Trout

iTrader: (1)

Come warren - what would your conclusions be?

Are you suggesting there is no risk to Bob D's operations in Barclays? Or perhaps no exposure to RBS's operations?

I am interested as I have just had dinner with a bunch retail banking executives and this was topic of conversation.

Trout

iTrader: (1)

...and I see that Wall Street has sounded out it's opinion of Mr Obama's plan pretty clearly over the past 36 hours, London too!

Leslie

I disagree entirely with the term "bonus".

They are being paid large sums of money extra to their official salaries. These sums are referred to as bonuses!

Why are they being paid this extra cash even if it is by agreement. A bonus infers that it is being paid out for a particular reason. This means that reason has to be fulfilled in order to earn that bonus!

What would have to be a good reason for not getting that promised bonus?

If they are going to get it ***** nilly then it should not be called a bonus but purely as part of their contracted salary!

Why then is it referred to as a bonus, is there some ulterior motive such as tax or something. Is the whole thing a fiddle?

I would be grateful if you could clear this up.

Les

Trout

iTrader: (1)

Historically banks have paid 50% of net profits (what they earn after expenses of the business) as remuneration.

A proportion of that will be contracted salary - but contracted salary may only be 20-40% of this is a good year.

The rest will be paid two basic bonus elements - a bonus related to 'company' performance. So if the bank does well, everyone gets a bonus which is a proportion of their base salary.

On top of that there will typically be a personal 'performance' bonus based on your personal objectives.

The latter are the really big figures you see bandied about for individuals who contribute significantly to trading profits, or those who perhaps bring in large new clients or deals.

In most cases the bonuses are contractual although in some areas such as the trading parts of the bank - the link between performance and bonus size can be notoriously subjective and has led to more than a few law suits in the city - and more than a few histrionic resignations.

These are the basics - the contractual arrangements around these two basic things can be extremely complex in linking objectives to performance to remuneration.

In some cases there are executives whose basic salary may only be £100,000 and yet their bonuses are paid in multi-millions based on company and personal performance.

EddScott

Pretty much.

When there were the calls to cut bonuses and cut salaries in the banking industry, one of the arguments was that to do so would mean we would lose the "cream" of the banking industry.

This implies that the "cream" demand high salaries and bonuses in order to be employed by the banks. When everything was on the up and they forgot about the down, those doing hiring and firing agreed to these frankly idiotic employment terms.

What they appear to have missed out is if these "cream" employees **** it up, they don't get paid. However, if you are after a specific person and bank A puts in restrictions and bank B doesn't, why would they go to bank A.

I don't believe saving the banks was a good idea.

Trout

iTrader: (1)

If the banks were not saved then you are right the bankers would not have got their bonuses...

...but a lot of people who post here everyday would also probably not be getting paid their salaries or their pensions.

It would have been a disaster of unimaginable proportions. It is impossible to liquidate the financial system given the structure of money and if the banks failed then everyone would be wanting to liquidate (like Northern Rock on a global scale but with companies and corporations queuing up with their carrier bags). It is likely the surviving banks would have been overwhelmed. Insurers would have followed shortly after, pensions would stop being paid and cash would not be available to pay wages and salaries.

It may not be ideal - but it is not a 'fiddle' it is a free market. The pressure is now on to regulate this market.

What I don't see is that when the UK banks were growing like crazy over the past dozen years and making a huge contribution to UK wealth and I can't recall seeing one person on this BBS complaining about bankers bonuses

Leslie

Thanks both for the explanations. It is not hard to see the lay person's objections to the bankers taking those bonuses which are there because of the tax payers' backing of the banks, in particular the millions being stashed by the directors who are already on a very good salary.

Les

SunnySideUp

Worth remembering something ........ "A Monkey in a Suit could have made a massive amount of money in this Market"

True, so where is the skill? No skill therefore NO BONUS .... the greedy fat pigs!!!

alcazar

iTrader: (2)

So...........if they don't get their bonuses, they will go elsewhere?

Where, exactly? Surely, there are a finite number of posts, all, or most, of which are filled at the moment?

SunnySideUp

They will go nowhere .... it's all talk.

Anyway, let them foook off - plenty wouldn't mind taking their place!

It's not as if you have to be good at anything - look how well they did to bring the world to its knees!!

Trout

iTrader: (1)

And this belief system was what caused the failure of one of the largest banks in the UK.

The CEO was not a banker, he was a marketeer from ASDA, he didn't really understand banking and a lot of people are now paying the price - including each and everyone of us.

I supposed this was balanced by a banker screwing up one of the other banks, but that wasn't lack of understanding, that was blinded by world domination!

SunnySideUp

Like I said earlier ..... suited monkies can do the job ...... it's not like an Engineer, Scientist, Doctor ... is it? Hardly a tough job!

alcazar

iTrader: (2)

You missed out teachers, Pete, we all know how much you value and admire them

SunnySideUp

Teachers are not up there with Doctors and Engineers ..... but they are more skilled and professional than any Banker!

shooter007

i will provide the rope after all i wouldnt want them to use shoddy practices that might fail,there pure scum

jonc

Lets not forget the windfall tax generated by bonuses have netted £2bn in tax revenue because bonuses have been so high. Where else would that sort of revenue be generated? As some have said, had the banks been allowed to fail, a run on the financial institutions on a global scale would have been catastrophic. Where would your salary and savings go, how would you get paid for a start?

SunnySideUp

Tax their bonuses @ 99% and get more for the needy, poor, old and infirm ...

Suicide Bomber

hmm

ahar

iTrader: (3)

Unfortunately true....

...but it doesn't mean that it always has to be like this. There are a number of people in the city arguing for structures to allow banks in difficulty to be wound up in a sensible way (I've read the editor of City AM calling this 'living wills for banks - I like the phrase).

Financial institutions like Northern Rock in the future should be allowed to go to the wall. The difficulty with the current situation is that effectively the taxpayer has given an unlimited guarantee to all large financial institutions (certainly the large UK retail banks) and the politicans and technicrats are scrabbling around looking for ways to regulate the market (and please the daily mail at the same time) to try and make sure that these guarentees aren't called upon again.

This is never really going to work - the better response is to design a structure with no tax payer involvement, where if a bank goes bust it can be wound up sensibly.

The problem is that the financial services market is not really free - I've always thought it wierd that what should be the zenith of free market capitalism is actually one of the most structuraly difficult there are. Unfortunately that's more a topic for a book than scoobynet, but you can see imperfect information, high barriers to entry (both into employment and as an entrant into the market), disconnect between efficiency and rewards over the period 2001-2007 and the oligopoly like price elasticty of demand for services all as indicators. If you really want to see free market capitalism working, look to the fast moving consumer goods market (FMCG in the jargon - things like washing up liquid and cooking sauces).


Very true - but then I don't think that you get that many marxists or socialists on here

I don't think that you can entirely write off the general public for their anger against the financial services market though. I suspect a great number of them have worked in sectors in the past that have seen industry wide downturns (car manufacturing?) and seen government refuse to help and then a very slow recovery (if at all). Contrast that with the unprecedented taxypayer support for specific institutions and the financial sector as a whole (through the BoE), the appearance of a very quick recovery, the lack of the massive layoffs and social problems associated with something like Rover in Birmingham or British Steel closures in Sheffield, and the relatively high wages in the first place and you start to understand the sense of unfairness.

Trout

iTrader: (1)

The comments I would add is that when I suggested a 'free market' it was not in reference to financial services in general which is as free as HM Gov, The Treasury and the FSA allow - it was more a comment on the workforce which has been relatively unregulated until now. Banks (and Insurers for that matter) have been allowed to remunerate at their own will, and that of the remuneration committee.

You could also argue that without Government support the knock on impact for the large banks was much greater than it was for letting the car or steel industry fail. It was different in the US where the car industry is a much larger part of the economy (although perhaps not one based on quality of product!).

Trout

iTrader: (1)

My comment that if the large banks had been allowed to fail we would not be getting paid our salaries what not a comment on the mechanism of payment it was a comment that if the large banks had been allowed to fail the amount of money available would have shrunk even more dramatically than it did in the crash.

Trout

iTrader: (1)

If you really wanted to contribute to this debate rather than trolling I would suggest you read this on the crucial role played by banking since the time of Galileo (sponsored by a Banking family alongside many other prominent artisans and scientists of his day).

Ascent of Money

It was written just before the crash and could not have been more timely!

Leslie

But are you saying that despite the fact that the country could not allow the banks to fail that the bankers must not be blamed for their gross incompetence born of utter greed which was at the root of the trouble?

Les

EddScott

The very same could be said for the last 8 or 9 months. If there is complaint now about bonuses and theres a demand for performance related pay, it been very hard not to make money recently.

ahar

iTrader: (3)

Financial services is a strange one, as its probably the only industry where it appears you have no other elements in the supply chain that add value (in the Marxian sense) except for the employee - thus a trader can look and say 'My trades earned £x' and it is difficult to argue at first glance that it is not them that provided that full value to the company. A double glazing salesman however can say 'I sold £x' but as there is a manufactured product it is easy to see they are simply the last in a long line of labour in the creation of the windows.

What doesn't seem to have been priced in to they way that the financial markets work on a micro-economic scale is the parts of the chain that create the value in the first place. Financial services do not create any 'wealth' (again in the Marxian sense), they enables it to be created through the efficient transfer of capital and risk between economic actors. As mere agents of the transfer, the price of this should be driven downwards as individuals and companies search for the best balance of cost and efficiency of transfer (i.e. the best ones at transferring risk and capital charge the highest price).

What seems to have happened though is that because of the barriers to entry, the increasing complexity of the mechanisms and the lack of comparitive competitive tension a self re-inforcing culture of high reward has become entrenched so that the expectation is for a significant amount of profit to be paid to a select group of the workers, which in turn drives wages and bonuses higher as a closed loop. Prices remain high, an oligopoly forms and customers cannot adequately discern the value vs price trade off.

As i said before, people write books about this stuff!

Unfortunately I agree with you, which is why the bank bailout was important before. However, the powers that be don't seem to be doing anything to change the situation!

hodgy0_2

Karl Marx was pretty astute when he observed that

"a good capitalist will sell you the rope with which you then hang him"

and that was precisly the mentality of the bankers trading in toxic assets

but they got a gallows reprieve courtesy of the tax payer

old hat anyway now

Tee-

iTrader: (3)

what do you make of this then ??
YouTube - Zeitgeist - The Movie: Federal Reserve (Part 1 of 5)

TelBoy

Well, of some of them, yes. In total, about 500 people on the planet, maybe less.

But no, to quote our esteemed observer above, "there all scum". Tosser.

Trout

iTrader: (1)

Zeitgeist implies an elitist conspiracy.

What it does not discuss in any detail are the literally thousands of banks that were licensed right across America that had almost no reserving requirement. So when cash was called there was almost no resilience.

A much more toxic contributor to the Great Depression than the formation of the Federal Reserve.

It is true that many, many banks succumbed to the better known houses, but that is because they had no money and needed to be bailed out.

Zietgeist is a phenomenally paranoid film that depicts one 'truth'; a little history and the application of Occam's Razor might lead to more pragmatic conclusions.

jonc

I'm not saying bankers are completely blameless, but the burden of responsibility should also be shared by those who chose lived beyond their means. Also not all bankers caused the financial crisis, many other financial institutions and insurers are also attributable to the crisis.