Government backs off banks
Discussion
Marf said:
Sticks. said:
We could argue all day about whether the bankers get fair reward or not, but it is neither here nor there because if the voting public perceive it as unfair, and see the Coalition implicitly supporting that unfairness by doing nothing, they will vote them out asap.
That's why, getting back to the OPs question, the govt needs to be seen to do something or the public wil ditch it. All imho of course.
And here in a nutshell is why we will fThat's why, getting back to the OPs question, the govt needs to be seen to do something or the public wil ditch it. All imho of course.
k ourselves over as a country. Perception is more important than actions and results of actions.Sticks. said:
munky said:
julian64 said:
JagLover said:
Sticks. said:
You may well be right about the detail, it's probably as accurately reported as pub sec pensions. But to the general public the 'bankers' issue makes the govt's assertion that 'we're all in his together' look shallow at best.
That's why the govt needs to show it's doing something to level the playing field. If it tackles the benefit scroungers because it's not fair, and pub sec payouts because it's not fair, but leaves the banking industry alone, despite the public's perception that it's unfair, it will be seen as weak. The same old Tories, the electorate will say, looking after their mates, while the rest of us pay.
The difference between the first two instances and the latter is the very crucial one that the first two are paid out of private money while the last is paid by private enterprise.That's why the govt needs to show it's doing something to level the playing field. If it tackles the benefit scroungers because it's not fair, and pub sec payouts because it's not fair, but leaves the banking industry alone, despite the public's perception that it's unfair, it will be seen as weak. The same old Tories, the electorate will say, looking after their mates, while the rest of us pay.
You might as well say that the pay of professional footballers should be reduced to demonstrate we are "all in this together", because the fact of the matter is that we are not. The world economy has now recovered to pre crises levels and international financial institutions are recovering likewise.
The financial institutions can't quote world recovery to justify big payouts and then look at the government when things are bad for a hand out to protect them from market forces.
Like it or not when the bankers came to the British government for loans at a time when no one else would touch them, they politicized themselves by using the electorate to force the governments hand. Now they are upset about the very ties they themselves made.
I can sympathise that a bank wanting to compete on a world stage can't be so insular as to wait for a government to tell them what to do with bankers pay. Its too much of a handicap, and possibly the bankers will walk. But I can't believe they are so naeve as to have not seen this conflict comming when they took the money.
As I said before, they shouldn't have borrowed from a Government, cos it isn't a bank, and it doesn't act like one. But doesn't everyone know that?
Sticks. said:
It wasn't what you, I or Jaglover think is fair, we may well agree, we may not. My point was that the situation as it is perceived by a large section of the voting public is that it's unfair and we are not 'all in this together'. And that an industry which it sees a) as being in part responsible for the current situation (which for many is facing redundancy) and b) had to be baled out by them, the taxpayer, wants to put it all behind them now and get on with paying, what is for many, unimagineable amounts of money.
We could argue all day about whether the bankers get fair reward or not, but it is neither here nor there because if the voting public perceive it as unfair, and see the Coalition implicitly supporting that unfairness by doing nothing, they will vote them out asap.
That's why, getting back to the OPs question, the govt needs to be seen to do something or the public wil ditch it. All imho of course.
You raise some very good points.We could argue all day about whether the bankers get fair reward or not, but it is neither here nor there because if the voting public perceive it as unfair, and see the Coalition implicitly supporting that unfairness by doing nothing, they will vote them out asap.
That's why, getting back to the OPs question, the govt needs to be seen to do something or the public wil ditch it. All imho of course.
'all in this together' means different things to different people of course, to me it means that tax rises and spending cuts apply across the board and do not target any one section of society. Ok, so the top rate of income tax goes up for all high earners, fair enough. What I don't think it should mean is targetting one industry, tarring it all with the same brush because of a couple of bad eggs and some misconceived idea of fairness which was fuelled by a media that is savvy enough to know (a) their readers love having someone to blame, a villain of the story, rather than themselves for borrowing more than they could afford, and (b) that in these times of the internet, information overload and soundbites, people don't have the attention span to read up on all the complexities of an issue so they condense it into oversimplified headlines that sell stories "banks cause recession, take our money and pay themselved bonuses" type of thing. People (especially us Brits) love to be outraged and have a good moan(which is why the Daily Mail exists) and so they read that, buy the paper and sit there enjoying being outraged. The (last) government of course loved this, because it deflected blame from themselves.
Having said that, the most useful thing I ever heard anyone say in a meeting was "perception is reality". In other words we live in unfair world where often the office promotion goes to someone that isn't necessarily the one doing the best job but is the one that shouts about their achievements the loudest, or in this context where the politicians can get away with being perceived to be doing something without necessarily doing it (as you say above, I think), and where the court of public opinion counts for more than fact.
This of course can have unintended consequences. RBS have learned about the new world they live in, and are busily swapping optional bonuses for hard salaries, so they can pay people the same as before but say in the newspapers "we aren't paying bonuses" because it easily fools the media, and of course the majority of this country believes what they read in the press. The unintended part is that bonuses are in reality a way of not paying someone that underperforms. Now RBS due to political and public pressure has to be seen to cut down on bonuses, but still has to stem the tide of staff walking out the door so has had to change an optional payment to a fixed one. Who wins from that? The staff of course, because certain salaries are a hell of a lot better than uncertain bonuses, and can be used to get bigger mortgages and buy bigger houses. Perversely therefore, RBS are actually pushing up salaries in the market and now other banks are losing staff to RBS!
Edited by munky on Wednesday 12th January 12:46
BMWBen said:
ukwill said:
Oh, and I'm much more with the Austrian School of thought about all this. Von Mises & Hayek were right all along. Keynes fked up on Stagflation & the Multiplier Effect.
Have you seen this?ked up on Stagflation & the Multiplier Effect.http://www.youtube.com/watch?v=d0nERTFo-Sk
The FT must be reading this. They agreed with my post today.
http://www.ft.com/cms/s/0/29c6d950-1d96-11e0-a163-...
anonymous said:
[redacted]
exactly - "we have listened to public opinion and we will not be paying any bonuses. However we do have an awful lot of people on £1m salaries, last seen heading in the direction of an estate agent in Kensington"Total comp is what counts, and bonuses were just a put option..
Osborne to stop bank bonuses with angry poem
CHANCELLOR George Osborne is to put an end to excessive bank bonuses with an angry poem about shame.
Rejecting claims the government had 'thrown in the towel' on City pay, Osborne said that when his poem was finished nothing would ever be the same again.
He told MPs: "This time next week we will be living in a new world, a world where everything is fair and everyone is nice. We will be living in the world of my poem.
"There comes a time in every statesman's career when he is faced with an issue so great that responding with new legislation is demeaning for everyone concerned. It is at times such as these when he sits at his writing desk, picks up his pen and lets loose the tiger that stands guard over his soul.
"Would you like to hear a little bit of it?"
The chancellor then reached into his jacket, pulled out a piece of paper, cleared his throat and said: "Fat greedy piggy and his trough full of money. Oink oink, piggy, your nose is all runny." He then bowed his head before the hushed Commons chamber, folded the paper and put it back in his pocket.
As members on all sides got to their feet and began cheering, a triumphant Mr Osborne shouted above the noise: "All that is necessary for the triumph of evil is for good men to not write poetry!"
The Treasury later stressed the poem was the 'nuclear option' after a series of initiatives including writing to the UK's senior investment bankers and asking them how they would like their bonuses to be taxed.
A spokesman said: "He also met several of them in person and asked whether they could pay themselves slightly less money, but unfortunately they said 'no'.
"They were very nice about it and pushed him really hard against the wall so that his face was all scrunched up, before threatening to move their businesses to Bahrain and turn Britain into a slave labour camp/wehouse for Chinese gangsters.
"Thank goodness we now have the poem."
CHANCELLOR George Osborne is to put an end to excessive bank bonuses with an angry poem about shame.
Rejecting claims the government had 'thrown in the towel' on City pay, Osborne said that when his poem was finished nothing would ever be the same again.
He told MPs: "This time next week we will be living in a new world, a world where everything is fair and everyone is nice. We will be living in the world of my poem.
"There comes a time in every statesman's career when he is faced with an issue so great that responding with new legislation is demeaning for everyone concerned. It is at times such as these when he sits at his writing desk, picks up his pen and lets loose the tiger that stands guard over his soul.
"Would you like to hear a little bit of it?"
The chancellor then reached into his jacket, pulled out a piece of paper, cleared his throat and said: "Fat greedy piggy and his trough full of money. Oink oink, piggy, your nose is all runny." He then bowed his head before the hushed Commons chamber, folded the paper and put it back in his pocket.
As members on all sides got to their feet and began cheering, a triumphant Mr Osborne shouted above the noise: "All that is necessary for the triumph of evil is for good men to not write poetry!"
The Treasury later stressed the poem was the 'nuclear option' after a series of initiatives including writing to the UK's senior investment bankers and asking them how they would like their bonuses to be taxed.
A spokesman said: "He also met several of them in person and asked whether they could pay themselves slightly less money, but unfortunately they said 'no'.
"They were very nice about it and pushed him really hard against the wall so that his face was all scrunched up, before threatening to move their businesses to Bahrain and turn Britain into a slave labour camp/w
ehouse for Chinese gangsters."Thank goodness we now have the poem."
Ali G said:
Beardy10 said:
Ali G said:
Beardy10 said:
The fact is the Govt had the banks where they wanted them when they bailed them out....at that stage they could have changed the way the industry was paid as they literally had all the power. Except they didn't...they wrote a cheque to the industry with no strings attached.....Brown did it here and Bush did it in the US.
Except that they did not bail out Barclays or HSBC so did not have any chance of influencing the management in those organisations. However, I understood that Barclays raised a whole heap of cash from the Middle East - presumably to avoid taking money from the government (think this has been paid back now).
Not sure what you are implying about Barclay's creative accounting - are you implying fraud?
Unless Barclays were lending money to RBS (and I do know that inter-bank lending goes on) and RBS were to default, then can't see how Barclays would have been affected by RBS going down. Presumably this is what you are implying.
Barclays would obviously have had counterparty exposure to RBS but the real problem is that both banks would have had very similar assets....so if RBS had gone bust there would have been a distressed seller of about hundreds of £billions of assets. That would have taken Barclays down and believe me HSBC wouldn't have enjoyed it though being a true global bank they have a much more diversified asset base.
Beardy10 said:
Ali G said:
Beardy10 said:
Ali G said:
Beardy10 said:
The fact is the Govt had the banks where they wanted them when they bailed them out....at that stage they could have changed the way the industry was paid as they literally had all the power. Except they didn't...they wrote a cheque to the industry with no strings attached.....Brown did it here and Bush did it in the US.
Except that they did not bail out Barclays or HSBC so did not have any chance of influencing the management in those organisations. However, I understood that Barclays raised a whole heap of cash from the Middle East - presumably to avoid taking money from the government (think this has been paid back now).
Not sure what you are implying about Barclay's creative accounting - are you implying fraud?
Unless Barclays were lending money to RBS (and I do know that inter-bank lending goes on) and RBS were to default, then can't see how Barclays would have been affected by RBS going down. Presumably this is what you are implying.
Barclays would obviously have had counterparty exposure to RBS but the real problem is that both banks would have had very similar assets....so if RBS had gone bust there would have been a distressed seller of about hundreds of £billions of assets. That would have taken Barclays down and believe me HSBC wouldn't have enjoyed it though being a true global bank they have a much more diversified asset base.
Valuation can be tricky when there is no third party exchange valuation and reliance has to be placed on internal models and its difficult to assess the level of potential bad debt in prospective insurance recoveries..
Guess if RBS had triggered a massive collapse in the stock market value of certain assets, there there would have been repercussions in many other organisations as well.
This may be getting O/T 'though!
Beardy10 said:
Ali G said:
Beardy10 said:
Ali G said:
Beardy10 said:
The fact is the Govt had the banks where they wanted them when they bailed them out....at that stage they could have changed the way the industry was paid as they literally had all the power. Except they didn't...they wrote a cheque to the industry with no strings attached.....Brown did it here and Bush did it in the US.
Except that they did not bail out Barclays or HSBC so did not have any chance of influencing the management in those organisations. However, I understood that Barclays raised a whole heap of cash from the Middle East - presumably to avoid taking money from the government (think this has been paid back now).
Not sure what you are implying about Barclay's creative accounting - are you implying fraud?
Unless Barclays were lending money to RBS (and I do know that inter-bank lending goes on) and RBS were to default, then can't see how Barclays would have been affected by RBS going down. Presumably this is what you are implying.
Barclays would obviously have had counterparty exposure to RBS but the real problem is that both banks would have had very similar assets....so if RBS had gone bust there would have been a distressed seller of about hundreds of £billions of assets. That would have taken Barclays down and believe me HSBC wouldn't have enjoyed it though being a true global bank they have a much more diversified asset base.
We haven't even discussed yet how accounting regulations contributed to the mess. Some things trade very rarely (illiquid), but when someone else trades one you have to "mark to market" your own book to the price they traded at, and book a resulting gain or loss to your P&L.
As I recall (and I'll simplify a lot to save rambling on) the trouble started (or rather, first became visible) when Bear Stearns shut down a couple of internal hedge funds that were heavily exposed to subprime. There was a firesale of assets, including some high quality (prime) mortgage securites. Of course, everyone knew Bear was a forced seller so bid accordingly, and the prime mortgage securities sold for 40 cents in the dollar. These were securities that, kept until maturity, would probably still be worth 100% or close to. But because they traded at 40%, everyone else holding the same or similar securities suddenly had to take a 60% loss due to accounting rules. This caused a rather large black hole in the balance sheets of several US banks and the trouble began.
So it's a little like you owning an unusual house. One day though in a recession someone else with a similar house gets reposessed and the house gets auctioned off for 40% of what you paid for yours. You are forced to value yours at 40%, but not only that you have to make good the loss with cash from your bank account. If you haven't got the cash, to have to sell equity in your house to some nice middle eastern chaps to raise it.
munky said:
We haven't even discussed yet how accounting regulations contributed to the mess. Some things trade very rarely (illiquid), but when someone else trades one you have to "mark to market" your own book to the price they traded at, and book a resulting gain or loss to your P&L.
How many more excuses are there!You can't blame accounting regulations when they simply reflect common sense.
For example, BP shares are currently trading around £5. Only a banker would want to keep them in his books at £6 because that's what he paid for them. OK, you said illiquid whereas listed shares have an active market . But there's plenty of examples of property companies holding properties on their books at values they couldn't realise in a million years.
The mess was made by inflation of the bubble by the banks. The bursting of the bubble is only the effect, not the cause.
Can anyone tell me what the average bonus amount is? Are we talking £1m here, or are we talking about £10K.
If we're talking about £10K bonuses (For the most part) then that's going to trickle down and no one should really be complaining.
If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.
If we're talking about £10K bonuses (For the most part) then that's going to trickle down and no one should really be complaining.
If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.
Frankeh said:
If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.
FWIW was talking to an estate agent in a town popular for second homes and holiday lets. Said he's hardly done any mortgage applications since moving there and some properties are as much as £900k, bought as second homes with bonuses, he said.Frankeh said:
Can anyone tell me what the average bonus amount is? Are we talking £1m here, or are we talking about £10K.
If we're talking about £10K bonuses (For the most part) then that's going to trickle down and no one should really be complaining.
If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.
Last time I looked and found it, the average bonus was something like £2500-3500 per person.If we're talking about £10K bonuses (For the most part) then that's going to trickle down and no one should really be complaining.
If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.
What job public dont get is the bonus is for everyone, not just the traders... so everyone who works for the bank gets a share of the bonus from clerks to the chairman... but all joe public sees is this £1m+ bonuses and thinks that everyone is on those...
Personally I don't care what the size of their bonuses are. My concern lies with the fact that the bonuses are incentivising risky behaviour within the banking sector. Radio 4 last week mentioned that 2010 saw the highest number of banking staff banned from working in the city for dubious practices.
That's what the government need to focus on: how the bonus is derived, not its size.
That's what the government need to focus on: how the bonus is derived, not its size.
Ozzie Osmond said:
munky said:
We haven't even discussed yet how accounting regulations contributed to the mess. Some things trade very rarely (illiquid), but when someone else trades one you have to "mark to market" your own book to the price they traded at, and book a resulting gain or loss to your P&L.
How many more excuses are there!You can't blame accounting regulations when they simply reflect common sense.
For example, BP shares are currently trading around £5. Only a banker would want to keep them in his books at £6 because that's what he paid for them. OK, you said illiquid whereas listed shares have an active market . But there's plenty of examples of property companies holding properties on their books at values they couldn't realise in a million years.
The mess was made by inflation of the bubble by the banks. The bursting of the bubble is only the effect, not the cause.
I shouldn't have compared to property either mind, since property doesn't get redeemed at a fixed price in the future.
Mortgage backed securities are pools of debt so a better comparison is a loan. Under "banking book" rules, banks use accrual accounting for loans. They lend money and receive interest, and the profit is the interest less cost of funding and other costs. That is common sense. If the quality of the loan book deteriorates, then they take writedowns against it. They are not forced to take a loss because some other bank somewhere is in trouble and has had to sell off its loan book at a discount.
It has nothing to do with what you paid for it, it's all to do with what you expect to get back and on prime mortgages, that is close to 100%. Certainly not 40%. Or do you think that 60% of the best quality borrowers default on their mortgages? Yeah that sounds like common sense.
So, maybe I can come up with a better comparison (still not great though). You have a million in bank X in a 25 year fixed term deposit account. Dave whom you have never met has a million in bank Y. Bank Y goes bust and Dave only gets back £400k. Imagine accounting rules say that because bank Y went bust so might bank X, so £600k is deducted from your account. If Bank X doesn't go bust, then you get your £600k credit back gradually over the next few years. Happy with that?
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