Has nothing been learned? Apparently not. Stephen Hester, the chief ­executive of RBS, will get a pay deal worth £9.6m, ­although he is in ­effect a public ­servant, working for us, the bank's ­owners. His bonus is tied to a high share price, the very incentive that caused the bubble and crash in the first place. Perversely, his bonus encourages him not to lend, though the governor of the Bank of ­England urges banks to lend more.

As a small extra, RBS executives are spending some £300,000 on entertaining one another at Wimbledon. Reclaiming some of Sir Fred Goodwin's super-sized pension failed to distract attention from these excesses. It's not surprising Sir Fred says he needs police protection when he returns to his Edinburgh home, since the unemployed and repossessed may feel like bricking the windows of all those who helped crash the economy. Compared with what's happening in the City, MPs' expenses are chicken feed (though none have yet actually claimed for chicken feed). Fury over parliamentary petty greed has displaced what should be a spontaneous uprising against the bankers who have caused such widespread damage.

Who agreed this? Sir Philip Hampton, part-time chair of RBS, and unusually for a non-exec himself paid £750,000 plus a bonus of £1.2m. Last Friday the deal was agreed by UKFI, the new body supposedly overseeing the taxpayers' stake in failed banks. Well, it would agree, wouldn't it? UKFI's board is packed with former directors of failed banks. The chair worked in crashed Citigroup, another was Citi's chief UK officer, another worked at collapsed Merrill Lynch, one came from bailed-out UBS, another from near-miss Credit Suisse. Just two are from the Treasury.

At the Mansion House last week Alistair Darling gave a speech calling for bank boards to have "the right people and the right experience ... making the right call at the right time". Yes indeed; but that £9.6m fee will prove to be the wrong political call. "We cannot go back to business as usual" the chancellor said, but UKFI did just that, because the people he appointed know nothing else. Group-think is what he hired, and herd behaviour is what he got. Hester's salary is, they say, broadly in line with other UK bank chiefs. These people are plainly incapable of imagining how it looks to the citizenry outside. The UKFI board includes no outsider, not one rebellious academic or free-thinking economist.

The chancellor agreed this deal in advance. The Treasury says ­Hester won't get the full whack until he ­delivers a £15bn profit for the taxpayer, after the elapse of three years – and it can be clawed back. "The government feels comfortable with these terms. This is the model we want for all banks." RBS, they remind us, is as big as the British economy – but then why isn't he paid the same as the chancellor, or vice versa? "People are motivated by different things and bankers are motivated by money, whereas chancellors are not so much." Look, Bob Diamond of Barclays earns far more, they say. "We have benchmarked this deal against the market." Yes, but that "benchmarking" is exactly how top pay has been inflated from 15 times the average worker's wage to 75 times in just 20 years.

Gordon Brown spent two days last week in Brussels fighting against new EU regulations, under pressure from hedge funds threatening to leave London if we sign up. Meanwhile, Goldman Sachs is having its best year ever, and will be handing out the biggest bonuses in its history. Investment banks that didn't crash have made bumper fortunes out of trading in debt, much of it government debt. While these buccaneers are free to pay what they please, the rest can claim these sums are now the "going rate". So what they do affects everyone. As we now know, we insure their risk willy-nilly, because even small bank failures can crash the whole system. We could and should be taxing bank profits an extra 10%, according to tax campaigner Richard Murphy, to cover the cost of that unseen insurance. Indeed we could hypothecate it to pay for training and employing the million young people who are out of work this summer due directly to banking recklessness.

Stephen Hester seemed to understand the need for change now RBS was publicly owned when he told the Treasury select committee this year: "I do think banking pay in some areas of the industry is way too high and needs to come down, and I intend us to lead that process." What a shame he decided not to take that lead after all. He is already phenomenally rich, as is RBS chair Sir Philip Hampton, who when I interviewed him at the height of the boom, differentiated not between the have-nots and have-yachts, but between those like him who have yachts but not their own crews. These two men could have earned the admiration and gratitude of the people by working for a nominal sum. They could be heroes.

But that kind of financial abstemiousness is now wildly eccentric. That's why it didn't occur to many MPs that there was anything wrong with claiming all the expenses they could get away with. The last two decades of undiluted money worship were captured so well by Peter Mandelson's laconically iconic remark that he was "intensely relaxed about people getting filthy rich". That spirit of the age was gilded by Gordon Brown's fawning praise to the City on his last Mansion House dinner as chancellor, extolling them for delivering a "golden age" on the eve of disaster. Tony Blair swanning round the world collecting millions for public speaking sets the seal on it all. This feels like the end of Labour as the credible voice of the underdog. The New Labour "project" was designed by Mandelson, Brown and Blair to abolish the politics of class, scorning the "politics of envy". The project has ended in abolishing the credibility and meaning of Labour itself.

Wherever you go in meetings or gatherings, people are incandescently angry with the establishment. But they have nowhere to turn, no one to rally them against untouched City power or a complacent parliament. Labour, once the natural home for anti-establishment anger, is now defender of everything people want to rebel against. At the time of the crash, Brown and Darling had a choice to become the representatives of that voice but they ducked the radical moment. Instead they are defenders of the status quo, halfhearted in political and electoral reform, timid apologists for the City. What more will it take to make politics respond to popular anger?

polly.toynbee@theguardian.com