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In a 25-year career of taking an unhealthily close interest in banks, I have very rarely encountered results as appallingly bad as those published by Lloyds this morning.

The bank says the loss was £6.3bn - which it sees as marginally better than the notional loss of £6.7bn that it would have reported in 2008 had it owned HBOS for the whole of that year (it in fact acquired battered HBOS at the turn of 2009).

Arguably, however, the loss for 2009 was almost double the number highlighted by Lloyds at £12.4bn: there is a case for ignoring a £6.1bn credit taken by Lloyds from a revaluation of some of HBOS's assets and liabilities.

But the big horror, of course, was the charge for loans and investments that have gone bad: an awe-inspiring £24bn, up from a merely horrific £15bn in 2008.

Lloyds' implied excuse is that the bulk of these losses stemmed from the insanely-poor loans to companies - especially property companies - that were made by HBOS.

But - to coin a phrase - you are what you eat. And Lloyds did not have to swallow HBOS: the bank, led by the chief executive Eric Daniels, chose to buy it.

Daniels remains chief executive.

And there will be some who may regard the other board members as having taken leave of their collective senses in deciding - in the words of Lloyds chairman, Win Bischoff - that he merited "the full payout under the company's annual bonus scheme because of his significant contribution".

Those critics would perhaps have been placated when Daniels chose to waive his £2.3m bonus entitlement.

But it is difficult to escape the feeling that there is something of a gap between how the world sees Lloyds and how Lloyds sees itself.

Take the issue of support for the British economy - and remember that this is a bank into which we as taxpayers have injected £23bn for a 41% stake, and taxpayers have also provided £157bn of emergency credit through the special liquidity scheme and the credit guarantee scheme.

Bischoff talked of "playing our part in the UK's economic recovery... by extending a significant amount of new lending to businesses and households".

And - by the way - Lloyds has a contractual arrangement with the Treasury to increase lending to UK businesses by £11bn and to home-owners by £3bn both in 2009 and 2010.

Is that in fact what happened? Has it met those lending commitments?

Well, Lloyds' published numbers do not tell that story.

In every segment of Lloyds operations, loans and advances to customers fell: by £6bn in its retail bank, by £43bn in its wholesale bank (which deals with businesses) and by £1bn in its wealth and international division.

Breaking that down further, mortgages on its balance sheet decreased by more than £10bn, credit for transport, distribution and hotels was almost £4bn down and loans to manufacturers dropped by £4bn.

Now, there are perfectly good arguments why Lloyds needs to shrink its balance sheet to strengthen itself.

But that is not necessarily consistent with what's best for stretched British industry or households.

That said, its plainly in the interests of shareholders (who include taxpayers, lest you need reminding) that Lloyds has today increased its forecast of the annual cost savings it can make from integrating HBOS's operations with its own.

These planned cost savings have been increased from £1.5bn to a staggering £2bn.

However, you won't think that's great news if you are a Lloyds employee seen as a duplicated overhead and being made redundant at a time when employment conditions in the UK are dire.

Even so, it must be in the interest of the UK that Lloyds is rehabilitated. With 30 million customers, a weak Lloyds would not be good for shareholders or the economy.

But rebuilding Lloyds is very much work-in-progress.

In that context, it is significant that Lloyds - which was desperate to avoid an additional injection of support from taxpayers - has the lowest ratio of core tier-one capital to assets (by about two percentage points) of all the big British banks.

Some analysts would argue it needs to raise quite a lot more capital - or shrink its balance a good deal more, which would further constrain its ability to lend.

Also its share price of 53p fell today and remains well below taxpayers' buying-in price of 74p.

Lloyds directors - and Eric Daniels in particular - have some way to go before they can claim to be delivering for their owners or for the country.

PS: Jeremy Hillman, editor of the ³ÉÈËÂÛ̳ News business and economics unit, has written a post at The Editors about why we have interviewed RBS but not Lloyds.

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• - What's this?

The show - perhaps even more than its calamitous 2008 figures - quite what a disaster this bank has been for Britain.

The operating loss of £6.2bn for last year was only a marginal improvement from the £6.9bn loss of the previous period.

But perhaps the most chilling numbers are these: we as taxpayers put in £25.5bn of new equity into this bank last autumn, the second instalment of the £45.5bn we have invested in total; but over the past year, the equity of this bank has increased by less than £16bn to £80bn.

So almost £10bn of the £25.5bn we've only just put into RBS has already been wiped out by losses.

Which, I think, is probably the best measure of the degree to which RBS is still haemorrhaging.

Where is the locus of the disease?

It's RBS's hundreds of billions of pounds of poor loans and investments - as shown by a loss of almost £14bn for so-called impairments (loans that the bank can't get back, or investments that have gone wrong).

This is hair-raising stuff. It speaks to a recklessness or incompetence of the banks' previous management that can make hardened hacks like myself almost weep.

So what are we as taxpayers getting for the fortune we've put into RBS?

What we're not getting is oodles of credit funnelled to businesses vital to the UK's economic recovery.

By its own admission, Royal Bank has flunked the government-set target of providing £16bn of additional loans to "credit-worthy" businesses.

It insists that's not as a result of bad faith on its part.

Royal Bank says the money is there to be lent, but that bankable businesses don't want to borrow - or, at least they don't want to borrow enough.

In fact, there has been a £12.2bn reduction to £151bn during the course of the year in the total volume of loans provided by Royal Bank to companies.

These are disturbing figures - not least in the context of the shocking official statistics released this morning on investment by British business, which showed that in the last three months of 2009 business investment fell almost 6 per cent to a level not seen since 1992.

It looks as though - as per Japan in the 1990s - unconfident British companies are choosing to pay down their debts rather than invest for the future.

But even if companies are horses brought to Royal Bank's water, choosing not to drink, there is still a question about whether Royal Bank could be doing more to encourage them to drink.

Managers at Royal Bank know that it's a board imperative to shrink a bloated balance sheet. So it's highly plausible that they're not doing enough - for the health of the British economy - to seek out viable businesses wishing to borrow.

Which goes to the nub of what the rescue of Royal Bank should have been about.

The private view of Mervyn King and those running the Bank of England has been that Royal Bank should have been turned into an instrument of economic policy, compelled to provide specific quantities of loans to industry and households.

The Treasury, however, decided the imperative was to rebuild Royal Bank as a commercial entity as quickly as possible, in the hope that this would allow taxpayers to get their money back from privatisation.

So it has allowed Royal Bank to operate as a more-or-less autonomous entity - as opposed to a potentially useful arm of the state - even though the state owns 84% of it.

So will the Treasury's strategy succeed in getting us our money back?

Investors in general remain unpersuaded.

Royal Bank's share price rose 6% today, because there is at last a declining trend to the rate at which loans are going bad and there's progress in reconfiguring the bank around a profitable core.

But at 38p, the share price is still well below the 50p price at which taxpayers' stake was acquired - so there's a steep hill to climb before this bank can be privatised to get us back our £45.5bn.

That hill could be even steeper if Mervyn King has his way.

The governor has today told the Future of Banking Commission that it is simply not sustainable for banks like Royal Bank - and Barclays - to run highly profitable investment banking operations on the back of tax-payer protected retail and money-transmission operations.

Which is an argument about how to make the financial system more robust and prevent a recurrence of the 2007/8 all-time worst banking crisis.

But if RBS were bifurcated, arguably the parts would be worth less than the whole - and taxpayers would end up deeply and permanently out of pocket.

Now, that might be a price worth paying for financial stability. But it would be a hefty price.

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• - What's this?

I have learned that the investment arm of the Treasury has written to Royal Bank of Scotland's board, giving formal approval for the bank to pay £1.3bn in bonuses in relation to its performance in 2009.

The letter from UK Financial Investment has been sent today.

Although the total value of these bonuses is less than half the £2.7bn paid by Barclays, RBS's bonuses are more controversial because the bank is 84% owned by taxpayers.

The Treasury is in effect sanctioning payments to individuals that run to millions of pounds in some cases, even though these bankers can be seen as state employees.

However ministers believe that if they were to veto the bonuses, there would be significant damage to the value of the bank - thereby impairing the prospects for taxpayers to get back the full £45.5bn the Treasury has invested in the bank.

The bonus payments will also infuriate some critics for the separate reason that Royal Bank suffered colossal losses last year.

Ignoring one-off factors, such as gains on Royal Bank's purchases of its downgraded debt, the bank is thought to have made a loss of around £5bn in 2009. The precise loss number will be unveiled tomorrow when the bank publishes its results.

In the previous year, the attributable loss at RBS soared to a UK corporate record of £24bn - due largely to the collapse in value of the rump of the Dutch bank ABN, which Royal Bank had bought.

The loss in 2009 would have been significantly greater if RBS hadn't generated colossal revenues in its global banking and markets division - where the bulk of bankers work who'll receive the biggest bonuses.

The chancellor demanded the right of explicit approval over bonuses to be paid by Royal Bank when he agreed to insure the bank against losses on its poorer quality loans under the asset protection scheme.

RBS's directors were deeply concerned about his involvement in what they see as a commercial decision that should have been kept out of politics.

As I disclosed last year, the directors were given legal advice that they would have to resign if the chancellor forced a pay policy on them which they thought would damage the business.

He has chosen not to countermand UKFI's judgement that the £1.3bn in bonuses proposed by Royal Bank is reasonable.

On Sunday, Royal Bank's chief executive, Stephen Hester, waived his entitlement to a bonus for 2009.

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• - What's this?

The government's decision to if the bank went kaput has wide implications.

The least important is that the reconstructed nationalised bank - with the bad bits taken out - is well on the way to being privatised.

More important is what it means for the security of savings at other banks.

Because while Northern Rock's savers benefited from a formal guarantee from the government, the Treasury was also in effect promising that no saver in any British bank or building sociey risked losing a penny.

So in withdrawing the Rock guarantee, the chancellor is in effect restoring an element of caveat emptor to the entire banking market.

To be clear, the banks' insurance scheme - the Financial Services Compensation Scheme - provides cover up to £50,000 per customer.

But if you have more than that in a single bank, well that increment is at risk. You can lose money if your bank has insufficient assets to meet its liabilities.

How would you know whether your bank is prudently managed or not?

There's the rub. Millions of us wouldn't have a clue how to make that judgement.

But most of us instinctively - and correctly - know that some banks are too big and important to fail, that they would always be bailed out by government were they to run into difficulties.

So those banks have an unfair competitive advantage: they attract more funds and at a lower interest rates than the smaller banks and building societies that are less important to the economy and can't be sure that they would always be protected by the Treasury from falling over.

Which is why it matters so much that those too-big-to-fail banks (you know who they are) don't abuse the protection given to them by the state - by us, by taxpayers - to take excessive risks in pursuit of incremental profit and bonuses.

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• - What's this?

Goldman Sachs' statement on its financial deals with Greece, which made the debt of this financially stretched nation seem smaller than it actually was, will not - I think - silence the many critics of the world's most successful investment bank.

In a series of deals, Goldman did two things for Greece.

During December 2000 and January 2001, it "swapped" some of Greece's Yen and Dollar debts into euros, using a "historical implied foreign exchange" rate rather than the market rate. In other words, it used invented exchange rates, rather than market rates, whose effect was to make it seem that Greece's liabilities in its own currency were less than was actually the case.

Second, Goldman took on responsibility for paying the coupon - or fixed rate of interest - on a newly issued Greek bond, and received "cash flows based on variable interest rates". Now, this is a rather opaque statement, but it implies that Greece sacrificed the certainty and comfort of fixed rate interest payments for variable ones.

So what was the effect of all of this?

Well Goldman say the deals "reduced Greece's foreign denominated debt in euro terms by €2.367bn and - in turn - decreased Greece's debt as a percentage of GDP by just 1.6 per cent, from 105.3 per cent to 103.7 per cent".

Okay, so far, so factual.

What are Goldman's justifications for entering into transactions whose primary purpose was to make it look as though Greece's indebtedness was smaller than it actually was?

Well, there seem to be three.

First, it suggests that everyone was at it. Goldman says "Greece entered into a series of hedging agreements designed to transform foreign debt into euro, a common practice by many European member states with foreign debt outstanding".

Why single out Goldman and Greece, if loads of other banks and EU countries were playing the same game, or a similar one?

Second, Goldman says that "the Greek government has stated (and we agree) that these transactions were consistent with the Eurostat principles governing their use and application at the time". Or to put it another way, they did not breach the European Union's accounting rules of the time.

And third, the deals "had a minimal effect on the country's overall fiscal situation". As Goldman points out, in 2001 Greece's debt to GDP ratio was 103.7 per cent of GDP with a value of $131bn. In 2008, Greece's national debt was 99 per cent of GDP with a value of $357bn.

In that context, deals that reduced the appearance of Greece's debt by €2.367bn - or $3.2bn at current exchange rates (as opposed to "historical implied" ones) - seems a drop in the ocean, neither here nor there.

However, there does seem to me to be a gap in Goldman's explanations and justifications - which is that they do not address the question of whether the deals were the right thing for a firm of its size and reputation to be doing.

Yesterday, one of Goldman's managing directors, Gerald Corrigan - the former president of the New York Fed - told British MPs that "with the benefit of hindsight . . . the standards of transparency could have been and probably should have been higher", in respect of such transactions.

But that seems to shift the blame to regulators who created a loophole; it's not an examination of Goldman's corporate conscience.

And here, I think, is what will concern those politicians and regulators who are currently wrestling not only with the narrow question of how to ensure that European countries borrow only what's prudent, but are also contemplating a redesign of the financial system to prevent a repetition of the kind of banking crisis we saw in the autumn of 2008.

Goldman's Greek defence carries the following momentous implication (albeit one that many will say is blindingly obvious): Goldman is in effect saying that banks will always go for the seemingly profitable deal, unless they are formally prohibited from doing so; and that it's naive to expect them to do the "right thing", in a nebulous ethical sense, unless they are obliged to do that right thing.

Which may reinforce the case of those - like the US president - who argue that the only safe bank is one that is subject to the tightest possible constraints on what it can do and has been cut down to a safe size.

But don't expect Goldman to say three cheers for that.

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Tory plans to offer a discount to retail investors who buy shares in the semi-nationalised banks are a gimmick, according to Labour and the Lib Dems.

Is that right?

The next government will have to flog well over £70bn of shares in Royal Bank of Scotland and Lloyds Bank in order to avoid a loss on taxpayers' investments.

That would be the biggest privatisation in British history - and possible the biggest in the history of the world.

It's a lot of shares to sell.

So there's sense in widening and deepening the pool of potential buyers.

Most investment bankers would tell you that generating excitement among individuals for the stock - and not relying exclusively on the appetite of investment institutions - would increase the prospects for a successful sale (yes, investment bankers can be trusted on this, even if you happen to be wary of their views on almost everything else).

This is pretty technocratic stuff. Not really a gimmick, in common parlance.

But nor is it really a programme for a new democratic form of capitalism, even if it is a sensible way to help taxpayers make a return on that unprecedented bank bail-out of 16 months ago.

In fact a number of senior City figures have been surprised at what they see as a lack of ambition in the Tory proposal.

They've been saying to me, over the past few months, that it might be an idea for a new government to simply endow most households with shares in the banks - on the argument that taxpayers own the shares anyway, having injected £70bn into them to save them from collapse.

Also it doesn't seem to make a great deal of sense to charge taxpayers a second time for something they already own.

In the act of transferring ownership from state to individuals, we'd all become share-owning capitalists, for better or worse (see more on this below).

And another thing: if the Tories think they're bribing voters with their plan, it's the most hopeless bribe of all time.

The point is that a Tory government would offer retail investors a 10% discount or so on the eventual selling price of the shares.

But George Osborne, the shadow chancellor, has made it clear that no shares would be sold till the share prices of RBS and Lloyds had risen above the price at which the Treasury bought its whopping stakes in both banks.

So RBS and Lloyds shares would have to rise by more than 30% from where they are now, before privatisation would be on the agenda.

Or to put it another way, the Tories are offering a 10% or so discount on a price that would be around a third higher than the current market price.

The Tories' unmissable offer is to sell them eggs rather more expensively than they can be had for ready money today.

All that said, the Tories are hoping to make that more serious political point, to which I alluded earlier. Which is that there has been a collapse in individual ownership of shares.

Over the past 20 years, the proportion of the stock market held by individuals has halved to not much more than 10%.

And less than one in five households own shares, down from more than one in four when Labour came to power.

I think most would say that the Labour government hasn't gone out of its way to undermine individual share ownership - but the trend of declining ownership is striking.

There is an argument - which I'll explore on another occasion - that the heroic task we face to rebuild the international competitiveness of our economy would be helped if more of us had a direct stake in our productive enterprises.

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Stephen Hester, the chief executive of Royal Bank of Scotland, is to tell his board that he won't take a bonus for 2009.

His decision follows media speculation that he was in line to receive a bonus of £1.6m - although in fact Royal Bank's board will not decide his bonus entitlement for the bank's performance in 2009 until later this week.

Hester's decision will put pressure on Eric Daniels, the chief executive of Lloyds, to turn down whatever bonus he may be offered.

Any bonus taken by Hester or Daniels would have been controversial, because John Varley - his oppositive number at Barclays - last week declined to take a bonus.

Also Royal Bank is set to announce substantial losses when it discloses its 2009 results on Thursday.

Hester is not signalling any distaste for the principle of performance-based pay - and expects to receive bonuses in future years, if he hits the targets he has been set.

City analysts believe Royal Bank made a loss in 2009 greater than £5bn, both before and after accounting for tax - which is huge and unsustainable, but a reduction on the record £24bn attributable loss it made in 2008.

Hester was recruited in the autumn of 2008 to rebuild Royal Bank, after it was rescued by taxpayers.

According to a banking source, Hester believes that public hostility to the bank would increase if he were to take a bonus and would be counter-productive to his goal of steering Royal Bank away from politics.

He believes that Royal Bank must stop being a political football if it is to recover sufficiently to allow it to be privatised at a profit for taxpayers.

As I have mentioned before, Royal Bank - which is 84% owned by taxpayers - is due to declare bonuses of £1.3bn for its bankers.

This is less than half the size of the bonus "pool" announced last week by Barclays.

Royal Bank's bonuses have yet to be formally approved by the Treasury - although I am told that the chancellor and prime minister are likely to give their approval.

Although there will be criticism of bonuses to be paid by Royal Bank, Hester - whose salary is £1.2m - believes he has to pay "the minimum he can get away with" to prevent the defections of all his best investment bankers.

Hester and the bank's board have no doubt that It would be damaging for the interests of taxpayers - as shareholders in the bank - if Royal Bank's investment bank was seriously impaired by an inability to retain or recruit talent.

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• - What's this?

It's plainly better for banks to make profits, than not (unless you are actively working for the destruction of capitalism).

So it would be foolish to dismiss - 92% up on the previous year - as of little importance.

Probably more relevant is its £9.6bn of retained earnings - because that is additional capital to underpin lending that our economy badly needs.

In fact, Barclays has become a much safer bank over the past year.

Its gross lending and assets are now equivalent to 20 times its equity capital, down from 28 - thanks to its accumulation of precious capital and because its gross assets have fallen from £2.1tn to £1.4tn.

Or to put it another way, a much higher proportion of its assets would have to go bad to bankrupt Barclays than was the case in 2008.

For which we should all be grateful - since its £1.4tn of assets is still very substantial, equivalent to the annual output of the British economy, which means that Barclays remains in the special club of too-big-to-fail banks that would always be bailed out by taxpayers.

Inevitably regulators continue to take a neurotically close interest in what Barclays is up to - and haven't yet decided whether its relatively integrated structure would allow sufficient protection for retail depositors in the event that there was a major accident in the investment bank.

It is the performance of the investment bank that is controversial in so many ways.

It should of course be said that Barclays' performance in retail and commercial banking has been pretty robust in the inclement recessionary conditions.

In the UK, Barclays made a £612m profit from retail banking and £749m from commercial banking.

That's well down on 2008, but is pretty creditable after £1.9bn of charges for bad debts.

Neither Lloyds or Royal Bank will have done as well.

However the truly big numbers come from Barclays Capital - where net income surged from £2.8bn to £9bn and pre-tax profit jumped from £1.3bn to £2.5bn.

It's that surge - in part due to Barclays takeover of the US rump of Lehman at the end of 2008 - that was responsible for Barclays paying out record bonuses of £2.7bn (see my earlier note for more on this).

Your attitude to whether those bonuses are appropriate will stem from four considerations:

1) the extent to which you hold all banks responsible for the Great Recession we've experienced;

2) the proportion of Barclays Capital's profit that is a de facto windfall from governments' and central banks' emergency measures to limit the depth of the recession;

3) the extent to which Barclays Capital takes risks that are effectively subsidised by retail depositors and taxpayers;

4) whether you think any bank should be paying bonuses so soon after all banks were bailed out by the unprecedented loans and guarantees provided to them by taxpayers (from which Barclays was a beneficiary, although unlike RBS and Lloyds/HBOS it wasn't semi-nationalised).

Tell me what you think.

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• - What's this?

Marcus Agius, the chairman of Barclays, says in his statement today that banks will be judged by how they conduct their business and how they lend and pay.

He hopes that Barclays will be given credit for lending an additional £35bn to UK households and businesses in 2009, significantly more than its commitment to provide £11bn.

He also points out that neither John Varley, Barclays' chief executive, nor Bob Diamond, the president of the bank, are taking a bonus for their performance in 2009.

Mr Varley will have to get by on his basic pay, which last year was just over £1m.

But bonuses for top Barclays employees in general were very substantial indeed.

In total, the bank is paying £1.5bn in immediate cash bonuses, and a further £1.2bn in deferred cash payments or shares.

Some 22,000 investment banking staff are receiving £191,000 each on average in salary and bonuses - of which £95,000 is a discretionary bonus.

Not a trivial sum - which some will say stems from a windfall generated by the emergency rescue of the global economy undertaken by governments and central banks, an emergency rescue that was needed in large part because of the havoc wreaked by the excessive risk-taking of banks.

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The Tory proposal for core public services to be owned and managed by "employee-owned" co-operatives contains a number of ideas rolled into one.

The two most important are:

1) organisations perform better where staff have a direct financial stake in their success or failure;

2) the role of the state should be limited to providing funds and monitoring outcomes.

This is not an example of Tory conversion to late 19th Century co-op socialism.

Although the public-sector co-ops would be "not-for-profit" in the narrow sense of not being able to bring in outside capital that could receive dividends, staff would be able to get their mits on the "financial surplus" they generate.

Most would say that a "financial surplus" is another name for profit. And outside firms with relevant skills that the co-ops need could be rewarded with a share of revenues.

So the central idea is that primary schools or JobCentre Plus offices or community nursing teams would become much more productive if teachers, or job advisers or nurses knew that they would become richer from achieving more out of less.

There are two ways of seeing all this.

The Conservatives see it as liberation from the stultifying control and bureaucracy of the state.

Their hunch is that many teachers and nurses would rather work for John Lewis - where a good year yields a de facto bonus for all - than for the faceless man in Whitehall.

Others will fear it is another nail in the coffin of a public-service ethos.

On the practicalities, I am slightly unclear about what would happen to one of these new co-ops that turned out to be lousy.

If a John Lewis style primary school were a floperoo, would all the teacher-shareholders be sacked, or only the head?

A resolution procedure for failing co-ops that didn't harm pupils - or patients of community nursing teams - would plainly be essential.

And what about the power structure within each co-op.

Would all co-op members have identical shares and equal votes on strategy and management?

Some headteachers, for example, would find such democracy profoundly uncomfortable.

Or would there be a boss or senior management team, who would have both management control and the potential to pocket the bulk of any financial gains?

The background to all of this - of course - is that revenues for public services will be under pressure for many years, as a result of the shocking state of the public finances.

For the looming general election, there are few more important debates than how public services can deliver more out of less.

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It's not often that Barclays does a favour to Royal Bank of Scotland.

But in deciding to pay something over £2bn in bonuses to its investment bankers, it will provide helpful "context" for Royal Bank of Scotland to award around £1.3bn to executives in its global banking and markets division.

On Tuesday we'll learn that Barclays is paying out around £4.5bn in total remuneration to the 22,000 investment bankers employed at its investment bank, Barclays Capital.

So average pay for Barclays Capital's 22,000 people will emerge at around £205,000 - or marginally more than the annual pay of the prime minister, and about a third less than average pay for a Goldman banker.

And something under half of this will be in the form of bonuses (though Barclays may not put the precise size of the bonus pool into print).

Meanwhile semi-nationalised Royal Bank of Scotland has more-or-less agreed with UK Financial Investments - steward of taxpayers' controlling 84 per cent stake in the bank - that it will pay out £1.3bn in bonuses to its bankers.

For the avoidance of doubt, there has not yet been a formal sign-off of RBS's bonus awards by the Treasury and 10 Downing Street.

But my sense is that the Chancellor will ultimately approve them.

So if you're a banker, you'd probably say "well done, Barclays" and "hard cheese, RBS".

Anyone else might well say "crikey" or something unprintable - because these are substantial rewards being doled out only a year and a bit since the banking industry was rescued with enormous loans, guarantees and investment provided by taxpayers.

Both Barclays and RBS will say that they are responding to the public's mood of unease about huge payments being made to their staff - and are showing "restraint".

Thus the ratio of investment banking remuneration to Barcap's revenue has been deliberately reduced by management from 44 per cent in 2008 to 38 per cent last year.

And at RBS, that ratio will be nudged even nearer to 30 per cent.

The benchmark is the world's most successful investment bank, Goldman Sachs, which paid out 35.8 per cent of its net revenues in the form of compensation and benefits for its stellar performance in 2009.

However the relevant background for assessing the supposed sacrifice bankers have made in cutting the ratio of rewards to revenues is that the past 12 months have seen a return to boom conditions.

At Barclays Capital, for example, total income rose almost 80 per cent in the first half of 2009.

So actual pay in absolute terms for most investment bankers will rise for their 2009 performance compared with 2008, even if they pocket a lower proportion of the income they generated.

For many it will be one of the best years ever for pay, beaten only by the last year of the bubble, 2007.

What's more, many would say this boom in revenues was a direct result of the emergency measures taken by governments and central banks to rescue the global economy from a mess caused in large part by the bankers themselves (as one instance, when interest rates are cut by central banks to almost zero, companies pay big fees to investment banks to refinance themselves at these lower rates).

Here are a few other relevant points:

1) Barclays will announce an enormous profit for 2009 while RBS discloses another whopping loss - so most would say that bumper bonuses look more incongruous at lossmaking RBS (although its losses would have been even more spectacular without the huge income of its global banking and markets division);

2) At both Barclays and RBS, top people will be paid in shares rather than cash, which does less damage to the banks' balance sheets and - in theory (if not always in practice) - discourages executives from taking crazy risks to generate immediate profits.

3) At both banks, receipt of most of the bonuses for most executives will be in a series of tranches over three years - with the ten most senior executives at Barclays receiving nothing for their 2009 performance till 2011.

All that said, the experience for employees in much of the private sector in 2009 was flat or declining basic pay coupled with lower or zero bonuses. So Barclays and RBS probably can't expect most British citizens to celebrate the improved fortunes of their senior staff.

UPDATE 14:31 Barclays tells me that Barclays Capital in fact employs 23,000, so pay per head is in fact £196,000 - or a tiny bit less than what the prime minister earns.

So that's alright, then.

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The pathology of banking crises and sovereign debt crises are very different.

They may stem from a similar fundamental cause: excessive debt or leverage.

But banks go kaput overnight, while countries go bust in a malaise that tends to be long and drawn out.

So although the erosion of investors' confidence in the ability of Greece to pay its debts may turn out to be as significant as the collapse of Lehman Brothers in the autumn of 2008 or the wholesale run on the likes of HBOS and Royal Bank of Scotland, they are very different phenomena.

The most important distinction is that once confidence in a bank has been lost, that's it - fat lady sings, curtains, goodnight.

How so?

Well all banks suffer from the endemic vulnerability that they borrow short and lend long. So if too many of a bank's creditors and depositors want their money back at the same time, that's a disaster - because most of creditors' money will have been lent out to the likes of homeowners or companies, which don't have to pay it back for years.

By contrast, if you happen to have lent money to the Greek government by buying a Greek government bond, you have no right to demand your money back until the redemption date on the bond (although you should be able to sell the bond to another investor).

So the moments of painful truth for governments perceived to be in financial crisis are those contractual dates when the debts they've incurred years ago have to be repaid.

According to Laurence Mutkin at Morgan Stanley, the "pressure point" for Greece will be April and May, when 20bn euros of debt and interest falls due.

In particular, one bond of 8.22bn euros has to be redeemed on 20 April.

And another one of 8.1bn euros is supposed to be repaid on 19 May.

Looking at projections of Greece's tax revenues, expenditures and cash in its central bank, it will struggle to find the 20bn euros.

However all is not lost.

In normal circumstances it would simply borrow a further 20bn euros from investors to pay off the old debt - although to state the obvious, circumstances are anything but normal.

The significant issue - which seems to have been lost in politicians' rhetoric - is that Greece faces two distinct (though related) problems.

The first is a liquidity challenge. Can it find 20bn euros to get through April and May?

If it can, then it may well be able to finance itself through the rest of 2010, since there are no other big spikes in debt payments for the rest of the year.

And, by the way, on this analysis, Ireland looks in very good shape for 2010, says Morgan Stanley, in spite of its big deficit and debt - because it has more than enough cash to cover forthcoming debt redemptions.

By contrast, the borrowing and repayment profiles for Spain, Portugal and the UK are rather more like Greece's - with some substantial financing challenges ahead.

All that said, it seems pretty clear that if the eurozone's members were prepared to underwrite Greece's 20bn euros of imminent refinancing need, that would buy the Greek's a good deal of time to sort its second challenge - how to remain solvent by cutting its public expenditure so that it comes into balance with revenues.

That is a task for heroes: it requires persuading Greek citizens to accept cuts in public services and living standards for a prolonged period.

Meanwhile the world's regulators might perhaps rebalance risk and reward a bit more in the direction of the Greek people and away from banks, hedge funds and assorted financial speculators by revisiting whether naked trading in credit default swaps should be permitted.

a searing indictment of the powerful financial motives to destabilise Greece - or Portugal, or Spain, or the UK - of those who would profit if it were to default, thanks to the bets they've made on default in the CDS market.

The author may be seen as an intriguing authority: he is James Rickards the former general counsel of Long-Term Capital Management.

For those with short memories, LTCM was once the world's biggest hedge fund, whose insane leverage and indebtedness took the global financial system to the edge of the precipice.

What's that cliche about the joy at one sinner's repentance?

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Tomorrow there's a fair chance that private equity will be able to bear testament to the old saw that bad news comes in threes.

Because I would put a reasonable wager that the board of the substantial retailer New Look - which is meeting then - will scrap its plans to begin its so-called roadshow for investment institutions that precedes a flotation.

Or to put it another way, the fashion group - like the leisure group Merlin and the travel services company Travelport - will feel obliged to delay its ambition to be listed on the stock market (although, to be fair to both New Look and Merlin, Travelport was the only one of the three that got right to the brink of listing before cancelling what would have been London's largest listing for a couple of years).

It wasn't supposed to be like this. Following last year's 50 per cent rise in stock markets, this was supposed to be the moment when private equity funds would be able to cash in some of those big investments made in the bubble years.

But it ain't happening.

So Permira and Apax will probably have to hold on to New Look for a bit longer than they would have wanted, just as Blackstone is retaining its ownership of Merlin and Travelport.

What's gone wrong?

Well it's not that there's anything intrinsically wrong with these businesses.

It's just that the big pension funds, insurers and other institutions that look after our money seem to have wised up that if private equity is selling, it isn't as an act of philanthropy.

Too many mainstream institutions have been bruised over the past decade by selling businesses to private equity too cheaply and then buying them back too expensively.

And they've worked out that for once they've got the private equity firms over a barrel - in that most companies owned by private equity are loaded to the gills with debt that needs to be refinanced in the coming months and years, in a new world where debt is no longer that cheap or easy to obtain.

If conditions in the debt markets don't improve for companies with substantial borrowings, the investment institutions know there's a fair chance that at some point the private-equity firms will be forced to sell them these companies at bargain-basement prices.

Now I am not remotely suggesting that the owners of New Look, Merlin or Travelport are or may become forced sellers.

For a pension fund with plenty of precious cash, it is probably worth a punt that they could become forced sellers in the coming months or years.

So if the private equity firms are trying to flog the businesses now, the rational response from a pension fund is to say: "we might buy shares in your businesses, but only if you slash the price".

Which, of course, the private equity firms don't wish to do, because that would kill their returns.

So the private equity firms are hanging on to their assets, in the hope that what's called the tone of markets improves over the coming months.

And if investment institutions don't regain their appetite for what private equity is selling, well we could see a lot of tearful private-equity partners (don't snigger - it's not becoming).

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The hole in BT's pension fund is a jarring £9bn, according to the formal three-yearly valuation.

That's the largest pensions deficit ever announced by a listed British company, although some analysts thought the gap could be even higher.

For example, John Ralfe - the pensions expert - thought the deficit was closer to £11bn.

Even so, £9bn is a big number. And under pensions law, this is a formal debt of the company and has to be paid off.

There are two ways of looking at this debt.

If you're a BT shareholder, it is a massive and worrying drag on BT's ability to invest, grow and pay dividends.

If you're one of 340,000 current or future BT pensioners, the hole would raise concerns about whether the business has the wherewithal to honour its financial commitments to you.

That said, what will particularly trouble BT's owners and employees is that the Pensions Regulator has substantial concerns with BT's plan to fill the hole.

BT has agreed with the trustee to pay £525m per annum into the fund for three years, and then £585m, increasing annually by 3%. Adjusting for inflation, BT would be paying in £533m each year.

That is certainly not a trivial contribution. But it won't eliminate the deficit for 17 years, which - as John Ralfe points out - is longer than the 10-year repayment schedule which the regulator normally prefers.

However, BT pensioners have protection not normally afforded to members of private-sector schemes: when the company was privatised in 1984, the government gave a commitment that it would honour the pension liabilities to those who belonged to the scheme at the time, in the event that BT were ever to go bust.

The degree of protection that provides to today's scheme is not 100% clear. BT's trustees believe that it means that the state - that's us, taxpayers, by the way - would be on the hook for just under 75% of the scheme's current liabilities.

To end any uncertainty, the trustees have taken the issue to court, for clarification of the extent to which taxpayers would be liable, if the worst came to the worst.

Were the court to rule that taxpayers are standing behind the lion's share of the scheme's liabilities, that might persuade the regulator that BT's £533m annual payments into the fund are sufficient.

On the other hand, the regulator might look at today's third-quarter results from BT - and note that the business is recovering faster and stronger than BT thought would be the case a year or so ago.

For example, BT now expects to generate free cash flows of £1.7bn this year, 70% greater than its initial prediction.

And although BT has slashed its dividend, it is still planning to pay dividends.

It is not implausible that the regulator will eventually rule that BT should work more for its pensions and less for its shareholders - which would imply that the company would have to pay even more into the pension scheme.

That said, the regulator would not want to impose pension payments that were so large that they hobbled BT, because that would damage pensioners as well as shareholders.

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Name the following business.

It has a workforce of 39,000 outside the UK, with just 6,000 staff in Britain.

Its biggest business is chewing gum.

The focus of much recent investment has been Poland, to replace UK production.

And 50% of the business and management came from the takeover of the confectionery company Adams from an American drugs business some five years ago.

Who is this faceless, heartless global conglomerate, which opportunistically shifts its capital and people to wherever the financial returns are greatest?

It's Cadbury.

Not quite the image that you might have had in your mind in the closing stages of its struggle to repulse the takeover offer from Kraft.

You may have had a vision of a do-gooding, paternalistic, Quaker chocolate-maker, keeping the hearths burning in a picture-postcard Victorian model village in the Midlands.

Hmmm. A little bit anachronistic that, the stuff of Enid Blyton - to quote no less an authority than Roger Carr, who has just stepped down as Cadbury's chairman in the wake of it being swallowed whole by Kraft.

So what was all the fuss about? Why on earth did anyone care whether Cadbury was taken over by an enormous American maker of processed cheese, if in reality it was more global corporate citizen than chummy Brummy with union flag vest?

It's for three reasons:

1) there is intellectual property at Cadbury that is more valuable to the business reputation of the UK than the statistics on where it employs people would suggest;

2) the location of its head office here means that it has a natural bias to award high value contracts to other UK based firms;

3) in the game of cross-border takeovers, the playing field is tilted - so that it is much easier for overseas companies to buy in the UK than it is for British companies to buy overseas (though as Cadbury demonstrates, it is certainly not impossible to buy abroad).

Cadbury was probably just the thin end of the wedge. We haven't surrendered our entire economy into the hands of faceless, heartless foreigners with the transfer of Cadbury into Kraft's belly.

But maybe we should reflect for a moment about the implications of the official government policy that everything is for sale at the right price, now that so much of our transport system, medical research, utilities, communications, basic manufacturing and so on is in overseas hands.

Carr certainly believes this is a moment for contemplation. He made a series of provocative observations about how and why Cadbury was taken over in a speech last night at the Said Business School in Oxford.

Perhaps the most important was that short-term traders and hedge funds increased their holding in Cadbury during the course of the takeover battle from just 5% to 31%.

Now those holders wanted only one outcome, the sale of Cadbury, because only through a sale could they lock in their capital gains.

For Carr, once they owned a third of the company, Cadbury's prospects of staying independent was zero - because Kraft only had to persuade holders of a further 20% to support the bid in order to win.

This is how Carr puts it:

"It was the shift in the [share] register that lost the battle for Cadbury. The owners were progressively not long-term stewards of the business but financially motivated investors, judged solely on their own quarterly financial performance...
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"There were simply not enough shareholders prepared to take a long term view of Cadbury and prepared to forego short term gain for longer term prosperity...
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"At the end of the day, individuals controlling shares which they had owned for only a few days or weeks determined the destiny of a company that had been built over almost 200 years."

So if that's a problem - and, let's be clear, some would say it's not - what's the solution?

Well, Carr - who is no ideological opponent of free markets - believes there is a strong case for disenfranchising those who buy shares during the course of a takeover bid. Which would mean that the outcome of a bid would be decided only by those who have invested in the target company over a longer period.

So he would agree - in thrust rather than detail - with that investors should have to hold shares for a few months before being able to vote them.

To be clear, ministers have traditionally rejected such prescriptions, fearing that cure would be worse than illness - that differentially weighting votes on shares based on longevity of ownership would tend to entrench incompetent or venal managers running poor-performing companies.

The very British fear has always been that it's only the constant threat of takeover that keeps lazy corporate directors on their mettle - and it would therefore be bad for British productivity if that threat were diluted.

But my very strong impression of a quarter-century of sleeping with the business community - so to speak - is that the quality and dedication of managers has vastly improved.

Also there is some - but not enough - evidence that investment institutions are starting to behave like responsible owners.

Or to put it another way, they may more routinely replace poor management while retaining shares in those managers' businesses, rather than dumping the shares as the only way of signalling unhappiness with the directors.

So there may be merit in the Carr/Cable idea of legislating such that shareholders would earn the right to vote by demonstrating that they're long-term investors rather than fly-by-night traders.

All that said, the most resonant part of Carr's lecture will be widely seen as a dagger to the vitals of Peter Mandelson and the government.

This is what he said:

"If government really does care, it is essential they decide in advance of a bid if a company is of strategic importance, publicly confirm that position and develop an instrument that may be applied to dissuade or derail a bid if an asset is declared of strategic importance...
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"What is really important is that those in power address these issues and decide their stance in advance of the next assault on our industrial landscape rather than bemoan their fate after the ship has sailed".

I am not altogether sure about Carr's landlocked ship. But many will applaud his call for serious re-examination of whether selling England by the pound is the true route to the top of the industrial Premier League.

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It is perfectly possible to win general elections without the support of the City and the bosses of substantial private-sector companies.

Although it doesn't normally do harm to have the rich and powerful on side - which was certainly the view that Tony Blair took as leader of the opposition Labour Party in 1996 and 1997 with his turbo-charged charm offensive on the grandee class.

So it may not be trivial that the Tories have dazed and confused a fair number of business leaders over the past fortnight.

For what it's worth (and the value of anecdote shouldn't be overstated), the question I am most often asked right now when chatting to the bosses is "have the Tories blown it?"

Which is probably a bit of pre-election hysteria. But probably shouldn't be dismissed by the Conservatives as utterly peripheral to their electoral prospects.

What miffed the more successful capitalists was what they saw as.

They felt his previous message - that it must be a new government's top priority to cut the public sector down to an affordable size - had been diluted. They didn't like that.

And today they're a bit uneasy about as chief executive of the Financial Services Authority - because it is an open secret in the City that he is opposed to the Tories' plan for breaking up the FSA and transferring the supervision and regulation of banks to the Bank of England.

It is not that he's a much loved figure. He would not be seen as a soft touch by senior bankers. If anything, he has a talent for irking them (which is presumably what you would want from someone in his job).

But he is widely seen to be significantly more competent than is the norm for regulators - partly because he has the rare distinction of having had a successful career at the sharp end of investment banking before becoming a gamekeeper (the measure of which is that he never actually needed the money of his regulator's salary).

And it is not good for any political party to be perceived to be snubbed by the competent.

Sants takes the view that dismantling the FSA and enlarging the Bank of England - - is an unnecessary distraction from the imperative of improving the performance of the regulatory body.

Many in the City would agree with him. And even if their credibility isn't what it was in the wake of the credit crunch, the Tory leader and his shadow chancellor would presumably prefer to have them in the tent rather than outside.

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Readers of this column will be well aware that the measures taken by the British government to prop up the banking system and limit the depth of our recession were an emergency life-saving procedure - and that they created all sorts of dependency problems for the British economy that will take years to fix.

Think of our banks, in particular, as hooked up to a life support machine of guarantees and loans. If that drip-drip of sustenance was turned off with a sudden click of the switch, well the banks themselves would become pretty poorly again - and, perhaps, more importantly there would be a profound and unpleasant impact on all of us, their customers.

Mortgage banking is one business that remains hooked on taxpayer support in a way that most would say is unhealthy: via the Special Liquidity Scheme, our banks have dumped mortgages in the form of mortgage-backed bonds on the Bank of England in return for Treasury Bills, or the equivalent of cash, worth £178bn; and the Treasury has guaranteed fund-raising by banks to the tune of £134bn through a Credit Guarantee Scheme.

In effect, that is £314bn of credit provided to mortgage providers by us, by taxpayers.

And what do you think would happen if we demanded all that money back tomorrow? It's doubtful that a single new mortgage would be provided for some time.

Fortunately, that is not going to happen. The Bank of England wants its £178bn of bills back at the end of 2012, which is also when the majority of taxpayer guarantees expire that banks have taken out under the Credit Guarantee Scheme (although the final maturity of the CGS is 2014).

But for banks, 2012 does not seem that far off.

Any banks providing mortgages with a maturity of 25 years will see 2012 as more-or-less the day after tomorrow, or too soon for comfort. It would not be prudent or rational for banks to significantly increase the volume of long-term mortgages they award, knowing that they have to repay some £300bn to their creditors - in this case us, as taxpayers - in just a couple of years.

Which is why the recent recovery in the supply of mortgages and in the housing market looks somewhat fragile.

And it is also why the Council of Mortgage Lenders - the lobby group for mortgage banks - warned the government last week about the .

The mortgage banks' case is supported by the Bank of England's last Financial Stability Review, which makes a number of important points.

The Bank of England says that the ideal solution would be for the deposits of household and corporate customers to grow by 10% a year (which is not far from the growth rate before 2007) and for lending to grow at say 4 or 5% a year. That would close the gap between what banks lend and what they borrow from customers over four years.

Now the good news is that individuals are saving more. The bad news for banks is that we're putting a disproportionate share of our new saving into unit trusts and products other than bank accounts. So according to the Bank of England, household deposit flows to UK banks increased by only £6bn between June and December - which is a veritable drop in the £300bn ocean of taxpayer credit that needs to be repaid.

What's just as troubling for banks, and for those who may be thinking about taking out a mortgage, is that banks are having to pay considerably more to retail savers for their wonga: the increment over the official Bank Rate paid by banks on fixed rate savings bonds has gone from next-to-nothing two years ago to almost two percentage points today.

And if banks are paying more to savers for their money, they will charge borrowers more.

So what about wholesale sources of funding? Although it was banks' excessive dependence on these flighty, unreliable sources of finance that took too many of them to the brink of collapse in the dire conditions of 2007 and 2008, wholesale finance is not by definition evil.

Wholesale finance would be okay if it could be made relatively secure for the long term and was not too pricey.

But here's the thing. The so-called securitisation market, where banks package up bonds for sale to investors, has not recovered properly yet. The market remains sick and small, although it has re-opened. It is not remotely possible (even if it were sensible, which is moot) for banks to wean themselves off taxpayer support by securitising mortgages and selling them.

The other important wholesale market, for short and medium term bank debt, is also a long way from functioning normally. And one historically important source of wholesale funds for British banks, the US money market mutual funds, has become much smaller, due to regulatory changes in the US.

There's a final indignity. Let's say banks were to succeed in tapping wholesale markets for longer-term finance that made them less vulnerable to unpredictable swings in the supply of money. Well that would cost them an extra £5bn a year, according to the Bank of England, based on the current structure of interest rates - whose cost would be passed on to borrowers (yikes).

In other words, there is an acute risk of mortgages becoming either scarce or very expensive or both, if the government were to insist that taxpayers get their £300bn back in 2012 or so. And that in turn would almost certainly prompt a further housing-market dip.

But what if the government were to extend the £300bn of support? That too would be dangerous, because it would risk seeing the £300bn of bank succour classified (either formally or in the eye of investors) as part of our national debt, at a time when public-sector borrowing is rising far too fast.

And adding a further £300bn to the national debt would further undermine the confidence of those who lend to the government, at a time when their confidence is a little bit too fragile for comfort.

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The charge to which BAE Systems has pleaded guilty in the US is chronically embarrassing for Britain's biggest manufacturer.

The US Department of Justice says that, from 2000 to 2002, BAE knowingly and wilfully misled the US government by failing to honour a pledge that it would be rigorous in ensuring that no payments would be made to officials of governments when trying to win business from those governments.

The charge filed in a District of Columbia court claims that after May and November 2001 vast secret payments - of over £135m and $14m - were made by BAE through an offshore vehicle to marketing advisers and agents without proper scrutiny.

The court document also contains details of £19m in secret payments by BAE to an unnamed person who helped BAE sell airplane leases to the Hungarian and Czech governments.

The Department of Justice also lists services such as holidays provided to an unnamed Saudi public official and cash transfers to a Swiss bank account that it says were linked to the £40bn Al-Yamamah contract to supply military equipment to Saudi Arabia.

BAE says there has been a revolution in its corporate culture and it has cleaned up its act.

But the US Department of Justice's charge is serious and damaging to BAE's reputation.

What did BAE stand to gain from what the Department of Justice calls its various false statements to the US government?

More than $200m by the Justice Department's reckoning.

BAE presumably now reckons it has paid too steep a price for that revenue.

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BAE Systems, the UK's biggest manufacturer and one of the world's most substantial defence companies, is pleading guilty to a charge of conspiring to make false statements to the US government, and will pay a fine of $400m (£250m).

Also, under a global settlement, it has reached agreement with the Serious Fraud Office to plead guilty to one charge of breaching its duty to keep accurate accounting records in respect of payments made to a former marketing adviser in Tanzania.

In relation to the British offence, the company will pay a penalty of £30m, some of which will be a fine, and some of which will be a charitable payment to Tanzania.

The last of the offences was committed in 2002. BAE has since reformed the way it conducts business.

However it is a serious embarrassment to BAE that it is pleading guilty to criminal charges in Britain and America.

The US fine, agreed with the Department of Justice, relates to undertakings it gave to the American government in 2000 and 2002 in relation to the probity of the way it conducts business.

It is understood that the Department of Justice concluded that BAE breached these undertakings in relation to payments and support services provided to an unnamed Saudi official, as part of the £40bn Al-Yamamah contract to supply military equipment to Saudi Arabia.

There was also an infringement of restrictions on the supply of sensitive US technology in deals to supply aircraft in Hungary and the Czech Republic.

Although the UK penalty is far less than Britain's Serious Fraud Office was seeking, it is thought to be a record penalty for a criminal offence by a company in the UK.

The British charge stems from an $39.5m contract signed in 1999 to supply a radar system to Tanzania.

Although the fines will be seen by some as damaging to one of the UK's most significant companies, BAE's directors are relieved at what they see as a final settlement of a controversy that has dogged the company for years.

BAE has been advised by its lawyers that the fines are fair.

Update 1641: This is what the US Department of Justice has today said about BAE. It is very strong stuff.

"According to the criminal information filed today, BAE Systems is charged with intentionally failing to put appropriate, anti-bribery preventative measures in place, contrary to the representations it made to the United States government, and then making hundreds of millions of dollars in payments to third parties, while knowing of a high probability that money would be passed on to foreign government decision makers to favor BAE in the award of defense contracts. BAE Systems allegedly failed to disclose these payments to the State Department, as it was required to do under U.S. laws and regulations in order to get necessary export licenses."

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A couple of years ago, when I was making my documentary "The Greed Game," Stephen Schwarzman - the legendary founder of the private equity firm Blackstone - said that he relishes downturns in markets and economies.

No great mystery why: the woes of others throw up opportunities for buyout firms like Blackstone to acquire businesses and assets at keener prices.

That said, at the time Mr Schwarzman probably under-estimated the extent to which debt finance for firms like his would dry up for a period

The recovery at big private equity firms like Blackstone has been slower and harder than some would have expected.

Because for much of the past couple of years, the value of the assets on their books has fallen and the once-bitten banks have been reluctant to lend to them for takeovers.

But buyouts are coming back. At Davos, I was chatting to a private-equity pioneer almost as prominent as Mr Schwarzman. And this normally lugubrious character almost cracked a smile.

The leading firms can borrow again: less than before; and on lower multiples of the target companies' respective cash flows.

But although poor Guy Hands of Terra Firma may be floundering around in EMI's $5bn of debt, things are looking up for private equity in general.

Quite a few firms bought by private equity in the boom years - the likes of the leisure conglomerate, Merlin - will be sold on to the stock market in the coming few weeks, unless the recent wobbles in stock markets become something a good deal worse and investors' appetite evaporates.

That said, the real boom in takeovers is coming from a more traditional source.

Giant companies - such as Warren Buffett's Berkshire Hathaway and the food group Kraft - have been the great beneficiaries of savage reductions in interest rates and the creation of oodles of new money by the US Federal Reserve, the Bank of England, and the European Central Bank.

In rescuing the global economy, the western central banks have rescued the traditional mega takeover.

I'm not sure whether King and Bernanke would describe this as collateral damage or just one of those things.

But they have accelerated the corporate Darwinian process of reinforcing the market clout of the world's biggest and strongest businesses.

Because huge companies are currently able to raise record-breaking sums at very low interest rates by selling bonds to investors.

Kraft, for example, yesterday raised $9.5bn to finance its takeover of Cadbury.

And Berkshire Hathaway sold $8bn of notes to fund its acquisition of the railway group, Burlington Northern Santa Fe.

These are both among the 15 biggest corporate bond deals ever.

Kraft and BH may be paying a smidgeon more for this money than would have been the case if there hadn't mean a minor global tremor caused by the collapse in confidence in the ability of Greece to service its debt.

But with the interest payable on the different tranches at low to middling single-digit interest rates, this is cheap debt - cheap enough to finance the purchase of substantial companies like Cadbury with stable profits

Here's a fascinating statistic: Bloomberg has calculated that US companies are spending the highest portion of bond-sale proceeds in more than a decade - or around 70 per cent - on takeovers and expansion.

Where the US leads, the UK usually follows.

Which means that so long as global markets don't seriously crack as the result of growing concerns about heavily indebted countries' ability to pay their way - and that is a big if - then the Fed and the Bank of England may have fuelled a return to boom boom in takeovers.

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We're about to have official confirmation of one of the biggest-ever losses on a private equity investment.

EMI's results for 2009 will show that it generated earnings before interest, tax, depreciation and amortisation of around £300m.

Multiplying that £300m by six or seven - the standard valuation multiple these days - gives a notional value for the whole of the recorded music business of something like £1.8bn.

Now EMI was bought by Guy Hands' Terra Firma private-equity firm for more than $8bn in the autumn of 2007 (note that I have now switched into US dollars)

That takeover was financed with of $3bn of equity, provided by Terra Firma and its backers, and with $5bn of debt, provided by the giant US bank, Citigroup.

And just a few months ago, Terra Firma put in a further $500m of equity.

So if the business is now worth £1.8bn, that is equivalent to $2.8bn at today's exchange rate.

Which means that every single cent of Terra Firma's equity has been wiped out. It also means that Citigroup is facing a loss of more than $2bn on the loans it provided.

The total loss for Terra Firm and Citi together would be something like $5.7bn.

Ouch.

So is the game up for Terra Firma and Guy Hands?

Apparently not.

It will undoubtedly be in breach of the covenants or terms of the loans from Citigroup as of March, and will be continue to be in breach every time those covenants are tested each quarter for the rest of the year.

However, to use the jargon, those covenant breaches can be "cured" if Guy Hands can persuade Terra Firma's backers to stump up £120m in the next month or so.

Were they to provide the £120m, they would retain voting control of EMI and would prevent it from automatically slipping into the clutches of Citigroup.

Why would they want to pump more good money into EMI having provided quite so much money that wasn't just bad but putrid?

Well, to do so would provide their only chance of recouping some of their losses - on the assumption that EMI is over the worst and that the business will gradually recover.

Not that it's a total dud even now.

That £300m of EBITDA was sufficient to pay the £215m of interest on the debt.

That said, the bottom bottom line for 2009 looks horrendous: there's a net loss of something like £1.5bn, because of write-offs of goodwill and intangibles.

Which is no more than an accounting confirmation that Hands and Terra Firma paid far too much for this business, just before the global economy went bang.

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Royal Bank of Scotland has written to its biggest shareholders saying that:

"it plans to make a downwards adjustment to the bonus pool that would otherwise have been awarded, to take into account the prevailing climate of opinion on bonuses, including that exemplified by the new UK tax on discretionary bonuses".

In other words, Royal Bank of Scotland will be paying smaller bonuses for its performance in 2009, in response to widespread concerns that bankers are being paid too much.

But how much less exactly?

Well the shareholders to whom I've spoken say they agree with another part of RBS's letter to them, which says that "the goal remains to pay the minimum consistent with long-term shareholder value".

And protecting shareholder value, according to the letter, requires "retention and motivation of employees and inevitably with regard to competitor practice".

Or to put it another way - and this is something that RBS's chief executive has said to MPs - the bank should pay the minimum it can get away with.

I'll come back to what that may mean, in a minute or two.

But first it is probably worth pointing out that this process of consulting shareholders is somewhat artificial. Because the biggest shareholder is the great collective of British people: the government's voting stake in RBS is 70% and its "economic" interest is higher, at 84%.

In other words, the only shareholders who really matter are all of us, as represented, by the chancellor of the exchequer, who - in turn - has delegated most of his responsibilities for the shares to UK Financial Investments.

Against that backdrop we had the slightly surreal prospect yesterday of the Treasury's City minister writing to shareholders urging them to put pressure on the big banks to limit bonuses: some would say that, in view of the Treasury's controlling holding in RBS, he was writing to himself.

Now if Lord Myners had asked you what bonuses should be paid to bankers anywhere (and not just at RBS), you would probably come up with a very small number indeed, one that's adjacent to zero.

And, as it happens, that's what Vince Cable, the Liberal Democrat's Treasury spokesman, thinks should be awarded to Royal Bank's executives and traders.

But Cable's conviction that nil is the right quantity for bonuses stems from another of his convictions, which is that the state should retain ownership of RBS for 10 years - and use the bank as an instrument of economic policy (by, for example, forcing it to lend more) rather than grooming it for privatisation as quickly as possible.

So it would be no great concern to him if Royal Bank's investment banking and trading businesses were damaged by a policy of paying their people considerably less than the market rate.

If Royal Bank were hurt by the wholesale resignation of bankers sore at what they perceived as their low pay, well Cable would argue that another bunch of masters of the universe could be rounded up and hired over the coming years.

The chancellor, however, doesn't want to wait 10 years to sell Royal Bank back to the private sector. Which is why he has instructed UKFI to manage our stake in the bank to maximise its value and facilitate its disposal over the coming few years.

Alistair Darling's policy is therefore - on the face of it - not that far from Royal Bank's board: he'll hold his nose and sanction what he thinks is the least Royal Bank can pay to protect the interests of taxpayers.

But that will be devilishly difficult to put into practice - because let's not forget that although Royal Bank's rivals are showing what they call restraint, they are still paying millions of dollars each to their executives.

For example, Goldman has implied that it is paying 20% less remuneration to staff than it would have done had it followed normal practice. But it is still shelling out $16.2bn in total or about $500,000 on average per head.

So it is utterly conceivable that what Royal Bank's board thinks is the right number will be more than the chancellor feels will be tolerated by British citizens: and, for the avoidance of doubt, there has not yet been an agreement between Royal Bank's board and the chancellor on the so-called bonus pool for 2009.

By the way, there is a systemic issue here, in that many bankers would agree there is no great logic to the disproportionate share of investment banks' revenues that go to staff rather than to shareholders or to customers (in the form of cheaper products).

And some might say in that context that it is no accident that most of the world's big universal banks - those which combine investment banking and retail banking - are run by former investment bankers (which was not the case 20 years ago): of course they'll oversee a remuneration system that suits their ilk.

But let's return to Royal Bank's dilemma.

First it should be pointed out that it is doing what regulators (and the Treasury) would say is the correct and prudent thing, of paying all its big bonuses 100% in shares and in staggered tranches. None of its direct competitors have gone as far in that direction.

But for most of us, what matters is not how the bonuses are paid, but how big they are.

Well Royal Bank will pay some lucky bankers many millions of pounds each. As for the total sum, well back in early December I said the board was planning to pay bonuses worth around £1.5bn in total.

I am sure it will now pay less than that, because of what it calls the "prevailing climate of opinion".

But the logic of preserving the integrity of its business in an industry where big pay is the norm - where some would say there is systematic over-payment - means that it will pay a quantity that will shock the many and delight only the few.

If Royal Bank pays less than £1bn, you'd be able to knock me over with a 50-quid note.

UPDATE 1320:By the way, if you buy Royal Bank's argument that it needs to pay the minimum possible bonuses commensurate with keeping its investment bank intact, how would we know whether that is what it has in fact done?

Well one way would be to calculate the ratio of the aggregated sum of what it pays its investment bankers to the net revenues of its investment bank, and then compare this so-called compensation ratio with the equivalent ratios of other banks.

Now in the good years, investment banks tended to pay out around 50% of revenues to staff.

But chastened banks have been distributing a smaller proportion of the spoils to bankers this year: so, for example, Goldman's comp ratio for 2009 is 35.8% and JP Morgan's (which uses a different method of calculation) is similar.

Arguably, if RBS's comp ratio emerges at nearer 30%, it can claim that it is being as parsimonious (which is a relative concept) as would be allowed by its perceived need to retain and motivate its people (who, as I've mentioned, won't get out of bed in a collective sense for less than £1bn in toto).

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The first strike in its 105 year history is looming at the AA.

Alistair MacLean, the National Secretary of the AA's union, the Independent Democratic Union (IDU), has told me that a strike ballot of 5000 members will be announced tomorrow, unless there is a last-minute change of heart on plans to cap benefits in two AA pension schemes.

The AA's management wants to put a ceiling on annual rises in pensionable salaries (the salaries that qualify for a pension), to raise employee contributions and also to reduce the maximum annual rise in pensions paid to 2 ½ per cent a year.

The AA is part of a conglomerate called Acromas, which also owns Saga, the travel and financial services company that sells to those over 50.

Acromas, led by Andrew Goodsell, is aiming to reduce a £190m deficit in the pension scheme.

The final-salary scheme is closed to new joiners, but Acromas believes it is being more generous than some other companies in keeping the scheme open for contributions to existing members.

The dispute will bring back memories of tensions between employees and management after the motorcar emergency breakdown service was bought by the private equity firms Permira and CVC in the summer of 2004.

The AA became the lightning rod for criticisms that private equity firms were asset strippers that load up companies with dangerous quantities of debt.

In June 2007, the AA was merged with SAGA to form Acromas. The merger yielded huge profits for CVC, Permira and for SAGA's owner, Charterhouse.

The three private equity firms retain big stakes in Acromas, which is said to have performed pretty well in the recession.

Mr MacLean said rumours were rife that Acromas was being groomed for a flotation, which could again see vast profits generated for its owners.

However I understand that Acromas will not be joining the stampede of companies that are endeavouring to be sold on the stock market over the coming three months.

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Stephanie Flanders has written a fascinating piece about the Tories' attempt to cut just enough, were they to win office, such that the Bank of England won't feel minded to increase the cost of money.

She asks whether David Cameron's apparent desire for a negotiated entente with the Bank of England would taint the central bank's hard-won independence.

But there's another more immediate risk from what has been widely seen as a watering-down of the Tory leader's determination to make a decisive start in cutting the UK's ballooning deficit (which you may have seen ): will it give the willies to those who lend to the British government?

Because - as you probably don't need telling - there are investors who believe that decisive action to reduce UK public-sector borrowing is needed sooner rather than later.

And any concern that investors may have at the current government's preference for both deferring cuts and resisting the temptation to say precisely what would be cut has hitherto been allayed by their conviction that the belt-tightening Tories would win the election in the spring and do what's necessary.

Arguably, it was investors' confidence that the axe-wielding Conservatives would triumph that has made it easier and cheaper for the current government to borrow the record-breaking sums it needs in the gilt markets.

Alistair Darling would deny that he's been leveraging the fiscal credibility of the Tories, but not all analysts would agree.

So what if the Tories are no longer quite so fiscally credible?

What if the Tories would cut the deficit slower than investors deem essential? What then?

It is still the painful case that a record-breaking £200bn-odd of gilts has to be sold this year and next.

In theory, if the Tories are slowing the repayment profile for the national debt, the interest rate the government pays on those gilts would rise.

It's probably also worth pointing out at this juncture that the Tories' lead in opinion polls over Labour has also narrowed, so they're not quite the shoo-in they were to win a decisive result in the election.

Also, it is an intriguing moment for the Tories to be muddying their position on when to cut the debt.

The innocent explanation is that it is a response to growing and widespread fears that economic recovery in the UK is far from robust or entrenched - so Messrs Cameron and Osborne would not want to be seen to be killing off the buds in a sharp frost of public-expenditure reductions and tax increases.

But among bankers and investors it's the world-leading scale of Britain's indebtedness that is nearer the front of consciousness. If anything, the bigger risk to the UK right now is a crisis of confidence in the financial community about the credit-worthiness of the UK.

To be clear, there is no direct read-across (to use the dreadful business cliche) from Greece's acute difficulties in borrowing: the UK's finances are in better shape than Greece's, the UK economy is more flexible than Greece's and there isn't international pressure on the UK to improve the accuracy and reliability of government book-keeping.

That said, at Davos, for example, perhaps the biggest talking point was McKinsey's epic study of the respective debts of major economies, .

This is not pleasant reading if you're British.

It shows that - of the world's biggest and richest countries - the UK and Japan are far-and-away the world's most indebted countries.

This is on the measure that adds together the debts of households, companies, government and financial institutions, and then compares that sum with GDP, or what the country produces.

On that basis, in 2008, the UK's debt to GDP ratio was 469%, the highest in the the world, compared with 459% for Japan. The ratio of heavily indebted America was "just" 300% in US.

Arguably, the foreign lending of our very international banks should be excluded from the calculation. But even on that basis, the UK's debt-to-GDP ratio was 380%, so still considerably higher than any other big economy other than Japan.

Now McKinsey points out that our debt-to-GDP ratio fell a smidgeon in the first half of 2009. But not enough to be statistically or economically significant: on the unadjusted numbers, UK-debt-to-GDP was 466%, compared with 471% for Japan.

Now the degree to which we should be worried about that depends on considerations such as whether the size and international nature of our banking sector is a source of concern or celebration, and whether the UK's relative housing scarcity means that a massive rise in housing-related debt over the past decade is sustainable.

McKinsey's main thesis however is that slow economic growth is an almost inevitable consequence of high relative indebtedness.

It gives detailed empirical form to an argument you'll have read here many times over the past couple of years.

And it's very much at the forefront of policymakers' thinking - as shown in an by Andy Haldane, the Bank of England's executive director for financial stability.

Mckinsey's analysis is also explicitly cited by Bill Gross, managing director of the leading bond investor, Pimco, in his - which has attracted a bit more attention than normal and says:

"The UK is a must to avoid. Its gilts are resting on a bed of nitroglycerine. High debt with the potential to devalue its currency present high risks to bond investors" (for gawd's sake Bill, say what you mean).

Certainly not all bond investors are as down on Britain as Mr Gross. But with the ratings agency, S&P, last week nudging down the "industrial" credit-rating for British banks, it would be fair to say that there's a degree of nervousness about the future course of the
pound and British government bonds.

And there's particularly high anxiety for those who believe that the main prop to demand for gilts has been the Bank of England's Quantitative Easing programme to buy £200bn of them.

Now if you were a conspiracy theorist, you would note that David Cameron's change of tone on debt-reduction coincides with what will probably be the most important financial decision this side of the general election - that is whether the Bank of England will stop buying gilts.

If he has made the fiscal position of a future Tory government less clear, he has made the Bank of England's decision on whether to withdraw support for the gilt market that much more complicated.

And - you could argue - that Mr Cameron has increased the risk that investors will stop lending to HMG or demand much more onerous terms.

Which, of course, would upset him, but perhaps his personal pain would be rather less if any sterling crisis were to happen before the general election.

UPDATE 13:01

By the way, and to state the obvious, if David Cameron has postponed the date when a Tory government would cut the deficit, that may put pressure on the troika of leading rating agencies to bring forward their reviews of whether the UK should keep its AAA rating for sovereign debt.

Ouch.

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