So says John Lanchester in this compulsively readable London Review of Books piece, which you might not be able to put down (so to speak) even if you know diddly-squat about the British economy. The passage about the coming cuts in public spending are pretty staggering. But this part jumped out at me:

Anyone prone to thinking that investment bankers are geniuses should look at their catastrophically maladroit handling of the bonus issue this year. Goldman Sachs clearly thought they were exercising heroic self-denial by awarding themselves a compensation pool amounting to a mere $16.2 billion. Haiti’s total GDP is $7 billion, and even before the earthquake one child in eight died before its fifth birthday; imagine Goldman turning over half its trough to Haiti in an attempt to change those numbers. Instead they praised their own ‘restraint’ in awarding themselves only 36 per cent of their revenue in pay pool, down from the usual 50 per cent. News of these restrained bonuses came out the same day as Obama’s bank proposals. The Goldmaners must have been left wishing they hadn’t bothered.

Bank bonuses are a moral and political problem at the best of times. This year, the levels of bonuses across the industry are unconscionable. There are three reasons for that. First, thanks to the special measures currently in place the banks can borrow from their governments at, effectively, 0 per cent rates of interest. They can then invest the money at higher rates of interest, 5 to 7 per cent, say. This is a direct transfer of wealth from the taxpayer to the banks, and the only difference between it and an actual, physical licence to print money is that the banks don’t have a piece of paper with the words ‘Official Licence to Print Money’ written across the top. Second, the banks’ balance sheets are still clogged with the famous toxic assets. Last year, these assets could not be sold, so they were worth nothing; thanks to the accountancy practice called ‘mark-to-market’, which insisted on the assets being recorded at their current value, this left big holes on the banks’ balance sheets where the assets should be. The US and UK governments launched lavishly expensive schemes designed to restore confidence to the market in these assets (in the US, the scheme offered investors a dollar of value in return for 15 cents of their own money) and the market gradually recovered. So the assets got their value back, and the bank’s balance sheets rocketed upwards – again, thanks to the taxpayer. Under these conditions, your deceased Aunt Mavis could have generated record returns simply by not doing anything. Third, the collapse of competitors has created unprecedentedly favourable conditions for the remaining banks. Hard times are good times for banks that are still in business: winding up, fire sales, mergers, bankruptcies, emergency debt issues, debt-for-equity swaps, are all sources of lucrative fees. The banks’ activities in this area have always been cartel-like – their fees are known for being suspiciously similar – but with so little competition around, it’s a fiesta. All of this is underwritten by the taxpayer’s guarantee to keep the banks in business if they rack up another set of huge losses. Under these circumstances, this year’s bonuses really are, I use the word again, unconscionable.