Wednesday, 8 October 2008

Will it work?

Bold, certainly. And perhaps a final fling - £50bn in direct investment, £200bn in additional lending and a further £250bn in guarantees for interbank lending. But will it work? We must all hope so. But remember that this £50bn taxpayer bailout is about equivalent to the bonuses paid out to bankers over a five-year period; let's go back to October 2006:

Workers in the square mile financial district of London are expecting to share £9billion in bonuses this Christmas and are planning to share their wealth through living the high-life.

London's financial industry is booming, with mergers and acquisitions activity set to hit a record $1trillion-plus this year in Europe alone.

The City's success has helped the rest of London to do well. "With some City bonuses likely to be up several hundred percent on last year, the omens are good for almost every part of city life," said Tara Ricks, managing director of City recruitment firm Joslin Rowe.

"From big ticket items such as new homes, car sales, holiday apartments, yachts, shares and race horses to luxury holidays, jewellery, fine dining and designer clothes, this money will pour back into the economy," she said.

Bankers get their wad of cash in December/January when banks start paying out 2006 bonuses that could run to tens of millions of pounds for some high fliers.

No one can easily track where the money goes, but London property is likely to claim a big share of this year's bonus "pool" estimated at nearly 9 billion pounds by economics consultancy the Centre for Economics and Business Research.

A CEBR study, done a few years ago, found that 50 percent of bankers' bonuses was spent on London property and estate agents say this could still hold true based on anecdotal evidence.

"What really sparked the price increase in Central London was the bonuses last year," said Neil Chegwidden, head of research at Cluttons, referring to big bonus payouts in 2005 year as the financial services bonanza gathered steam.

£4,000 lunches

Bankers also spend heavily on fine dining, wine, trendy bars, and even flowers and exclusive concierge services. Shane Osborn, head chef at top London restaurant Pied a Terre, said at bonus time City bankers come in to celebrate.

"You see the City boys coming in in groups of 4 and 5 having a jolly evening and going for top-end champagne and wine - Dom Perignon, Krug, Cristal and Petrus."

Osborn, who's restaurant is one of only four in London with two Michelin stars, said bankers can easily spend 3,000 or 4,000 pounds just on lunch. "They like to let their hair down."

Holiday company Trailfinders said it is also seeing strong demand for luxury. The Maldives and Mauritius are popular holiday destinations, but Antarctica is becoming trendy.

"We fairly regularly get people spending more than 20,000 pounds on a holiday," a spokesman in their City branch said.

I have a funny feeling that this world has gone for ever.


Anonymous said...

"I have a funny feeling that this world has gone for ever."

And it won't be missed.

What a pity that it's not the only thing that is gone for ever - savings, pensions, jobs, hopes, futures...

Nick von Mises said...

For a while. Some people will always earn plenty, whether through talent, graft or political connections


Umbongo said...

"I have a funny feeling that this world has gone for ever."

Don't worry, it'll be back; in a slightly different form, of course, and not necessarily in London and not necessarily in your (or my) lifetime.

BTW it's not all doom and gloom. For the time being the gravy train in Brussels, Westminster, the offices of your local authority, assorted quangos and the BBC goes on.