In the past 18 months, just about every investment bubble in the world has burst. Property has collapsed, equities have plummeted, commodities have crashed, and even fine art isn’t fetching the same fancy prices.

But one bubble refuses to burst: banking bonuses.

Even after receiving billions in government money to rescue the industry, whose bonus culture has been nailed as one of the causes of the crisis of 2008, the bankers have slipped right back into their old ways.

The bonus juggernaut is staying afloat on a wave of cheap money and taxpayer support. That will be withdrawn one day, and the fallout will be huge. The banking industry should have transformed itself while it had the chance. It may well be too late for it to try now.

No one could have failed to notice the way in which bankers are starting to make mega bucks again. Last week, New York attorney general Andrew Cuomo said in a report that Citigroup Inc., Merrill Lynch and Co. and seven other big US banks paid $32.6 billion (Rs1.55 trillion) in bonuses in 2008, while receiving $175 billion in taxpayer funds.

That was 2008, during the depths of the crisis. With the markets stronger, and confidence returning, payouts this year will be even higher.

Goldman Sachs has already boosted compensation and benefits by 33% in the first half of this year, setting aside a record $11.4 billion for such payments.

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In the UK, so much evidence is mounting that bonuses are running out of control again that the Financial Services Authority, the country’s main regulator, has threatened a clampdown. It has warned that guaranteed bonuses may well violate its new code of conduct.

Now we are waiting to see what reaction there is in Germany to legal attempts by former Dresdner Bank staff to force bonuses out of the parent company, Frankfurt-based Commerzbank AG. Some of the claims have been settled out of court, and there can be little doubt the bankers walked away with handsome amounts.

German taxpayers won’t have any trouble concluding that their money is being used to bail out feckless financiers.

All the earnest talk about reforming the system has amounted to very little. There were some good ideas put forward: paying negative as well as positive bonuses, or spreading payments over several years, for example. Yet right now there is little sign of any of them being implemented.

The closer you look, the more bonuses look like a bubble. The price of bankers has become disconnected from real forces of supply and demand—just as the price of dotcom shares were at the height of that mania, or the price of new houses in the US, Spain or the UK at the peak of the housing boom.

People pay the price because everyone else will, not because they think it is really worth it. They shrug, suspend disbelief and argue that the asset in question is exempt from the usual laws of economics for some complicated reason that they don’t really have time to explain.

That is a good definition for any bubble. And each time, it’s great on the way up and nasty on the way down. After all, the last year has demonstrated that no bubble can inflate forever. On that logic, banking bonuses will collapse one day.

The question isn’t if, but when.

Right now, investment banks are being propped up by governments. Sometimes that support is explicit, through direct state investment. Other times it is implicit, in that the banks can borrow money cheaply from the bond markets or depositors because governments stand behind them. Either way, the support is what keeps the whole industry afloat.

With enough help from the government, a bubble can last for a long time. If the state had poured hundreds of billions into propping up Internet start-ups, all kinds of fly-by-night dotcom businesses might still be around.

Likewise, if the US, the UK or Spanish government had stepped into the market to buy every newly built apartment in the middle of nowhere at an inflated price, then the subprime lending boom would still be raging. Whole ministries would be wondering what they could do with buildings that no one seemed to want to live in.

The bonus bubble will pop one day. That much is certain. Governments can’t be expected to keep an overpaid elite in business forever.

Six months ago, there was some momentum behind reforming the way the financial industry rewards its staff. It could have cut bonuses, tied compensation to performance, and locked in staff to the survival of the bank they worked for.

That chance is gone. Now the industry is waiting for someone else to do the job for it. Bankers won’t enjoy it much when it happens.

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