Was the chairman of the UK's financial watchdog just trying to impress concervatives when he expressed support for a tax on foreign exchange deals?

Development charities are delighted. And why wouldn't they be? The global economic crisis rooted in excessive risk-taking (rooted in remuneration policies that rewarded it) is estimated to have caused some 100 million down to the level of extreme hunger.

Personally I wonder whether a Truth and Reconciliation Commission could help bring some measure of justice by bringing together victims of the crisis perpetrators.

But a Tobin tax on currency transactions could help remedy the material impacts of the crisis rather than simply the emotional and cultural. It is argued that the tax brought in could be used to finance economic development for those who have suffered at the hands of the finance industry.

Lord Turner went on to comment that the UK's financial sector has "grown beyond a socially reasonable size". Hardly seems like posturing towards a future Conservative government to me; more like a note of sense from someone who is not only close to the action as a regulator now, but has himself been a business leader.

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Does the ongoing anger over bank bonuses suggest the need for something akin to a Truth and Reconciliation Commission on the causes of the crisis?

You might think I have been spending just a little bit too much time outdoors over the summer; “Truth and Reconciliation” is the way nations like South Africa consign to history the egregious, state-supported human rights violations that have been committed against a large section of their people.

But bear with me for a moment and reflect on the breadth and degree of damage that the culture of greed managed to inflict by causing the worst financial crisis since the Great Depression: an increase in the number of people around the world in chronic hunger and poverty by over 100 million, to 1.02 billion; between 200,000 and 400,000 more babies could die each year between now and 2015 if the crisis persists; an increase in global unemployment by between 29 million and 59 million people; one in eight US mortgage borrowers is behind on mortgage payments or facing foreclosure at the end of the second quarter 2009; pensioners relying on developed country stock market returns for their retirement incomes have seen their savings fall by 45%.

Let’s not forget the stories behind the numbers. My friend Mike’s mother has been working for General Motors her whole life and was due to retire this year. Now she has no pension and will likely be working for the rest of her life. For more stories, take a stroll through the New York Times’ Living With Less – The Human Side of the Global Recession.

No wonder people remain angry.

The political will to rein in Wall Street and the City of London’s high stakes culture is lacking, and the financial sector is doing everything within its power to undermine what will remains.

A report by Essential Information and the Consumer Education Foundation found that $5 billion in political contributions over the past decade gained Wall Street freedom from regulation. According to OpenSecrets.org: “Despite the mortgage and banking crises of 2008, the financial sector still managed to donate $468.8 million to federal campaigns and candidates during the 2008 election cycle, an 80 percent increase during the two previous years.”

The Center for Responsive Politics notes that the finance, insurance and real estate sector spent $109.4 million on lobbying in the US during this year's second quarter alone, during which time the industry has been lobbying against the movement for tighter regulation provoked by the financial crisis.

How can we move forward?

We have a precedent for resolving situations where the will of government has been put at the service of powerful minority interests, to the detriment of the majority.

In 1995, after decades of the systematic abuse of economic, social and political rights known as apartheid, the South African government set up a Truth and Reconciliation Commission to give ordinary people an opportunity to air their grievances against a system that institutionalized racial segregation and discrimination in all aspects of life.

According to the then Minister of Justice Dullah Omar, "... a commission is a necessary exercise to enable South Africans to come to terms with their past on a morally accepted basis and to advance the cause of reconciliation."

The TRC was a forum in which anyone who felt that he or she was a victim of the system could be heard. Those on both sides who had done wrong could also give testimony and request amnesty.
Dead babies will never learn to speak, and how do you give voice to the 100 million starving? But that does not negate the need for public, open and free discussion of the causes of the crisis, to confront those responsible with those they have impacted, to raise the question of prosecution and possible amnesty rather than assume as now a cosy settlement between corporations and regulators.

How else do governments and financial institutions expect the results of egregious risk taking at great cost to communities and individuals to be put behind us?

How else can we say that we are serious in our desire to stop this happening again?

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Steven Davidoff at the New York Times reckons the focus on bonuses paid to Merrill staff is not the issue.

Steve is less willing than some to blame the lawyers in the BoA merger.

The elephant in the room, he argues, is the possible non-disclosure of the extent of Merrill Lynch's losses - $15.3 billion at last count.

If these were not disclosed then the bonus disclosure would become altogether more substantial. Steve thinks the SEC is avoiding dealing with that possibility because of the question of whether the Bush administration directed Bank of America to keep Merrill's losses quiet.

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While bankers and politicians seem anxious to get back to business as usual, the current difficulty being faced by Bank of America suggests that “normality” is not going to return any time soon, if indeed it is permitted to do so at all.

The Securities and Exchange Commission is trying to conclude an investigation into Bank of America’s payment of $3.6 billion in bonuses to executives of the sinking ship that was Merrill Lynch upon the former’s purchase of the latter. The SEC and Bank of America have agreed a $33 million settlement – an amount that some might call (and have called) derisory.

The SEC replies that it is unfair to penalize shareholders overmuch for the actions of executives. But hang on, I thought shareholders were supposed to be owners holding risk equity? That is what is supposed to provide shareholders with the incentive to keep an eye on how executives run their business, rather than simply smile while the money comes in. If shareholders don’t end up picking up the tab for reckless risk-taking then you create a moral hazard; shareholders will be better off turning a blind eye than supervising.

Enter Judge Jed S. Rakoff, a United States District Court judge in Manhattan. Whereas most such settlements are simply waved through, he has the temerity to question whether this settlement is really in anyone’s interest. Apparently he would like to take this opportunity to exert what little influence he has to deter further behaviour of this kind.

No doubt he has his own reasons for thinking the time has come to take a stand. Judge Rakoff presided over the SEC’s case against WorldCom – as in “corporate fraud on the scale of Enron and WorldCom” – and took the step of appointing a former SEC commissioner as a Corporate Monitor to oversee the reform of WorldCom’s corporate governance. He will recall that there was much talk after Enron and WorldCom of the importance of not letting big business return to its former ways, particularly the financial and professional advisers who enabled those corporations.

They did, however, and on his watch. And he knows that his courtroom is practically the only venue where pure greed can be stopped in its tracks.
 

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Australian investor activists are urging investors to look beyond the headline cash figure when deciding whether a firm is tying pay to performance.

Many companies have said they are freezing or cutting executive compensation in response to the downturn. The devil amy remain in variable pay elements such as short term bonuses and share options.

The real levels of compensation may not be known until next year's report and accounts. The focus now should be on ensuring a tight definition of performance to which executives can be held.

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Despite the looming recession, large corporate CEOs flew in private jets more in 2008 than in any of the previous five years. This article gives us a list of the top ten offenders. Many of these companies have since declared bankruptcy or accepted TARP fund assistance from the US government.

It is no wonder  average americans are indignant about the sacrifices they have had to make during this economic reversal. More money was spent in one year transporting these CEOs than most folks make in five years. The apparent blindness on the part of these corporations is positively stunning.

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The Obama administration is to work with the US Securities and Exchange Commission to get new rules requiring shareholder say on executive pay.

The administration also suggested principles on which the pay of executives in public companies should be based.

Treasury Secretary Geithner acknowledged that while the financial crisis stemmed from multiple causes, executive pay was a contributing factor.

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Following an investor revolt over executive pay at the oil company's annual meeting, board members are setting out on a charm offensive.

A "three strand" roadshow of directors and top executives is planned to rebuild relationships with major investors after shareholders voted 60% against the board's remuneration report. The revolt concerned the payment of £3.6 million in share awards to five top executives even though the group failed to meet the targets that would trigger such payments.

The Guardian report quotes fund managers complaining that companies have not woken up to the realities of the aftermath of the crisis. Fund managers are likely to remain activist for the foreseeable future having come in for criticism for being asleep on the job (as owners) while the crisis was taking shape.

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In the weekend drama, investors also demanded the resignation of the chairman of the company's remuneration committee.

The investors' anger arises from the fact that bonuses were paid even though performance targets were not reached.

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Serious consideration is being given to ways to curb pay policies that encourage financial stability-threatening behavior by employees.

The rules may come through the Federal Reserve or the Securities and Exchange Commission.

Separately, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on his own proposals.

The industry lobby group the Financial Services Roundtable is resisting any such move, so earning its name by ensuring we come back full circle into the same mess.

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