Tuesday, August 28, 2007

Rewards for Failure?

City bonuses hit record high with £14bn payout

Uhm ... aren't the city bonuses supposed to be going down what with CDOs being devalued and a liquidity/insolvency crisis? It appears that we will have two house markets: one for city yuppies (booming) and another for the rest of us (topping out).

Posted by quiet guy @ 09:25 AM (1340 views)
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22 thoughts on “Rewards for Failure?

  • Exceptionally thick comment. When do you think these bonuses were paid? To what year do you think they relate? How was that year for the City?

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  • The debt market isn’t the only part of the City….. Plenty of people are still making lots and lots of money.

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  • But this article is about last year’s bonuses: the one paid up until the spring.
    This year’s bonuses may well be lower.

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  • dohousescrashinthewoods says:

    These are for last year’s performance.

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  • Wait and see.

    This will be a hurricane + tsunami + earthquake + plague

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  • Disillusioned says:

    dohouses…

    Do you have a link that says this?

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  • The financial sector has a serious image problem. Other than lending money, pensions and the traditional functions, the public (including myself to an extent) simply can’t see what benefit it is. Unfortunately the usual response to this allegation is akin to ‘the public are too stupid to understand what we do and how we make money for the country’, which simply reinforces their image as overpaid, brash and arrogant.
    With most well paid professions (even law), it’s immediately obvious to the layman what the contribution to wider society is, even if the actual workings of the job are a mystery – this simply isn’t the case with the financial sector.
    From my own point of view, wealth creation to me is addition of value, manufacture and so on – isn’t money creation without wealth creation simply inflation? I simply can’t see how increasing a sum of money by moving it through a number of financial instruments does anything but increase the money supply, thereby decreasing the value of money the rest of us hold.
    I follow this website not only to express my view but to learn – I believe there are a number of people on here connected with the financial industry, so I’m keen to hear any views on this.

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  • This season’s bonuses are looking very lean, and will be non-existant for many city players – some of whom have already got mortgage commitments that need some bonus money to finance…

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  • I find it really irritating that people seem to think we work in the City but don’t pay tax, and we don’t live in communities and we don’t give a t*ss about anyone other than ourselves. The contribution to the economy is blatantly obvious, and to think that economic value can only be identified in the form of manufactured goods is simple minded, putting it kindly. I work far longer hours than anyone else I know, I’m bald as a coot, I hardly ever ever see my wife and kids, I pay a vast sum of money in tax and charitable donations every year but still I have to listen to nasty little sh*ts who want to tell me that I make no contribution to this country. I think you’ll find, if you look, that it is you making no contribution to this country, not that I would be so rude as to point this out.

    *rant concludes*

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  • Shipbuilder

    Wealth is generated to a certain extent by “activity”. Whether it be industrial, consumer, agricultural or financial. The financial markets are used to store wealth from activity and to generate more activity by the free movement of capital. Funnily enough building ships needs enormous amounts of capital at the beginning before the “ship” can earn any money. Only financial markets can provide this capital.

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  • Well said shipbuilder. Simply leeching off money streams that are forced through London for nothing more than historic reasons (when the English decided to take over the world) does not add anything to society. Some poor guy somewhere has worked hard to create that wealth …… simply taking it away from him through an elaborate game based on a set of ‘rules’ that only the wealthy can afford to bend…………. the whole thing is immoral in MHO

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  • all i am going to say is remember the YUPPIES and what happened to them.. this time is it the ……….HiBEs (high bonus earners..) and the same will happen to them.. bankruptcy high debts, etc when it all comes crashing down in the usual world cycles…….

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  • Disillusioned,

    Do you have a time machine that suggests otherwise?

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  • Shipbuilder:

    The City is highly competitive in providing facilities to business and is as close to a system of “perfect competition” as you can find. You are unclear on what “The City” does and perhaps see it as a homogenised mass of people all doing the same non-benefit adding thing.

    To start with one sector – insurance, the benefits should be fairly clear. The modern economy could not function without a modern, competitive insurance market. You cannot even drive a car without it.

    Another, accountancy: for all their errors, a regulated and transparent set of accounts is essential in deciding who you can do business with, lend money to, invest in. Again, the economy would not function without it.

    Fund managers: Do you give your money to someone who is good at investing money in companies on your behalf or bad at it? The good ones get good bonuses.

    Corporate finance: As FD of a company (or an investor or employee in that company), you want to raise money as cheaply as possible. Would you be prepared to pay significantly more to a bank that is able to arrange it cheaper than a competitor providing the cost is lower overall? Of course you would. The bank will profit and those who “sold” the deal get the big bonus.

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  • I get your point, Maddison, but isn’t that capital simply loaned by banks? So what is the rest of the city for? Where is the value added?

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  • @Disillusioned

    If you read the article you’ll see that the second paragraph says “…bonuses across the economy rose 24% this spring to £26.4bn”.

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  • dohousescrashinthewoods says:

    @Disillusioned I don’t have a link, but it was asserted on the BBC Today programme this morning. Either the 6:15 or 7:15 business news bulletin.

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  • Ship builder

    The issuing of stocks and shares by companies is another way of raising money i.e everyone wants a piece of the ship once it is finished so why not float shares in the company before hand. Governments need to raise money as tax revenues don’t meet all liabilities all the time. They do this by selling bonds and gilts. Soon you have a right little market going with people swapping all sorts of stuff. Oh and then there are currency trades. The City is complex and I would love to talk further. Can we move this to a forum or you can email me directly rob at businessdata dot com

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  • dohousescrashinthewoods says:

    @shipbuilder – I tend to share your point of view. Either money is being created, or it is being rinsed from those who earned it.

    Presumably, at best, the sector rides pigyback on the value created by real companies, so the financial sector should, as a maximum, be a smallish proportion of the global economy.

    The only other source of money I can see is pumping interest out of debtors, which presumably correlates the relative size of the Financial sector in the UK with the levels of debt taken on by consumers and companies in recent years.

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  • Shipbuilder…

    Nice to know that you think my job is a mystery to you.

    Anytime you want to know anything then post me and ask…

    Kind regards…

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  • It looks like I got some interesting replies there. I was trying to play devil’s advocate, to an extent, which I thought was pretty clear Stoat gobbler. The reality is that it isn’t blatantly obvious what the contribution to the economy is to most people. Perhaps I phrased my question wrongly – I am well aware of insurance, accountancy and the like – however while being enablers to business, they cannot be called value added activities. I actually don’t think it’s simplistic to say that real wealth is created by making things rather than supplying services and many would agree with me. I guess I was hoping that someone could explain, much like housing, how a company or hedge fund or commodity is now worth, say, 200% more than it was last year and how this extra value is anything more than money created from nothing.
    By the way, I don’t actually build ships and Stoatgobbler, I fail to see how you can know much about my ‘contribution’ to this country – chill out mate. Money isn’t everything.

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  • Thanks, by the way, to those who actually attempted to answer my question. I do actually know what happens in the City, i’m perhaps wondering on a more fundamental level how trading in currency and bonds, gilts and so on actually generates real wealth. How is money generated by leveraged speculation on the movement of a commodity, say, anything more than inflation?

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