Wednesday, Jun 24, 2009
Bad behaviour endemic
FT: Reform of regulation has to start by altering incentives
A substantial article about the banking crisis, probably the sort that attracts 0 comments. Well worth reading.
Posted by letthemfall @ 09:59 AM (1185 views) Add Comment
39 Comments
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1. charlie brooker said...
I'm afraid that assumption that altering incentives is woefully superficial. The problems are infinitely more deep rooted than that.
2. matt_the_hat said...
letthemfall - A substantial article about the banking crisis, probably the sort that attracts 0 comments.
It has a picture in it so some of us have a chance of understanding part of it! - get a life
3. richc said...
Altering incentives is not superficial -- it's the heart of the matter. If you pay bankers billions of pounds to create crises, they'll surely do it. The US, UK and euro-zone central banks and governments have created a very dangerous set of incentives by bailing out the bondholders of the investment banks, and they're even now backtracking as fast as they can on the increased oversight that was supposed to accompany the bailouts.
4. letthemfall said...
Well commented matt_the
5. flashman said...
I’m no fan of the investment banks but this type article is going against the prevailing wind. People everywhere are waking up to the obvious truth that the government is responsible for our financial crisis. Banks have a 300-year plus history of occasionally blowing themselves up with too much leverage. They are an entirely known quantity and any competent government can easily curtail their worst excesses.
Instead, what we got was a socialist government who dismantled the control mechanisms and whipped the city into frenzy with knighthoods, honours and general cheerleading. Everyone knows that they did this because they needed the money. They SPENT and they SPENT and they SPENT our money. Socialists have a natural loathing of the financial industry but like all socialists they abandoned their principles to further their own agenda.
All socialist governments try to divert blame. The totalitarian ones blame foreign governments and whip up a war. Our limp little faggot socialists whine on about bankers. They use willing lackeys like this journalist to support their spin and dissemination
Socialists everywhere, your time is up. The only thing you gave us after 10 years of government was a collapsed economy and 1 million BNP voters.
6. matt_the_hat said...
It might help to get comments if you didn't post something that needs a subscription - well done
7. devo said...
5. flashman said... "(Banks) are an entirely known quantity"
Nonsense.
8. devo said...
5. flashman said.. any competent government can easily curtail (the banks' worst excesses)
So why has no government in the world succeeded so far?
Oh, I see, because ALL governments are incompetent.
Quite a sweeping statement, flashy!
9. letthemfall said...
Wouldn't want anyone not to be able to read the article. For those unfamiliar with the ins and outs of subscription traps, clear all FT cookies and you should be able to read it okay. Failing that, others have often suggested searching through google news. There are other tricks but above should work
10. matt_the_hat said...
5. flashman - I'm a socialist try this for a socialist policy
No deposit protection, no pension protection, no financial regulation altogether and a gold standard
If this policy was taken up people would soon realize that they have to put their money in the safest institutions (not divide across £50k accounts). All money would then be allocated back to old fashioned 'building societies' because savers are a conservative bunch. People can hold their wealth in gold with no inflation and earn a little interest if they lend to people for mortgages. BUT this is no good for flashman as he wouldn't have a job!!
11. shipbuilder said...
Flash, apparently the bankers were such limp little faggots that they were incapable of resisting being 'whipped into a frenzy' and allowed centuries old institutions to reach the brink of collapse. Most CEOs in other industries will tell you that their at least partly responsible for the long term health of their company. That's as weak an excuse on the part of the bankers as it is on the part of the government. Both in it up to their necks.
Interesting also to hear that the Bush administration was also a socialist government.
12. little professor said...
matt the hat - no subscription needed, just clear your cookies and reload. I'd post the article here but it's very long.
flashman - we've had far-right parties in power in the UKUSA for the last 8 years, you can hardly blame the current economic disaster on socialism. It was a failure of capitalism - just going to prove that a system in which the rich get richer and richer each year at the expense of the masses is doomed to failure.
Interesting news yesterday that Goldman Sachs is set to make record high bonus payouts this year.Goldman CEO Hank Paulson left the company temporarily to become the US Treasury Secretary, using the opportunity to wipe out most of his competitors (Lehmann, Bear Sterns, Merrill Lynch) and handing Goldman huge government payouts, most notably billions of dollars in paying out counterparty AIG bets.
Meanwhile Citi, which would have been bankrupt without government intervention, is skirting the bonus issue by instead raising the base salary for its investment bankers by 50% or more.
This is capitalism in action. The greedy pigs at the very top are able to discard their losses and then cream off ever more wealth, while the masses will be saddled with the burden of the consequent huge government debt for generations to come.
13. japanese uncle said...
Having seen those events for the last couple of years, how can they expect us to trust bankers especially US/UK bankers? Trust in banking has been lost for ever. Anyone with half the brain knows bankers (investment bankers in particular) are just next to con artists. Let's go back to post office savings where CEO earns no more than 100K.
14. george monsoon said...
Bankers have always been our for themselves, glossing over their missappropriation of funds excercises, with fancy TV advertising and smiling cashiers... I agree, that nobody trusts the banks any more, and never will. Reform is needed, but will it happen? probably not, while their are greedy sociopaths running these establishments.
15. letthemfall said...
Lots of posts after all. The sun has brought out the mad dog and Englishmen. Good to see.
I don't think bankers have a leg to stand on. What characterises our economy now is a distortion between value and reward, brought about, it seems to me, by a concentration of financial power, not just in the banking system, but geographically and politically too. So we have a situation where a section of the population receives high pay without adding high value, certain locations in the country are economic deserts, and the public sector is dismissed as valueless, or at least much too expensive. So crime rises, politicians falter, a sector sucks in wealth as fast as it can inhale and the rest of the country deflates. Things have looked bad before, but it looks even worse now.
16. flashman said...
Just trying to open the debate a bit. The government spin meisters must be gleeful at all this one eyed bank bashing. Like I say it diverts attention. My pop at socialists is tongue in cheek, but I have to say that some of you do seem determined to avoid mentioning the government’s culpability at all costs.
Ship got it right when he said that the banks and government were "both in it up to their necks".
devo: Of course the banks are a known quantity. For those of you who are keen students on history, they have a long record of shafting everyone and going belly-up. It’s happened non-stop for hundreds of years. It’s a bit foolish to give them a free rein.
matt: under your system I could perhaps find employment by trading gold derivatives until I had destabilised the system.
17. matt_the_hat said...
16. flashman - under my system the only thing that would be destabilized is the ones playing the derivatives game (and people would know if they were playing it as the wouldn't be relaying on the nanny state to clean up after them)
The financial industry offer little for society - the losers and winners roughly equal out - no wealth creation ZERO SUM and redundant
18. devo said...
16. flashman said... Of course the banks are a known quantity.
Yes, just as thieves are a known quantity - immoral and lacking a conscience. Knowing it doesn't make it any easier to bring either to justice.
19. icarus said...
flashman - it's simple. Governments have been captured by powerful VIs in every field, including banking.
20. shipbuilder said...
The apportioning of blame is a waste of time because it suggests an easy solution - stop the bonuses and all will be solved, vote in the Tories, all will be solved - b****cks.
Exactly as letthemfall says, at all levels there is reward completely out of proportion to value. I would also call it inequality, but for the fact that I might predictably be labelled a 'socialist' (I know you're taking the mick, flashman). I understand that this distortion would also be a problem in a pure free market, but there you go - pointing it out is socialism.
Anyway, first and foremost I'm a pragmatist - neither exclusively right nor left works in my opinion, but i'm open to anything that actually works, 'working' being a system which delivers the fairest outcome for all (reward in proportion to value/talent/effort). As I understand it, anyone from Marx through Smith and Von Mises would agree, although apparently it's still socialism.
21. growler said...
@ Matt the Hat. It's a great idea - but it's flawed. If the banks were acting in a socially responsible way because they were properly regulated or managed (or both), then they'd become institutions that people can trust in to look after their money. Without such regulation, under your scheme (which I like) you'd have Hobsons Choice - meaning no choice for savers but dangerous ones. Sort the banks out, legislate and provide REAL safeguards - then I'm with you.
22. flashman said...
ship: Who could argue with a system that delivers the fairest outcome for all? But who is able to judge what is fair? We all have our biases and preferences. Thatcher hated footballers and loved people who closed mines. Poll Pot hated University lecturers and Doctors. No matter who slices the cake most people will feel that they've been undervalued and that their slimy neighbour has been unfairly rewarded. I cannot possibly see how any system could avoid these sad truths
23. shipbuilder said...
Flash, I agree totally - my point is that any system should aim towards such fairness - surely that is the very point of a free market, for example, to value everything according to the 'market' demand? What could be fairer? So I can't understand why aspiring towards such fairness is 'socialist'. Socialism is about how you achieve it, not the end goal.
So having said that - the current distortion should surely indicate to anyone, right or left, that there is a huge problem. What I also can't understand is people's refusal to acknowledge this, or seek to do anything about it. Just masses of heads in the sand and the insistence that what we have is the best we will get.
Why such closed minds, other than the current system is the best for the small amount of people that effectively run it?
24. flashman said...
ship: as always your heart is in the right place but my worry is that any system that is not created by (the admittedly flawed) natural forces would have to be, by definition prescribed and administered. I am loath to say it...but any prescribed system would be subject to dissent from many quarters and would have to be enforced.
I think the tax system already solves some of the inequality problem. High earners will soon be paying tax at a rate of about 60% (income and NI). Many of them will also pay for private schooling and health care without receiving a tax credit for relieving the system of cost. I estimate that this puts their taxation at about 70% in real terms. I know you would prefer that low earners receive more in the first place but it’s better than a poke in the eye.
25. charlie brooker said...
richc
While I agree that altering incentives has the potential to address some problems - just as it would in Estate Agency - the fundamental problems of sociopathy and psychopathy remain in human society. Until those problems are removed the selfish will always seek to acquire wealth through dishonest or immoral means.
26. flashman said...
ship. Do you actually have a practical system improvement suggestion in mind?
27. shipbuilder said...
Flash, no revolutionary ideas myself as yet, but as improvements I think that land value tax would be a start. Full cost accounting another. Limited liability is a problem. Public services administered by non-profit organizations, independent of government would be better than what we currently have.
I agree that a system created by natural forces is best, that's what I was saying in essence - natural is fair, one of my points being that we do not have such a system. LVT, for instance, is much more natural and fair than income tax. Full cost accounting attempts to calculate the long term impact of decisions on the 'community' - as any normal person will do naturally. The amoral construct of corporations, including limited liability, is unnatural.
The problem is, as you say, when our systems deviate from natural human behaviour and thus cause stress and conflict.
Where many differ, of course, is what is natural human behaviour. I believe that we are individuals that work best with community ties. The right-wing view is that we are individuals only, the left that our only identity is as a group. It seems obvious to me that both are incorrect, extreme views.
28. shipbuilder said...
Probably the most important change would be monetary reform as part of a 'steady state' system where we are not limited to the choice of constant growth or collapse and we are not constantly chasing an artificial shortage of money. The shareholder system where constant growth is expected and a market where huge profits make by speculation for short-termism onto company CEOs are big problems in this respect.
These are all elephants in the room that are either ignored or deemed 'untouchable'. The consensus seems to be that as longs as someone is making money, things are OK. Why?
29. Shipbuilder said...
Should be 'huge profits made by speculation on share prices force short-termism onto company CEOs'
30. shipbuilder said...
Should be 'huge profits made by speculation on share prices force short-termism onto company CEOs'
31. 51ck-6-51x said...
In my opinion the fundamental problems are caused by: (1) a lack of distribution of power; we have never had a true free market ( it is distorted by policy ), yet we are being told that it has already failed, that we need more regulation; and (2) a monopoly on the money supply ( central management is fine, so long as the power is distributed - this is not the case with the use of arbitrary measures of inflation and small committees making the decisions ).
32. Dunkindogdo said...
A lot of rhetoric seems to have been whipped up by this article! Blame and finger pointing aside aside, surely all that's needed is an accurate measure of inflation, such that we can spot nascent asset price bubbles?
33. devo said...
If there were a way of ensuring that the motives of those seeking political power were honourable and not self-serving, we would start to see progress towards a fairer society.
34. matt_the_hat said...
21. growler - but you would have choice - a shift from government responsibility to self responsibility, the safest institutions would get the most deposits - just look at the bank run on NR - it would have settled down in a year if left alone with the strongest banks surviving - instead it was 'solved' overnight now nobodies money is safe (UK default)
35. matt_the_hat said...
28. shipbuilder - are you advocating a gold standard, or is your 'monetary reform' based on exponentially increasing fiat currency?
36. devo said...
How about an all-new global digital currency?
37. shipbuilder said...
matt_the_hat - To be honest, not sure. There are huge problems with both.
38. fubar said...
666 the closest we came historically to a free market was the mid 19th century. It lasted for thirty years before politicians realised it was causing more damage than good. Its impossible to have a truly free market. For one thing it requires state intervention of its own to force people to accept it. Its as Utopian an ideology as any socialist promised land. Hayek was wrong when he said it would arise without intervention. It required state level intervention and occasional violence to impose, that has always been one of the flaws with the laissez-faire philosophy.
39. 51ck-6-51x said...
Fubar, what are you talking about?! If it requires sate intervention to enforce then it ain't a free market, by definition.