Nobody should ever be bailed out again

Allister Heath
Allister Heath was Editor of City A.M. for six years up until June 2014. [..] Full profile
CAPITALISM only really works when success is rewarded and failure punished. So as the New Year approaches, here is a radical suggestion: let us usher in a new era of personal responsibility. Let 2010 be a year of no bailouts, no handouts, no bleating and no more blaming everybody else for one’s own mistakes. This should apply across the board, from the biggest firms to all of us private individuals. Here is my dream scenario.

First, the banks. The last institutions that remain dependent on government funds should pay the money back – at a profit for the taxpayer. The government should then make it clear that banks must continue rebuilding their capital and that once special new bankruptcy rules are in place, they won’t be bailed out again if things go wrong. There should be speeches to that effect from the authorities, lest anybody doubts that they are serious. The only intervention in future would be to prevent runs or stop the system from imploding; but all insolvent institutions would be allowed to go bankrupt, with bondholders and equity holders wiped out. There will be no such thing as too big to fail, handouts for affected counterparties or socialised losses combining with privatised rewards.

Second, individuals. We should all be forced to take much greater responsibility for our performance and our personal finances. Failed CEOs should always be sacked without huge payouts; shareholders should insist on doing away with rewards for failure. Meanwhile, individuals should save more and only borrow when we can afford it. People who have taken on too much debt should stop complaining and make a renewed effort to pay it back. We must also see a return of caveat emptor: the buyer must beware. It is just not good enough for somebody to go out and borrow £10,000 on a credit card – and then complain that the credit card company is at fault. There has of course been plenty of mis-selling of everything from pensions to properties in recent years; but it is time to focus for a change on mis-buying, a much greater problem. It is not only the lenders and the sellers who are greedy; the borrowers and buyers are usually equally at fault.

Rather than burying capitalism, we should reinvent it by rediscovering its core values. Tough love is undoubtedly a harsh policy but making everybody face up to their responsibilities might avoid irrational exuberance from flaring up again in a couple of years’ time. It is our only hope.
war on the city

Last week I reported on a poll looking at the tax on bankers’ bonuses, which found 67-27 in favour, a figure which I thought actually showed surprisingly strong public opposition to the tax given the overwhelming political and media consensus on the subject (and the preponderance of simplistic analyses of the causes of the credit crunch).

Another poll from YouGov is far more negative, though it frames the tax in a precise way: “Given the current economic climate and the need for the government to reduce borrowing in the years ahead, do you support or oppose the following measures that Alistair Darling announced this week?”

The option “requiring banks to pay a one-off extra tax on bonuses of more than £25,000 per bank employee” gained public support by a whopping 79-11 per cent. Dangerous times indeed.