The City takes a kicking (from the G20 leaders)

[NDA]

Randy Winkman said:

NDA said:

Randy Winkman said:

smilerbaker said:

Take a little look as to who it was who made the banks lend to sub-prime customers in the first place.

"Made them" or "let them"?

Edited to sort out the hash I made of quoting - I'm still not sure I've got it right - I blame it on the drink.

There is an element of 'made them'. The Community Reinvestment Act was designed in such a way that if you were poor and were of a certain demographic group and if your bank wouldn't lend you money, you could sue them. So it's quite arguable that the banks were forced, through legislation, to lend to high risk groups that wouldn't have normally be considered for loans.

This led to the bundling of this wobbly under leveraged debt, made and encouraged under the CRA, into CDO's that had a direct consequence for the banking industry.

Why didn't Bush sort it out? And .....

Did this Act make Fred Goodwin lend all RBS's money to folk that couldn't pay it back?

Goodwin was on a roll - turning a provincial bank into a global one. He went too far with ABN and the CDO issue pushed it over the edge.

He's no saint, far from it. But it's politically expedient at the moment to let him take the heat.

[Randy Winkman]

elster said:

Randy Winkman said:

Why didn't Bush sort it out? And .....

Did this Act make Fred Goodwin lend all RBS's money to folk that couldn't pay it back?

You do realise Fred Goodwin wasn't the only one who made these decisions?
He is just a media scapegoat, and it seems to be working.

He's an example of someone who made a complete cock-up of his job. I was wondering how he was "made" to do it by some Government or other. If it's really Governments that dictate whether these Chief Execs succeed or fail, why to they get paid so much?

[NDA]

Randy Winkman said:

elster said:

Randy Winkman said:

Why didn't Bush sort it out? And .....

Did this Act make Fred Goodwin lend all RBS's money to folk that couldn't pay it back?

You do realise Fred Goodwin wasn't the only one who made these decisions?
He is just a media scapegoat, and it seems to be working.

He's an example of someone who made a complete cock-up of his job. I was wondering how he was "made" to do it by some Government or other. If it's really Governments that dictate whether these Chief Execs succeed or fail, why to they get paid so much?

I think the point being made was about the CRA. The CDO's that followed that legislation (legislation which did make banks lend to high risk groups) was a contributory factor. A chain reaction.

[ZondaMan]

pies said:

ZondaMan said:

pies said:

ZondaMan said:

Well it's the institution's responsibility to monitor this sort of behaviour. Traders have limits on the maximum amount they can risk anyway. Anything up to that is entirely the institution's problem if it's lost, and they accept this and are willing to assume the risk. No one forces them to employ traders. If they don't fully understand the risks, again, it's their own problem, and deserve any mishaps which may ensue. In short, it's all THEIR CHOICE.

Which brings me to securitisation, the institutions and traders were buying and selling mortgages where the level of risk was clearly not understood buy anybody dealing at the time.

But whose money was acually being risked? It certainly wasn't the board members or the traders,if thy actually stood to lose as well as gain then maybe we wouldn't be in the mess now

Yes, we would still be in the same mess. Many board members and traders will have stock (much of their remuneration consists of stock or options

Edited by ZondaMan on Saturday 4th April 22:16

Everything to gain by opting for higher risk No or nominal downside as the basic (large) salery is untouchable.

Yes I make the point over as its a major flaw in the system

Edited by pies on Saturday 4th April 23:26

It's really not; it's the same in many other walks of life and no one complains, because it's just the way it is. Both sides agree to the system and don't see it as a problem. How many other industries require staff to repay/absorb losses they've made for the company? If you make repeated losses, you're out.

[Mikeyboy]

ukwill said:

Mikeyboy said:

Soovy one thing to say, one of the great fictions of modern banking is that they are all smarter than the rest of us. They really aren't. I've met many across many sectors and to be honest some have been incredibly smart but most have been bright, no more nor less than any diligent A level students though. Most in fact work in positions where intelligence is not even a real requirement, they work to existing formula, methods and products. They rarely have to do innovative thinking on products. The ones that do the innovation are very few in number.
In addition the example of options that you use is about the worst you could use. Most options traders, indeed I can think of two friends of mine for example are not even educated to degree level.
If someone has an opinion on bonuses that's different yours it's not 'cos they is thick, it's probably that they chose to do something different in their life.

Thats a bit of a broad brush to paint with though isn't it? There are several sectors in Banking where you will find the personnel to be mostly full of people with (at least) 1st Class Maths/Economics degrees (or specialities within these fields). I quite agree that this kind of skillset is not required in the typical Back/Middle offices, nor in desk-monkey prop-trading roles, where positions are largely pre-determined and risk-corridors provided. However, it's certainly not fiction to think that there aren't many very smart people in Banking. You just have to be specific about what area of Banking.

Well writing about everyone of the 1000 or so bankers I met in the last 10 years would have taken some time so strangely enough yes it is a broad brush. That being said I mostly met people who were in structuring, analysis or origination roles of the ABS, CDO and Leverage Finance markets, and I stick to what I was saying, some very bright people, very bright, but the average person in even those roles fitted to the norms of any professional career, a large quantity of people who are good at passing exams and have no more an original thought or ability to self analyse what they are doing than the rest of us. Those are the people who work for the banks for 15 years and end up better paid but not much higher up the food chain from where they started.
So in short just because a profession says its brighter than you doesn't make it so, otherwise we would all be being run by academics, they have got the first class degrees and the postgrad certificates too but I wouldn't let most of them run a bath.

[900T-R]

ZondaMan said:

It's really not; it's the same in many other walks of life and no one complains, because it's just the way it is. Both sides agree to the system and don't see it as a problem. How many other industries require staff to repay/absorb losses they've made for the company? If you make repeated losses, you're out.

Or you get bailed out with our tax money because the government regards your industry as being fundamental to our monetary system - in which case it becomes a matter of all of us, not just between emplyer and employee. No one here would have problems with high renumeration for taking high risks, if the bad apples were allowed to die.

[ZondaMan]

900T-R said:

ZondaMan said:

It's really not; it's the same in many other walks of life and no one complains, because it's just the way it is. Both sides agree to the system and don't see it as a problem. How many other industries require staff to repay/absorb losses they've made for the company? If you make repeated losses, you're out.

Or you get bailed out with our tax money because the government regards your industry as being fundamental to our monetary system - in which case it becomes a matter of all of us, not just between emplyer and employee. No one here would have problems with high renumeration for taking high risks, if the bad apples were allowed to die.

The bad apples are allowed to die, as I said. Alleged 'rewards for failure' are generally due to contractual obligations, for which the responsibility should lie with the employer - they offered it in the first place, after all. Otherwise, the rewards go to those who are actually profitable for the business, who need to be retained. Surely you'd rather these people remained at the bailed-out firms to help return them to health ASAP; they'll go elsewhere otherwise.

[Mikeyboy]

ZondaMan said:

900T-R said:

ZondaMan said:

It's really not; it's the same in many other walks of life and no one complains, because it's just the way it is. Both sides agree to the system and don't see it as a problem. How many other industries require staff to repay/absorb losses they've made for the company? If you make repeated losses, you're out.

Or you get bailed out with our tax money because the government regards your industry as being fundamental to our monetary system - in which case it becomes a matter of all of us, not just between emplyer and employee. No one here would have problems with high renumeration for taking high risks, if the bad apples were allowed to die.

The bad apples are allowed to die, as I said. Alleged 'rewards for failure' are generally due to contractual obligations, for which the responsibility should lie with the employer - they offered it in the first place, after all. Otherwise, the rewards go to those who are actually profitable for the business, who need to be retained. Surely you'd rather these people remained at the bailed-out firms to help return them to health ASAP; they'll go elsewhere otherwise.

I agree with this to a point, the only probblem with this argument is that the overall bonus culture has become skewed. In almost any other industry individual departments do not receive rewards for hard work if the company overall has made a loss. It is very hard to justify to shareholders and also the City/Wall St itself would look dimly on such a culture. So the hypocrisy of saying that the city should remain relatively unique in paying people per department despite huge shareholder and now selected taxpayer loss is enormous.
Mobility is a disingenuous argument, its trotted out all the time and generally isn't true for various reasons I can't be bothered to go into. The stars don't move as much as people think and its not because they are being paid more in bonus.
Plus there will be huge political pressure for this style of bonus structure to change, and it will. the Stars will end up receiving huge salaries to retain their skills, its how everyone else operates from Coca Cola through to The Guardian and its probably about time the banks realised they don't have to be the exception.

[900T-R]

Mikeyboy said:

I agree with this to a point, the only probblem with this argument is that the overall bonus culture has become skewed. In almost any other industry individual departments do not receive rewards for hard work if the company overall has made a loss. It is very hard to justify to shareholders and also the City/Wall St itself would look dimly on such a culture. So the hypocrisy of saying that the city should remain relatively unique in paying people per department despite huge shareholder and now selected taxpayer loss is enormous.
Mobility is a disingenuous argument, its trotted out all the time and generally isn't true for various reasons I can't be bothered to go into. The stars don't move as much as people think and its not because they are being paid more in bonus.

Indeed - given that pretty much the whole financial sector is in dire straits and similar positions in the 'real life' part of the economy aren't anything like as well renumerated so I'd be interested to learn where those alleged high flyers would go.

The heart of the matter is - the overall/average levels of renumeration which are allegedly based on individual performance, are deeply out of sync with the performance of the sector as a whole. Put bluntly - if such a huge number of people in the finance industry are so fking bright that they need to be paid those amounts, why does the sector as a whole perform so badly that they need billions of tax money from us peasants to keep it afloat - which doesn't even stop it from taking the rest of the economy down into a deep crisis? It's not like us simpletons haven't seen that the majority of fundamental decisions in the sector have been fuelled by testosterone rather than logic - anyone with half a brain cell could see that it had to end in tears somewhere down the line.

Apart from that, one should question why 'superstars' who so clearly deserve their six (or more) figure bonuses, would be kept in a position where they cannot make a real difference c.q. take responsibility for the financial results of the company as a whole - or at least the department they're in. I'm a mere Tech Ed/editorial board member for two mags and my yearly pay raise is being based on the financial result of the 'mother company' (the core business of which I have little or nothing to do with) and those of my department as well as my own performance, and I assume this goes for most businesses.

Edited by 900T-R on Monday 6th April 15:27

Edited by 900T-R on Monday 6th April 15:28

[ZondaMan]

900T-R said:

Mikeyboy said:

I agree with this to a point, the only probblem with this argument is that the overall bonus culture has become skewed. In almost any other industry individual departments do not receive rewards for hard work if the company overall has made a loss. It is very hard to justify to shareholders and also the City/Wall St itself would look dimly on such a culture. So the hypocrisy of saying that the city should remain relatively unique in paying people per department despite huge shareholder and now selected taxpayer loss is enormous.
Mobility is a disingenuous argument, its trotted out all the time and generally isn't true for various reasons I can't be bothered to go into. The stars don't move as much as people think and its not because they are being paid more in bonus.

Indeed - given that pretty much the whole financial sector is in dire straits and similar positions in the 'real life' part of the economy aren't anything like as well renumerated so I'd be interested to learn where those alleged high flyers would go.

The heart of the matter is - the overall/average levels of renumeration which are allegedly based on individual performance, are deeply out of sync with the performance of the sector as a whole. Put bluntly - if such a huge number of people in the finance industry are so fking bright that they need to be paid those amounts, why does the sector as a whole perform so badly that they need billions of tax money from us peasants to keep it afloat - which doesn't even stop it from taking the rest of the economy down into a deep crisis? It's not like us simpletons haven't seen that the majority of fundamental decisions in the sector have been fuelled by testosterone rather than logic - anyone with half a brain cell could see that it had to end in tears somewhere down the line.

Apart from that, one should question why 'superstars' who so clearly deserve their six (or more) figure bonuses, would be kept in a position where they cannot make a real difference c.q. take responsibility for the financial results of the company as a whole - or at least the department they're in. I'm a mere Tech Ed/editorial board member for two mags and my yearly pay raise is being based on the financial result of the 'mother company' (the core business of which I have little or nothing to do with) and those of my department as well as my own performance, and I assume this goes for most businesses.

Edited by 900T-R on Monday 6th April 15:27

Edited by 900T-R on Monday 6th April 15:28

Mikey, mobility is a valid point. It's not just people moving elsewhere, but also taking a break from work altogether for a while (for those who can afford it). Whilst it may not occur as often as is implied by some (I assume you refer to the likes of non-compete clauses etc), it still happens, and don't forget that it is, in many areas, a more competitive market. Part of the reason it doesn't happen is probably because staff are still paid according to their profitability, so their loyalty hasn't been tested (yet).

900T-R, they wouldn't have to go elsewhere, for the aforementioned reasons. The reason they're paid more than in other industries is that they have a higher marginal revenue product. With regards your second paragraph, it's wrong to tar everyone with the same brush. The reason many get bonuses while the sector as a whole suffers is because relatively few people made relatively large losses. Don't solely blame the banks for what's happened. Yes, a very small few at the top of some firms made some truly awful decisions, but what about the feckless, over-indebted borrowers who insisted on owning things they hadn't earned the right to (who now accuse bankers of being greedy - there's hypocrisy for you), or the shambles that was the regulatory framework, not to mention other skewed incentives provided by the authorities (was remuneration an issue in the good years?). The banks are no more culpable than anyone else here.

Stars are kept in positions because they make so much doing what they do, and/or want to keep doing it anyway, not to mention that not everyone can have such positions. Your pay structure has been agreed between you and your employer, and many others in many walks of life. Just because finance does it differently doesn't mean it's wrong or unfair (obviously you're entitled to your own view on this). [Honestly don't mean to be nasty, but] Your career choices are your own, and you accepted the scheme you were offered, so I don't think it's reasonable to complain about other sectors who may offer more favourable terms, just because it's not the same for you and others. If your pay structure was as potentially lucrative I'm sure you wouldn't be complaining (whether or not your industry was at the centre of economic malaise). [Again, not meant to be rude or personal.]

Edited by ZondaMan on Tuesday 7th April 01:28

[900T-R]

ZondaMan said:

Stars are kept in positions because they make so much doing what they do, and/or want to keep doing it anyway, not to mention that not everyone can have such positions. Your pay structure has been agreed between you and your employer, and many others in many walks of life. Just because finance does it differently doesn't mean it's wrong or unfair (obviously you're entitled to your own view on this). [Honestly don't mean to be nasty, but] Your career choices are your own, and you accepted the scheme you were offered, so I don't think it's reasonable to complain about other sectors who may offer more favourable terms, just because it's not the same for you and others. If your pay structure was as potentially lucrative I'm sure you wouldn't be complaining (whether or not your industry was at the centre of economic malaise). [Again, not meant to be rude or personal.]

Erm, if it's the employer, and the employer only who pays - fair enough. If it's the tax payer - well, anyone in the industry should be very happy that they've still got a job no matter their own performance, period. If a sector needs to be kept afloat with billions of our money, methinks if the pay structures are way out of line with any other industry - they've just very succinctly been proven insustainable.

[ZondaMan]

900T-R said:

ZondaMan said:

Stars are kept in positions because they make so much doing what they do, and/or want to keep doing it anyway, not to mention that not everyone can have such positions. Your pay structure has been agreed between you and your employer, and many others in many walks of life. Just because finance does it differently doesn't mean it's wrong or unfair (obviously you're entitled to your own view on this). [Honestly don't mean to be nasty, but] Your career choices are your own, and you accepted the scheme you were offered, so I don't think it's reasonable to complain about other sectors who may offer more favourable terms, just because it's not the same for you and others. If your pay structure was as potentially lucrative I'm sure you wouldn't be complaining (whether or not your industry was at the centre of economic malaise). [Again, not meant to be rude or personal.]

Erm, if it's the employer, and the employer only who pays - fair enough. If it's the tax payer - well, anyone in the industry should be very happy that they've still got a job no matter their own performance, period. If a sector needs to be kept afloat with billions of our money, methinks if the pay structures are way out of line with any other industry - they've just very succinctly been proven insustainable.

Granted, but if they can afford not to be there, they won't if they aren't incentivised (something very different to other industries). It is these people who you want there to return the institution to profitability, so tax payers' money can be returned as swiftly as possible. Whilst, given the situation, it may not be ideal, we'll just have to get on with it unfortunately.

[johnfm]

900T-R said:

ZondaMan said:

Stars are kept in positions because they make so much doing what they do, and/or want to keep doing it anyway, not to mention that not everyone can have such positions. Your pay structure has been agreed between you and your employer, and many others in many walks of life. Just because finance does it differently doesn't mean it's wrong or unfair (obviously you're entitled to your own view on this). [Honestly don't mean to be nasty, but] Your career choices are your own, and you accepted the scheme you were offered, so I don't think it's reasonable to complain about other sectors who may offer more favourable terms, just because it's not the same for you and others. If your pay structure was as potentially lucrative I'm sure you wouldn't be complaining (whether or not your industry was at the centre of economic malaise). [Again, not meant to be rude or personal.]

Erm, if it's the employer, and the employer only who pays - fair enough. If it's the tax payer - well, anyone in the industry should be very happy that they've still got a job no matter their own performance, period. If a sector needs to be kept afloat with billions of our money, methinks if the pay structures are way out of line with any other industry - they've just very succinctly been proven insustainable.

900-TR

You assume that the banks (and/or the finance sector in general) are NOT taxpayers.

I expect that the banks have contributed a fair chunk of corporation tax and employers NI over the last 10 years. I expect the tens of thousands of bank workers in the City and elsewhere have also made a fir contribution to the exchequer's leaky coffers.

I do wish people would stop banging on about the taxpayer's this and the taxpayer's that as if companies never pay any.

edited to add:

The financial services industry paid £9 billion in corporation tax in 2005, a quarter of all corporation tax paid in Britain. HSBC's corporation tax bill last year was the same as three quarters of the money it made from high street customers.

from:

http://www.telegraph.co.uk/news/uknews/1540719/Big...

Edited by johnfm on Tuesday 7th April 21:40

[ZondaMan]

johnfm said:

900T-R said:

ZondaMan said:

Stars are kept in positions because they make so much doing what they do, and/or want to keep doing it anyway, not to mention that not everyone can have such positions. Your pay structure has been agreed between you and your employer, and many others in many walks of life. Just because finance does it differently doesn't mean it's wrong or unfair (obviously you're entitled to your own view on this). [Honestly don't mean to be nasty, but] Your career choices are your own, and you accepted the scheme you were offered, so I don't think it's reasonable to complain about other sectors who may offer more favourable terms, just because it's not the same for you and others. If your pay structure was as potentially lucrative I'm sure you wouldn't be complaining (whether or not your industry was at the centre of economic malaise). [Again, not meant to be rude or personal.]

Erm, if it's the employer, and the employer only who pays - fair enough. If it's the tax payer - well, anyone in the industry should be very happy that they've still got a job no matter their own performance, period. If a sector needs to be kept afloat with billions of our money, methinks if the pay structures are way out of line with any other industry - they've just very succinctly been proven insustainable.

900-TR

You assume that the banks (and/or the finance sector in general) are NOT taxpayers.

I expect that the banks have contributed a fair chunk of corporation tax and employers NI over the last 10 years. I expect the tens of thousands of bank workers in the City and elsewhere have also made a fir contribution to the exchequer's leaky coffers.

I do wish people would stop banging on about the taxpayer's this and the taxpayer's that as if companies never pay any.

edited to add:

The financial services industry paid £9 billion in corporation tax in 2005, a quarter of all corporation tax paid in Britain. HSBC's corporation tax bill last year was the same as three quarters of the money it made from high street customers.

from:

http://www.telegraph.co.uk/news/uknews/1540719/Big...

Edited by johnfm on Tuesday 7th April 21:40

Precisely. Could this possibly be the reason the activities of banks (regarding credit products) which led up to the crisis weren't curbed earlier?

[Randy Winkman]

http://news.bbc.co.uk/1/hi/scotland/7987659.stm

I suppose they have to find a way of paying Fred Goodwin's pension - he has rights you know.

[Fittster]

Hosting the G20 summit will cost Britain's economy £80million, more than four times the Government's official estimate.

As well as the bills for costs such as police overtime, food, hotel rooms and goodie bags for visiting dignitaries, there will also be a big knock-on effect for businesses in London, according to an economic think tank's calculations.

Foreign office minister and G20 special envoy Lord Malloch-Brown estimated the cost to the taxpayer at only £19million insisting it would be "worth it". But Douglas McWilliams, head of the Centre for Economics and Business Research, said this was a huge underestimate as it does not include the impact on the private sector.

He said: "First, transport is disrupted we estimate a cost is lost productivity from greater time spent in transport because of increased security and shut roads of £28.2 million.

"And if a fifth of the workers in central London have to go home an hour early for fear of disruption this would cost a further £24.4million." He added that the taxpayer would likely have to fork out another £10million for all the months of preparation and concluded: "It is unlikely that Londoners and the UK taxpayer will get away with a bill of much less than £80 million."

http://www.thisislondon.co.uk/standard/article-236...