Monday, Feb 09, 2009

The government shows where its proprities lie

Independent: Government rejects call to cap every bank bonus

"These banks would simply not attract the best people, who would just go elsewhere," one senior government source said.

Posted by paul @ 09:41 AM (1416 views) Add Comment


1. paul said...

Oops I meant "priorities".

Oh, and errm ...

Monday, February 9, 2009 09:44AM Report Comment

2. p. doff said...

So, if the banks and financial system were taken to the verge of bankruptcy when the 'best people' were at the helm, perhaps we should entrust the job to someone less able to temporarily create the illusion of success.

Monday, February 9, 2009 09:47AM Report Comment

3. fun 4 now said...

'best people'.....well looking at things..perhaps it would be better if they did leave

Monday, February 9, 2009 09:58AM Report Comment

4. holding out said...

The danger is if these best people aren't attracted by the right incentives they will leave the banking industry and f*ck some other industry up instead.

Monday, February 9, 2009 10:02AM Report Comment

5. matt_the_hat said...

Since when did shuffling paper become an 'industry'

Monday, February 9, 2009 10:08AM Report Comment

6. This comment has been removed as it was found to be in breach of our Blog Policies.


7. matt_the_hat said...

6. titaniccaptain - I think the government are concerned that if the 'talent' left (and its as easy as changing an IP address and moving office), the financial 'industry' would go with it and the sacred remains of a once great industrial nation can only look on China and Germany who we once sniggered at for doing the old oily engineering instead of the financial equivalent.

What the government doesn't realize is the financial 'industry' is so mercenary that the calculation of where to locate is a mixture of regulation and tax. Over time there will be a race between countries on these two metrics. If the UK government wins we will be left with an unregulated tax heaven once called london that the citizens of this country need permits to enter!

Monday, February 9, 2009 10:46AM Report Comment

8. the haunted said...

These are the same best people that ran our economy into the ground? I suspect that if we had some normal people with a few ethics and some common sense in place instead of these tools we have now then we would not be in this predicament.

Monday, February 9, 2009 11:42AM Report Comment

9. d'oh said...

Oink oink oink!

Monday, February 9, 2009 11:51AM Report Comment

10. timmy t said...

If these people were genuinely the best, they would put their c0ck on the block and run their own business, so the risks they took could be carefully calculated, but ALL the profit they generated came back to them. But they are parasitic cowards who prefer to hide behind big businesses, so they don't have to carry the can when it goes wrong. They knew the risks they were taking, shame they don't have the self respect to quit. And if all this speculation is true that these bonuses are a contractual commitment, then the HR Directors of those firms should be named, shamed and fired.

Monday, February 9, 2009 11:56AM Report Comment

11. flashman said...

I'm getting a bonus this year because I made a decent profit. If they didn't pay me a bonus I'd go to another firm. Believe it or not they are hiring my type of trader at the moment because it is one of the few growth areas. Before you wish cancer and plague on me... I probably despise most of my city colleagues more than you do. For years Iíve had to put up with greasy oiks taking the piss because my department takes little risk and generates only steady profit. I can see what remains of the c#n#s through a plate glass window right now. Security escorted 20 of them out the door last month. It was one of the only times I opened a bottle of champagne on the trading floor. I would even go so far as to say that these people are worse than you think. They categorically knew it would end in tears and they were gleeful about it. Iím only a low ranking city boy but I have witnessed from afar many a boozy meeting between treasury officials and my bosses. They were quite literally as thick as thieves. Bankers, as every one seems to call them these days, are mostly low-level sleaze. Blaming them for their actions is a bit like blaming criminals if the police escorted them to a crime scene and clapped them on the back for carrying a goodly amount of swag. The treasury officials are the ones to blame. They were too thick and inexperienced to know it was all lies. They swallowed everything the city told them and went away smiling because they thought they would get credit for all the tax receipts

Let the hatred begin (except you Paul. you said you'd be nice)

Monday, February 9, 2009 01:13PM Report Comment

12. p. doff said...

I'm all for a bit of banker hating .........takes the pressure off traffic wardens, solicitors and estate agents (when air traffic control are not on strike). You can't be accused of being a racist for hating any of the above, either.

Seriously Flash, I suspected from Gordo's previous brown nosing praise of the financial 'industry' that what you say is true. You have now confirmed my suspicions.

Monday, February 9, 2009 01:30PM Report Comment

13. stillthinking said...

What kind of trading do you do, Flashman?

Monday, February 9, 2009 01:45PM Report Comment

14. techieman said... - post 11.

BTW stillthinking - you got an honourable mention over the weekend

Monday, February 9, 2009 01:54PM Report Comment

15. icarus said...

flashman - you weren't soldiering in the Crimean War too were you? Only joking. Thanks for confirming what most of us suspected - that the bankers (at all levels) knew it would all end in tears. The media keeps going on about 'mathematical models which made the wrong assumptions', CDOs 'designed to spread risk but unfortunately concentrated it' or 'all of us are to blame for being so greedy' (when US investment banks spent billions to persuade people to do just that). The most mealy-mouthed cr@p of all is that banks 'mispriced risk'. This tells us a lot about the media barons.

What you say about the Treasury ('you hum it and we'll pick up the tune') dorks rings very true. Academic generalists were complicit too because their analysis is fundamentally flawed - the don't understand power.

Talented people make profits - yes but how? Their profiteering is what got us into this mess.

Monday, February 9, 2009 02:05PM Report Comment

16. letthemfall said...

For a long time my view has been that (some) bankers earn so much money because banking perforce controls huge cashflows; when you look at the charges to clients then you can see how this generates very large incomes. The notion that they earn these through their wealth creation is now thoroughly discredited. There will no doubt be some bankers in demand where the argument about talent just about holds, but given that so many are losing their jobs, they must be far fewer other jobs to go to in search of bonuses. Anyway, as for all this stuff about talent - well, I have known many people with this kind of talent, and as we have seen it is a narrow talent, and one in plentiful enough supply to shoot down the argument that there is no one else to fill their expensive shoes.

Interesting insider view from flashman. I'm sure we all agree that the one on govt officials is surely true.

Monday, February 9, 2009 02:25PM Report Comment

17. flashman said...

icarus, I was indeed in the Crimea. Quaffing cheap champagne and farting while accidentally charging the Cossacks in a funk of terror (I hope you were referring to GM Frazer and I'm not being mental)

stillthinking, Iím a forex trader but used to be a futures trader

Monday, February 9, 2009 02:47PM Report Comment

18. timmy t said...

Techieman@14 - I agree whole-heartedly with the philosophy that high achievement deserves high reward, but I see no justification for bonuses here... if an individual does 50 deals in a year, 1 makes a profit of £1m but the other 49 each make a loss of £1m - would you pay a bonus for the deal that was profitable? The argument here is the same principle just at a more macro level.

And I think TC's question of how many Hospitals or Schools this would build is anything but irrelevant. Taxpayers money is for building schools and hospital, its not for bailing out banks and it certainly isn't for paying individual bonuses. If the taxpayers do get their money back in time then fine - pay the bonuses then.

Monday, February 9, 2009 02:49PM Report Comment

19. letthemfall said...

Ah, but what constitutes high achievement, and who makes the judgment?

Monday, February 9, 2009 02:52PM Report Comment

20. timmy t said...

what constitutes high achievement - not needing billions and billions of bailout money to stay afloat would be a good start...
who makes the judgment - the shareholders - taxpayers in this instance - hmmm wonder which way that vote would go...

Monday, February 9, 2009 02:56PM Report Comment

21. icarus said...

flashman - GM Frazer - yep, but you left out the womanising. What do you say to the argument that if a trader/banker makes a profit then the counter-trader makes a loss? In any series of trades there'll be winners and losers. If it's a zero-sum game why reward the winners without hitting the losers in the pocket?

Monday, February 9, 2009 03:14PM Report Comment

22. flashman said...

icarus. Trading is indeed 'zero sum'. Trading is however a worldwide game and therefore when I win I am, on average, picking the pocket of a foreigner. It is therefore GDP positive and I ultimately contribute to the tax base
I think everyone might be overcomplicating the bonus thing. If a company loses money then the managers of that firm should be given no bonus and possibly fired. However if a lowly plebe like me sits at his desk all year and is profitable, they have to give me a bonus or Iíll piss off. They simply cannot afford to lose the few profit centers they have. When my team makes a profit it stays a profit. However when other departments who hold long-term instruments make a profit it could later turn into a loss. They should not earn a bonus until the trade is realised. This is the heart of a problem. The wankers take a bonus when the profit is not definite.

Monday, February 9, 2009 03:42PM Report Comment

23. techieman said...

Timmy - what you are in effect saying is the people that contribute to the bottom line should be not incentivised and therefore by default allowed to leave. That would mean that the banks would become even more unprofitable and require even more money to bail em out.

I agree that the bad boyz should be let go and the areas that perform poorly (understatement) should and probably have been culled. But if you want to say that the social element of our taxes is relevant then surely you must want to maximise the govs "investment"?

In your example what is happening is that we want to keep the individual that makes the 1m but get rid of the 49 others. We incentivise the 1. If you read my original post it basically says that the bonus is made up of 2 parts.....,,, the company and the individual. Infact the max CASH bonus from RBS is £25k, with the rest being in shares.... i think if anything that has thrown the balance out of kilter the other way.

I dont know who Flashman works for but the question to ask is would that £25k make him stay or look elsewhere?

Monday, February 9, 2009 04:01PM Report Comment

24. timmy t said...

Flashman@22 - "I think everyone might be overcomplicating the bonus thing. If a company loses money then the managers of that firm should be given no bonus and possibly fired. However if a lowly plebe like me sits at his desk all year and is profitable, they have to give me a bonus or Iíll piss off."

A bonus should reward personal contribution to a company's success. This company didn't succeed. It failed spectacularly. Therefore no bonuses. End of. P1ss off if you want to.

Monday, February 9, 2009 04:06PM Report Comment

25. timmy t said...

tm - you misunderstood my example - I'm saying there's 1 person doing 50 deals, not 50 people. And you need to take all those deals into account to look at their total contribution. Similarly, at a company level, you need to look at all the bankers deals to see profit as a company, and pay bonus only if that number is positive.

Monday, February 9, 2009 04:17PM Report Comment

26. flashman said...

timmy t @24 "A bonus should reward personal contribution to a company's success. This company didn't succeed. It failed spectacularly. Therefore no bonuses. End of. P1ss off if you want to".

If a company is not profitable it should analyse its performance and then dispose of its bad parts and nurture its good parts. Encouraging profitable departments and personnel to ďpiss-offĒ is not really sensible

Monday, February 9, 2009 04:22PM Report Comment

27. techieman said...

timmy - nope i understood your comment, at the "macro" level, but you seem to be staying that the whole class should stay behind because "timmy" stole samantha's satchel?

Its pretty basic - if you want to destroy the whole company you would be going the right way about it. Maybe thats a fair point (although i dont agree with that because of contagion).

Timmy what industry do you work in?

Monday, February 9, 2009 04:28PM Report Comment

28. timmy t said...

Flashman - These companies wouldn't be around to analyse anything if we hadn't bailed them out. I've always worked for (relatively) small companies and have experienced bad times when people didn't get bonuses despite over-achieving personally. Nobody bailed us out so we got paid - why are you so special?

As a tax-payer, I am paying your bonus. So now I'm worse off. I have to suffer because you want your bonus. And my kids have to suffer too. And their kids. Either you have to be worse off or I do. Why me? Why not you? I didn't do anything wrong either. I know you want your money but we need schools and hospitals more than you need another Aston Martin.

Monday, February 9, 2009 04:41PM Report Comment

29. timmy t said...

tm - it's not a case of wanting to destroy the whole company. The company destroyed itself. We saved it. And the company is using the money we saved it with to reward a few people who personally over-achieved. Let's just call my industry Professional Services!

Monday, February 9, 2009 04:45PM Report Comment

30. techieman said...

Well at least its not personal services!

Anyway it just seems blinkered to me - but its really a dead issue. Bonuses will be paid and rightly so in my view - jobs will and have been lost and desks closed - again rightly so.

The question really is what have we saved if you are willing to let the people that stopped the losses being £xBn more go? It Does just mean more bail out.

As for people that over-acheived my point is that we are talking about deals with very large P&Ls where the costs of the trades as a % (including the traders salaries) are not that signficant.

Say you brought in proifits to your company of $100m. Would you be happy with $100k? If so then you are literally one in a million, and that (and im not being nasty here) explain why you wouldnt bring in profits of that amount.

Anyway it looks like we will never agree on this!

Monday, February 9, 2009 04:55PM Report Comment

31. flashman said...

timmy t, I can agree with you on at least one thing: any bonus paid on an ultimately loss making deal should be paid back (especially if a bail out was subsequently required) .

Not that's it's relevant but my firm didn't actually receive a bailout. Funny enough I did once drive an Aston in my foolish younger days. What a w@#ker eh?

Monday, February 9, 2009 05:01PM Report Comment

32. techieman said...

I know this is bad form but because "As for people that over-acheived my point is that we are talking about deals with very large P&Ls where the costs of the trades as a % (including the traders salaries) are not that signficant."

It makes them very marketable in the world we live in im afraid.

Now if we had an EFFECTIVE overall market cap on how much you could pay someone - say a base salary plus a certain scale up % profit commission then that would be utopian, and i would support that. But we all know in the real world its very doubtful that would work.

Monday, February 9, 2009 05:20PM Report Comment

33. letthemfall said...

There is an argument over why employees in a particular industry should receive bonuses. Plenty of people in other industries never do, regardless of how good a job they do. I would say the reason bankers do is because they sit in a cash flow of Mississippi proportions, rather than any great contribution they make to the economy compared to other sectors. One also has to wonder whether it is right that a working life of around 10 years (in some cases) can be enough for an individual to retire in clover. Such asymmetries are one of the big flaws with developed economies in recent years.

Monday, February 9, 2009 05:21PM Report Comment

34. timmy t said...

tm - "It makes them very marketable in the world we live in im afraid" You hit the nail on the head... that's the problem - the fact that they can throw their toys out the pram, go work for a competitor and do it all again. I bet the other banks are lining up to hire these pr1cks - Brilliant - real progress - who shall we bail out next!

Monday, February 9, 2009 06:25PM Report Comment

35. shipbuilder said...

I think that the bonuses are a side issue that are receiving too much attention. People should receive reward in proportion to their achievement, this is natural. Therefore these bonuses are simply a symptom of a society that values accumulation of money more than creativity, invention or innovation. This is the problem that we need to solve. Our system has evolved to reflect the needs and aspirations of the selfish few, rather than the population. It is this fundamental imbalance that is the problem, bonuses are just a manifestation of it.

Monday, February 9, 2009 06:44PM Report Comment

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