bankers bonuses

[Glaucus]

The problem is that governments shouldn't be in the business of bailing out companies. If we go down that route why don't we bail out other businesses as well?

We do and have, car industries for a strat. Although they woke up and realised that was dead.
If we didn't bail out the banks what would the outcome of been? Perhaps think about that before stating something that obviusley is far worse.

 

[scorza]

So you would have preferred it if we had just let the banks fail?

No I supported the bailout (unlike the current chancellor) - it was the only logical thing to do given the situation. However the need to do it should never have arisen in the first place. Companies that can't pay their debts go bankrupt, why not banks? If banking cannot survive without an implicit state backed guarantee, do bankers really deserve unrestrained pay?

 

[siandtina]

1) Corporate tax rate is lower than individual tax rate for bankers. Tax take higher for Government if banks pay high bonuses to staff.
2) It was certain banks that needed to be bailed out because they vastly overextended themself (RBS and HBOS). The follow on hit on confidence affected the rest of the banking system.
3)The credit crisis, like most recessions, stemmed from a crisis in confidence. Mortgage lending to individuals in the US and the merry round-a-bout that followed artificially inflated asset values. It is lack of confidence that results in companies laying off staff, running down stocks and this compounds through the economy.
4) Banks don't rely on little savings and current accounts and don't make the majority of their money 'investing in the market'. It makes me chuckle everytime someone claims that banks need the £3k you have in your savings account. They earn a majority of their fees issuing debt and equity for global corporations, managing high net worth individuals, and (but much less than a few years ago) investing their own capital. Given banks' capital requirements I would be curious to know whether their retail deposits total more than their reserve requirements or not.

The villains aren't Banker X and Y who work 60 hours+ per week for a year and take home £200k at the end of the year (paying 50% tax on that). It's the CEOs who led their bank to the edge of destruction. Looking at two Swiss banks; UBS had to take over $60bn of bailout funds, Credit Suisse took $0. They both provide the same services, they both have global exposure yet the difference between the two is phenomenal.

Bankers don't get compensated because they are supremely intelligent to everyone else (they're not, far from it often) they get compensated for working generally in a stressed, very competitive environment. And for those who are saying 'the bankers that got canned obviously weren't in the talent pool /snigger' [kgi this is aimed at you] who do you think the banks canned? The 43 year old secretary earning £40k a year with a £10k bonus but no income generation or the banker earning £100k a year with £75k in bonuses but who generates £5m a year in revenue for the bank. There you are laughing because a 43yr old secretary who is trying to forge her own career has lost her job and can't get another one because of the recession and is trying desperately to pay for her mortgage. Wow you look big and impressive now for jumping on the bandwagon.

People's understanding of how banks operate, generate profit and pay bonuses is laughable yet everyone loves to do the popular thing and **** of the banks and bankers.

 

[RDM]

No I supported the bailout (unlike the current chancellor) - it was the only logical thing to do given the situation. However the need to do it should never have arisen in the first place. Companies that can't pay their debts go bankrupt, why not banks?

But you are talking at cross purposes here. You are asking why should the banks not have been allowed to go bankrupt while at the same time saying that they shouldn't have been allowed to go bankrupt. What exactly is your position then?

If banking cannot survive without an implicit state backed guarantee, do bankers really deserve unrestrained pay?

Banking would have survived, some individual banks would not have done and the damage to our economy would have been huge. Bankers bonuses cover a whole range of payments many of which had nothing to do with the banking crisis and nothing to do with the bank bailouts. Why punish those people (and make banking in this country less attractive)?

I am all for moving our reliance away from one sector, but I would prefer a gradual move and not yank out one of our major sources of income before we are ready for it.

 

[Glaucus]

It was the whole system, if it was one bank then they would have gone down the pan like several are. Banks are also key infastructure, if they all get down we are stuffed, money in banks are also guaranteed by government so goverment would have had to pay out any way with no chance of recoupibg.
What do you think would happen if the entire shipping fleet was threatened? They would be rescued as again we are reliant on them. If it is only one company or not essential then it will go down the drain.
Bonuses are none of our business and you even seen to agree with this in half the posts. Regulation is the failure and what needs fixing.

 

[mangobreeder]

so you agree then. that a bank who took no bailout money can pay themselves what they like.

 

[ntg]

4) Banks don't rely on little savings and current accounts and don't make the majority of their money 'investing in the market'. It makes me chuckle everytime someone claims that banks need the £3k you have in your savings account. They earn a majority of their fees issuing debt and equity for global corporations, managing high net worth individuals, and (but much less than a few years ago) investing their own capital. Given banks' capital requirements I would be curious to know whether their retail deposits total more than their reserve requirements or not.

Bankers don't get compensated because they are supremely intelligent to everyone else (they're not, far from it often) they get compensated for working generally in a stressed, very competitive environment. And for those who are saying 'the bankers that got canned obviously weren't in the talent pool /snigger' [kgi this is aimed at you] who do you think the banks canned? The 43 year old secretary earning £40k a year with a £10k bonus but no income generation or the banker earning £100k a year with £75k in bonuses but who generates £5m a year in revenue for the bank. There you are laughing because a 43yr old secretary who is trying to forge her own career has lost her job and can't get another one because of the recession and is trying desperately to pay for her mortgage. Wow you look big and impressive now for jumping on the bandwagon.

First of all, I think you'll find that retail deposits provide the base for a lot of banks' leverage. If they didn't need the deposits they wouldn't be so vehemently against separating retail with investing arms. In short, it's free money for them, and it's a lot too, so don't dismiss it entirely.

Secondly, you have completely misunderstood my post. I said in my post

(which of course doesn't include all bankers, just look at the thousands laid off during the crisis, they were certainly not part of the 'talent' pool).

I am clearly referring to bankers - all my posts have been about bankers and bankers only. Admin staff and receptionists or PAs are not bankers now are they? I find your direct comment that I feel big somehow that a poor PA lost her job and will get her house foreclosed actually insulting to my intelligence as I would have never implied or thought of anything like that. On top of that there was no 'snigger' in what I said, only in the way you read it. I was simply making a comment about the over-use of the word 'talent' when talking about bankers, trying to point out that the talented ones were not fired (in response to someone asking how could it be that all these talented ones brought banks down to their knees - well, the talented ones didn't, the rubbish ones did and that's why they largely got fired).

Your post has actually reinforced my last point, that the talented bankers were kept on the job, not let go, simply because they make lots of money for the bank.

Finally, adding to 'who got canned', while a lot of admin staff were canned (but we are talking about bankers aren't we?), scores of analysts/associates were canned as well so yes, a lot of real bankers were indeed canned.

 

[toshj]

First of all, I think you'll find that retail deposits provide the base for a lot of banks' leverage. If they didn't need the deposits they wouldn't be so vehemently against separating retail with investing arms. In short, it's free money for them, and it's a lot too, so don't dismiss it entirely.

Secondly, you have completely misunderstood my post. I said in my post I am clearly referring to bankers - all my posts have been about bankers and bankers only. Admin staff and receptionists or PAs are not bankers now are they? I find your direct comment that I feel big somehow that a poor PA lost her job and will get her house foreclosed actually insulting to my intelligence as I would have never implied or thought of anything like that. On top of that there was no 'snigger' in what I said, only in the way you read it. I was simply making a comment about the over-use of the word 'talent' when talking about bankers, trying to point out that the talented ones were not fired (in response to someone asking how could it be that all these talented ones brought banks down to their knees - well, the talented ones didn't, the rubbish ones did and that's why they largely got fired).

Your post has actually reinforced my last point, that the talented bankers were kept on the job, not let go, simply because they make lots of money for the bank.

Finally, adding to 'who got canned', while a lot of admin staff were canned (but we are talking about bankers aren't we?), scores of analysts/associates were canned as well so yes, a lot of real bankers were indeed canned.

kgi, do you know which types of bankers got fired and which didn't? from your post it seems that you feel that all the talented bankers got funnelled into the profitable asset classes, whereas all the stupid ones went into credit?

do you really think a bank would have a lop-sided talent pool which favoured certain asset classes but ignored others?

also, do you know which teams and individuals got canned by a lot of these banks? (genuine question!)

 

[Admiral Huddy]

No one seems to mind when people on benefits get money for doing bugger all.. So what's the difference

I don't know what all the fuss is about.. So what? If the part state owned banks do well, then the treasurery surely yields a wealthy return don't they? Longer term, selling their portion back would see them make huge gain.. It's a win/win situation for the government. It's so typical to see the short sightedness off the investment.

 

[ntg]

kgi, do you know which types of bankers got fired and which didn't? from your post it seems that you feel that all the talented bankers got funnelled into the profitable asset classes, whereas all the stupid ones went into credit?

do you really think a bank would have a lop-sided talent pool which favoured certain asset classes but ignored others?

also, do you know which teams and individuals got canned by a lot of these banks? (genuine question!)

My answer was more generic than that, I'm simply saying that talent in banks equals people who make them money. Those wouldn't get canned as a rule. Again, this was as a reply to the person who said something along the lines 'if they were so talented then why did they get fired'.

As for lop-sided talent pools, well it is a fact that many banks have stars or star-teams in some asset classes while they might trail others. It doesn't mean they ignore some asset classes, it just happens, no bank is top in every asset class so in comparison to its peers you would get such phenomena.

As for whether I know who got canned, no of course I don't, all I said is that those that did got canned would not be the talented ones (as a rule of thumb, it would be surprising if they were). With what exactly do you disagree from what I am saying?

 

[toshj]

i'm saying that plenty of talented people got canned. loads of good guys in structured credit at the banks who were previously making money got let go, as a) the banks weren't able to realign them into different teams and b) they had to appear to be tackling the issue.

 

[Xordium]

That is by far the absolute best example I have ever seen, if they taught things that way in schools the would be a lot less idiots complaining about things they don't understand that don't even effect them at protest marches

However, if they also taught European history well they would realise that the nine could not just beat him up but chop his head off, take all his money and sing "viva la revolucion".

 

[ntg]

i'm saying that plenty of talented people got canned. loads of good guys in structured credit at the banks who were previously making money got let go, as a) the banks weren't able to realign them into different teams and b) they had to appear to be tackling the issue.

Fair enough, I think that is a valid point, especially as derivatives are concerned. If you are working in the industry please say so as my knowledge if mostly academic as I'm not employed there.

 

[toshj]

Fair enough, I think that is a valid point, especially as derivatives are concerned. If you are working in the industry please say so as my knowledge if mostly academic as I'm not employed there.

yeah, a lot of them got squeezed out simply because they "had" to. the thing is, a lot of bankers don't feel an affinity for an asset class and therefore solely focus on moving into their preferred space.

most guys get pushed into certain teams (or rotated on grad schemes) and end up in that asset class as much by luck as by design. therefore a lot of the talented bankers will end up with their relevant product focus simply because it happens that way.

 

[scorza]

http://www.guardian.co.uk/commentisfree/2011/jan/18/bonuses-for-fruit-pickers-not-bankers

Interesting column on bank bonuses disputing the bankers' arguments that they deserve such large bonuses to retain talent and to produce good performance.

Firstly the argument that bonuses improve performance:

In 2005, the Federal Reserve Bank of Boston, a regional branch of the US central bank, published a piece of research called Large Stakes and Big Mistakes. In it, a team of eminent behavioural economists reported on experiments they had conducted with American undergraduates. The students were offered money to tap a keyboard as fast as they possibly could, and also to add up some numbers.

When it came to the simple chore of hitting computer keys, bonuses worked a treat: the more cash on offer, the faster the undergraduates tapped. On the more complex task of doing maths, however, incentives served to worsen performance.

And now for the superstar retention argument:

An academic at Harvard Business School, Groysberg studied 366 Wall Street equity analysts who changed employers between 1988 and 1996. He chose these 366 because they had been rated number one in their field before moving. He found that once these stars swapped banks they were no longer so super: "Their job performance plunged sharply and continued to suffer for at least five years after moving to a new firm."

"Moving employer on Wall Street is no big deal," Groysberg tells me. "You hand in your BlackBerry, you pick up your coat, you cross the street and in 45 seconds you can be back in business." But what you leave behind are your colleagues, your bosses, your knowledge of how your company functions – in other words, all the institutional and collective factors that made you a success, but which usually get forgotten in the acclaim for individual achievement.

So while bonuses might well retain people who are performing well for you, banks shouldn't be afraid of losing them. We can assume that if a bank loses a top performer then someone else within that organisation will step up and take up the mantle. I personally have seen this happen so many times, when someone regarded as good but not great takes over from their so-called superstar boss when he leaves and does an even better job. Often the things these superstars do very well is keep their underlings in their place.

When a market is dysfunctional it is the job of regulators to step in and correct that dysfunctional behaviour. We've all seen the damage caused to the global economy because of the banks' behaviour. Arguments like "it's none of our business what a private organisation pays its employees" are stupid because clearly we carry the can when those private organisations fail. If bonuses do indeed produce worse performance in complex tasks like banking (and the study in the article isn't the only one to find this) then it is our business to ensure banks act to correct this dangerous and counter-productive behaviour.

 

[Danthus]

http://www.guardian.co.uk/commentisfree/2011/jan/18/bonuses-for-fruit-pickers-not-bankers

Interesting column on bank bonuses disputing the bankers' arguments that they deserve such large bonuses to retain talent and to produce good performance.

Firstly the argument that bonuses improve performance:



And now for the superstar retention argument:



So while bonuses might well retain people who are performing well for you, banks shouldn't be afraid of losing them. We can assume that if a bank loses a top performer then someone else within that organisation will step up and take up the mantle. I personally have seen this happen so many times, when someone regarded as good but not great takes over from their so-called superstar boss when he leaves and does an even better job. Often the things these superstars do very well is keep their underlings in their place.

When a market is dysfunctional it is the job of regulators to step in and correct that dysfunctional behaviour. We've all seen the damage caused to the global economy because of the banks' behaviour. Arguments like "it's none of our business what a private organisation pays its employees" are stupid because clearly we carry the can when those private organisations fail. If bonuses do indeed produce worse performance in complex tasks like banking (and the study in the article isn't the only one to find this) then it is our business to ensure banks act to correct this dangerous and counter-productive behaviour.

I haven't seen you comment on other types of business that operate in the private sector, you just bang on about the banks, banks incidentally like HSBC and Barclays who never took a penny of public money.