We'd be better off without bonuses

It is a function of a two-way relationship like investment banking that the more profit the bank makes, the more the customer overpays - both in fees at the time and when the losses comes through from whatever it is they have been suckered into doing.

It follows from this that the way bonuses work in generating more business for a firm is not by making those in line for them miraculously more clever. Intelligence or lack of it is not what holds them back. Rather, the constraint that bonuses remove is integrity. When the sums of money become large enough, ethics go out of the window.

This is unarguable - which is why those in favour of bonuses claim they are needed to attract and motivate the best talent while conveniently ignoring what it is that the "talent" is called upon to do.

And it's not all they ignore. Those who suggest that the financial sector will be seriously impaired if it cannot pay enough to attract the best brains also assume that such people are always wholly and exclusively motivated by money, which is patently not true. They then duck the issue that if the "talent" were not employed in finance it would go to other parts of the economy, which would benefit as a result.

Indeed, the country as a whole might be better off because if these people are indeed the brightest and best, the law of diminishing returns suggests that the uplift they would deliver to the hitherto-undermanaged sectors of the economy to which they are redeployed would be greater than the loss to the financial sector they have left - certainly at the margin.

This was a point reinforced in a comment by the Financial Services Authority chairman, Lord Turner, the other day when he said that human welfare would be seriously harmed if by some misfortune we lost the knowledge of how to manufacture a major drug or vaccine. But if the instructions for creating a CDO squared were mislaid "we would, I think, get on very well without".

Once the present immediate financial crisis is out of the way, the financial sector will have to think about how it might rebuild trust with its customers. Having a pay system that does not encourage bank staff to eat them would be a useful start. That's certainly why Stephen Hester at Royal Bank of Scotland should seize the moment to announce that now the Government has clamped down on bonuses, his bank will shortly abolish them altogether and henceforth pay its people a fair salary for the job they do.

A staff no longer subject to the pernicious favouritism, corruption and distortion and corrosion of ethics caused by "payment by results" might even begin to put the customer first.

Raven's neat funds swoop

Gradually as the credit crunch rolls on, the City is getting more creative in the way it refinances businesses.

Take the property companies. Currently, there are three big rights issues out there for British Land, Hammerson, and Land Securities. Other lesser ones are expected any minute. Trouble is, in these febrile markets the new shares have to be offered at a massive discount — in British Land's case more than 50% — which can seriously de-stabilise the share price.

Raven Russia, admittedly a much smaller property business, found a novel way round that problem this week with a neat two-legged deal. In the first part, it raised £125 million by placing a convertible preference stock, a good slice of it with its largest shareholder, Invesco Perpetual.

Unlike recent rights issues, the conversion price is at a 25% premium to the current share price.

The second leg requires it to spend £57 million of the funds raised to buy a closely associated business, Raven Mount, which is cash-rich but short of projects. Raven Russia has the projects but no cash. Now both will have both. Who needs banks?