea that banking executives are ‘too big to jail’ reinforces the sense that the rich live by a different set of rules. No wonder YouGov polling for UnHerd found just 5% of Britons and 12% of Americans think those responsible for the financial crash have been appropriately punished.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
Subscribe