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Finance Friday: The only way is up

There has been a lot of talk about ‘recovery’ in the UK ever since the financial crisis began, but have there been any real signs of recovery? Apart from the rich in London buying multi million pound homes. The deficit is falling? That just means they are borrowing less than last year, the debt continues to rise.

It seems the government is relying on the City of London, the financial hub of the country to bring us out of recession; but didn’t they cause it. The government is resisting a financial transactions tax and they have resisted EU Commission action to curb bankers bonuses.

There are two schools of thought about corporate governance. One is to give the heads of companies big bonuses if they deliver profits for the shareholders.  That is all that is required, a CEO with lots of power to build an empire for shareholders. We have seen this with the banks taking over others banks and mergers. The executives pocketed multi million pound bonuses for what in the end was failure.

The other school of thought, is that there should be several layers of corporate governance that includes a chairman with legal responsibilities, a CGO (corporate governance officer) with day to day responsibility; auditors who might detect fraud, such as the rigging of LIBOR and finally regulation from outside of the company initiated by government.

There are signs that corporate governance and regulation are now being favoured by some  corporate executives who don’t want a repeat of many of the scandals of recent years such as the payment protection insurance fiasco. There are also some politicians in favour of corporate governance and regulation on all of commerce not just the banking and finance industry.

When companies hit bottom there is only one way to go and that is up; unless they want to go into liquidation and we know the government won’t let that happen to ‘too big to fail banks’. We have seen banks embracing online banking, without closing down any branches or reducing staffing. If banks were run in the same way as Amazon would there be so many large branches and such huge staff on bonuses? Now banks are consolidating and some are concentrating on the domestic market, while Barclay’s will stay an international bank, but will be cutting branches and staff and becoming more efficient. This is the light at the end of the tunnel. When the banks start lending to business again and providing mortgages in a responsible way rather than fuelling a London property bubble, the economy can recover.

Before you dismiss my thoughts as the ravings of a left wing pinkie; I do own shares in both Lloyds and RBS and so I do appreciate that shareholders are risking their capital on a economic recovery. Everyone who has money in a pension fund is also risking their money on an economic recovery. Can we just allow greedy executives to build empires with our money with no moral obligations? With no regulation and no corporate governance?

What do you think? Leave them to do as they wish, because they are the experts or keep a close eye on them. Give them million pound bonuses for failure or expect them to actually earn their high salaries? Please share you thoughts in the comments box. You can also follow me on Twitter.

One Response

  1. Pingback: The Review: The Vine, Darlaston | Mike10613's Blog

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