Not George Osborne though, who has seen the pretty obvious vote-securing mileage in the bonus debate, and is going in guns blazing. He called yesterday for retail bankers’ cash bonuses to be ditched in favour of shares, which would be deferred for three years. The cash would then be funnelled back towards new lending.

The reaction from the banking sector has been somewhat frosty – everyone’s coming out with the usual jive about having to keep the City competitive and that not being possible without a bag of gold being plonked on everyone’s desk once a year. Meanwhile, Goldman Sachs’s vice chairman Lord Griffiths hasn’t helped rehabilitate the sector’s image by grumpily saying that people should “tolerate the inequality” – OK, it’s the elephant in the capitalist room that the system is geared towards making certain people richer than others, but you really shouldn’t mention it during a recession when everyone already hates you. But while it’s unequivocally clear that reform is needed fast, you can see the point in some of the beefs the bankers have with Osborne.

It’s true that his arguments are a little simplistic and mechanical, and certainly geared for maximum leverage among the electorate. The banks aren’t being held back from further lending by the cash earmarked for bonuses, and yet those are the terms Osborne has defined the situation in. And banks couldn’t possibly provide share-only bonuses without issuing more shares, thus diluting the value of the taxpayer stake and tying us to the banks over a longer term. Meanwhile he’s gone after the big high street banks which we all recognise and who have our taxpayer money, but not after the other companies who are instantly feeding their cash back to their workers instead of paying it out in a more stable and sophisticated way – the investment banks, the FTSE 100s.

But his attack on the apparent reluctance of banks to extend lending was given extra weight this week by the scrutiny on Lloyds, after their private equity arm has made a sixth of all buyout deals this year, plus a £400m deal currently being negotiated. The arm isn’t a free-standing unit with Lloyds’ branding, but uses the retail bank’s balance sheet to conduct its deals – the charge likely to be levelled at them is that they should be funding more small businesses rather than milking it off big established ones.

It’s good to have the likely future Chancellor pressing away at the issue of remuneration, but he has to do it on relevant terms – it’s in the interests of the banks to co-operate, given their image needs a major collective fillip, but aggressive and illogical attacks will only serve to prolong the already interminable progress of change, as a battleground rather than a round table is formed.

Which is what we have at the moment. Even if the regulators had cracked down instantly on bank bonuses, the resulting legislation would probably not have come into force by now anyway. But with the global discussions making their way through a very slowly yielding network of red tape, and the lobbying power of the banks still apparently very influential on the FSA, we can expect this same story next year.

Photo: Alan Dean

Osborne went considerably off the leash with his claims, saying that Labour secretly planned to raise income tax, and implying that civil servants had, in allowing the plans to be forged, given up something of their political impartiality. Stung, the servants told Osborne to drop the Hardy Boys schtick – the “secret plans” were actually in the public domain as part of the Budget, and the increase in income tax was tied to the ongoing growth in the economy.

He’s set in motion the kind of political Pokemon battle we get every election cycle, where each side fires its rhetorical magic at the other in turn, until one of them emerges the victor – so much for Osborne’s recent condemnation of electioneering. But with his vicious fireball deflected by the backroom staff, he was left dangerously exposed over the weekend. Mandelson, I choose you!

The business secretary and veteran political warhorse described Osborne thus: ”Like a boy in a man’s job”. Saucer of milk, etc etc, but while we wait for the homophobic reaction that dogs Mandy’s every move (let alone when he’s talking about boys and men) David Miliband has also slagged Osborne, describing him as “not a serious person”. He described the Tories’ tactics as “juvenile and student politics…the politics of the big lie and the big smear”. Treasury Chief Secretary Liam Byrne added: “this truth problem for Mr Osborne is becoming a pattern of behaviour”. Vince Cable meanwhile has managed to get mileage out of both his opponents in a single sentence, saying: “The public doesn’t need George Osborne’s imaginary secret documents or conspiracy theories to work out that the public finances are in a bad shape”. 

The Tories were also hurt by the Lib Dems rooting through their post-election plans and finding over £50bn of spending pledges that don’t really chime with Osborne’s prudence – new-school policies like high-speed rail sit next to classic Tory stances like cutting inheritance tax.

While it’s all good fun to see the internecine bitchery of The Hills get transplanted onto the UK’s political scene, this all seems like a case of electioneering distorting the genuinely necessary action. Cuts will be an inevitable part of the next government, whoever it is – the public discomfort at a rocketing deficit can’t be ignored. But the need to score points off and differentiate themselves from Labour has drawn the Conservatives, and to an even greater extent the Lib Dems, towards a economic model based on arch prudence. This is framed for maximum gain as brave and wise, positioned opposite Labour’s supposed recklessness with the public balance sheet.

But it’s too soon to make cuts, and using them as such a hot political topic is dangerous; fiscal stimulus needs to carry on for some time yet. Keynesian economists like Robert Skidelsky and William Keegan have written over the weekend about the importance of letting fiscal stimulus continue, Skidelsky with a simplicity that is either charmingly optimistic or dangerously reductive depending on your leanings: “Had the Government given everyone a spending voucher of £500 last Christmas, the chances are we would have had no output gap and full employment today!”

But for all the weirdly mechanistic and presumptive nature of Keynes, his ideas are still valid, and to ignore them for brief political gain would be disastrous. The recent crowing about the end of the recession, along with the City-minded political economists, means that talk of cuts might not seem too premature, but if the stimulus is cut back before much of the country has had time to feel it, then any future government could find itself with a hole where its income tax should be. Once the economy is genuinely growing again, with consumer spending steady, then we can start worrying about the deficit. At the moment, all the talk of cuts is only benefitting political strategists.

He’s referring to the fact that over the last few years, the City has been competitive for competitive’s sake – luring in business like hedge funds to operate in this country with the carrot of deregulation, and then finding that those businesses didn’t really contribute to the financial health of the country. “What we have just been through shows that getting it wrong in a prudential sense was so costly economically that you would have to believe the competitive advantage was extremely strong for it to have been worth it”, as Turner put it. In other words, go to the $500 poker table in Switzerland if you want to gamble; the UK is going to be playing the dollar slot machines like an old biddy from now on.

He made the remarks at a meeting of the Association of British Insurers, where he also said that insurance didn’t need the same level of regulatory change as the banking sector. Way to work the room, Turner!

Also at the ABI conference was George Osbourne, who didn’t miss the opportunity for some electioneering. He warned against “badly designed new regulation” that would “needlessly undermine London’s competitive advantage”, thus pleasing the deregulation-heavy crowd while remaining entirely committed to regulation. He mostly focused his ire instead on – controversial! – bank bonuses. “The banks should be using their profits to rebuild their balance sheets, not to hand out huge bonuses while the rest of the economy picks up the pieces for the follies of finance”. Mmm, nice alliteration at the end there. Oh and don’t forget, “The election of the Conservatives is the safer choice for a strong recovery“.

But he is sort of right about not wanting to drive companies out of the City. Say what you like about the financial services industry, but it’s the closest thing Britain has to “industry” these days. Darling’s budget made some mild trumpeting of the creative industries and green tech being big wows for the UK economy, but what’s really kept the UK a viable force on the global map is its status as one of, if not the centre for the global economy. Turner has to steer the City between being a hermetically sealed place that no-one wants to do business in and a rampant free-for-all whose risks endanger the rest of the UK’s economy.

Elsewhere at the conference, the compensation debate raged in a slightly less politically charged way. Pay consultants, the people from a third party that come in and advise on how best to remunerate executives, bore a tongue-lashing from two top fund managers. “The compensation arms race that we’ve had in remuneration, driven by pay consultants, is neither viable, tenable, appropriate nor desirable”, said Mark Burgess of Legal and General. 

Robert Talbut, of Royal London Asset Management: “We’ve all got a problem with those organisations that operate in the background. It’s not desperately clear who they are working for and it seems that they operate on the basis that the best advice to give executives is that they are massively underpaid… The idea that the incentive needs to be huge to elicit the right kind of behaviour is wrong. Institutional investors have got to get more used to saying ‘no’.” Is the world of pay consultancy thriving on a culture of finding a way to please their clients by recommending massive remuneration? If so, that stinks.

Oh, and no-one can afford insurance any more during the recession. Cue frantic lobbying from the ABI.

He testified to MPs before the meeting, providing them with a memo that outlines what he sees as the failings of HBOS to assess risk (FT Alphaville has the transcript here). As James Crosby, the man who did the sacking, wasn’t there, Stevenson and Hornby managed to deflect much of the questioning – Stevenson pointed to a nine-month FSA probe into the case falling in favour of HBOS, Hornby denied the charge of “threatening behaviour” made towards Moore’s team.

But now the Tories have spotted the political mileage in all this, don’t expect the issue to go away. They’re now calling for a probe into Crosby, to ascertain what happened and whether he’s fit to be deputy chairman of the FSA and Gordon Brown’s advisor on mortgage risk; George Osbourne has called the charges “exceptionally serious”.

And man, are they serious. Choice cuts from the memo include:

- “I told the Board they ought to slow down but was prevented from having this properly minuted by the CFO.”
-  Saying that the situation was like the “Emperor’s New Clothes”, and that no-one dared speak up about the flaws in HBOS’s overextended model.
- Crosby alone chose to fire him, and alone chose Dawson as his replacement, against the wishes of other Chairmen.
- A section of a report that criticised “over-eager” sales culture cut out of the final version given to execs, with Moore criticised when he attached it as an appendix to another paper.
- Charles Dunstone, a non-executive chairman responsible for risk control at Halifax, saying he was friendly and sociable with Andy Hornby, the very man he should have a professional distance from and willingness to challenge. Moore also says: “Dunstone himself admitted to me and my colleague one day words to the effect that he had no real idea how to be the Chairman of the Retail Risk Control Committee!”
- Added to this, he said on Newsnight last night that the FSA wanted “a quiet life” and ignored his whistle-blowing.

Moore says he was subject to a gagging order after he settled with HBOS over unfair dismissal, but says that now the matter is of such public interest he’s broken it – I wonder how much money was involved there, and whether HBOS would have a legal case against him? Well, it’s all out in the open now, and we can expect every little bit to be picked over.

The whistleblower silenced, the crooked CEO determined to build his company bigger and bigger – it’s clear that “HBOS: The Movie” would be awesome. The potential for “YOU CAN’T HANDLE THE TRUTH!” is massive. Maybe get William Fichtner to play Andy Hornby?

UPDATE, 11.59: The FT reports that Crosby has seen the fast-massing anger against him, fallen onto his sword and stepped down as FSA deputy chair. That was easy!

Peston was blamed for the queues outside Northern Rock after he revealed the bank’s woes to the nation, as well as for the rise in HBOS’s share price after Peston revealed they were going to be taken over by Lloyds. More specifically, he was accused of being a pawn in some insider trading scam, with a mole feeding him information that would affect the markets. It was an accusation that George Osbourne ratified and then Peston, with typical aplomb, deflected with the Deripaska-Rothschild-Osbourne yacht scoop, while the FT defended Pesto to the hilt.

Still, the criticisms haven’t gone away. “Newspapers have the same sort of obligation as they do during a war”, said Simon Jenkins on the media’s role in the crisis, i.e. shut up and not “scare” people. Jenkins of course chose instead, on the day of the worst stock market fall in years, to romp up Cader Idris and uncork his babbling, Biblical prose. How responsible of him!

So Peston faced the committee yesterday, and he rebuffed the criticisms in a hyper-Pestonian manner. This was Pesto off the leash, allowed to roam free over vowels and clauses, a style described politely as “loquacious” by the Guardian and perhaps more accurately as having “sentences like giant sausages” by Quentin Letts in the Mail. “I know lots and lots and lots of people, including you, and, y’know, I talk to lots and lots and lots of people”, was his version of refusing to outline his sources. Slick.

The main thing is that Northern Rock was screwed even if Peston did create a run on it, something that the other journos at the hearing all concurred with. Jenkins’s wider notion of not reporting financial stories to maintain market stability is flawed too, as transparency moves to the front of the agenda. Jenkins, for his part, kept pretty quiet at the meetings, only piping up to tell the assembled committee kettles that they were black: ”By an extraordinary coincidence you have all five journalists here who predicted the credit crunch. What have you been doing all the time?” Well, at least they haven’t been telling people to “invest in sanity” and buy “shares in kindness, with a side bet on courtesy and brotherly love”. If only we’d just given Fred The Shred a nice big hug, then none of this horridness would have happened!

Peston, meanwhile, nailed the whole conundrum when he says that impact upon share price is “peripheral” to the provision of information to the masses. That’s what journalism is – can you remember that far back, Jenkins?

While everyone wonders if Messrs Deripaska, Rothschild and Osbourne got all cosy again, many people didn’t bother to show up in the first place – Darling and Miliband bailed, Brangelina was replaced in the “actors with thoughtful faces” category by the rather less starry Jet Li, and former Davos regulars like Dick Fuld and B Ramalinga Raju were weirdly absent this year. And after Israeli PM Shimon Peres was given the lion’s share of debate time to opine on Gaza, Turkish PM Tayyip Erdogan walked off, vowing never to return to Davos (though the two kissed and made up via telephone later); Peres for his part said that none of this crisis nonsense would have ever happened if we had just followed the Ten Commandments. Which number is “Thou shalt not allow small countries to overextend themselves while continuing to trade in highly leveraged products”? I forget.

Putin did show up though, and made a bit of an idiot of himself by pointing the finger at U.S. financial policies while his own currency continues to resemble the sort of thing you’d find in a Monopoly set. Niall Ferguson called him “absurd”, and the ruble fell 3.5% against the dollar after Putin’s speech. But to be fair to him, some of his words chimed with much of what was being said elsewhere – he warned against “unrestrained state interference” and “blind faith in the omnipotence of the state”, just as other commentators, like HSBC’s Stephen Green, were warning against protectionism, ie a retreat from international markets back to localised trading. Also noting an anti-protectionist strain is Sir Martin Sorrell, writing in an FT blog that has a beautifully gloomy air lent by its blunt haiku style: “Far too crowded. Probably 500 people over the top. Last year 2000 was heavy, 2600 is too many.”

A sober tone then, but not sober enough for the aforementioned Ferguson, who said he found a “Great Gatsby quality to Davos…There’s a sense of ‘let’s have the party anyway,’ and ‘let’s talk about the post-crisis world,’ as though that could be soon”. The FT’s Gideon Rachman seems more up for a good time, lamenting the lack of “loud music and dancing”, and opting for a “South African jazz party” and a talk on “leadership lessons to be learnt from Macbeth” conducted by the son of Lawrence Olivier. Sounds wild!

But there is some light amongst the dark. The hills have been rocked to avalanche-inducing proportions by the glorious news from the hottest panel in town – job cuts at Tuppaware are unlikely! You know your economic forum isn’t what it was when cigar-chomping investment bankers are replaced by guys crowing about plastic food receptacles.