Bankers "need to join real world" minister says

[beorhthelm]

Don't talk crap. These deals would have gone through regardless.

so why does the bank employ the trader and pay him a bonus, rather than employ a cheaper person/automate and keep more profit?

Half the problem with the bonus makers is that they don't see the need for wealth redistribution, or the wider benefits that arise from redistribution.

more than the 40% they will already pay? isnt the fact they will spend most their money enough redistribution? tax as wealth redistibution mechanism is only really useful so that the state can control where and how the redistribution will apply. usually though funding public services or cross subsidising groups/regions.

 

[Tom Hark Preston Park]

so why does the bank employ the trader and pay him a bonus, rather than employ a cheaper person/automate and keep more profit?

They'd absolutely love to. But the technology isn't quite there yet. Still need a few trading monkeys around the place to handle the last remaining 5% of the decision making.

 

[Lord Bracknell]

more than the 40% they will already pay? isnt the fact they will spend most their money enough redistribution? tax as wealth redistibution mechanism is only really useful so that the state can control where and how the redistribution will apply. usually though funding public services or cross subsidising groups/regions.

As I said ... half the problem is that they don't see the need for wealth redistribution, or the wider benefits that arise from redistribution.

The other half of the problem is that they don't begin to understand the concept.

Spending bonuses on pushing up the price of luxury housing in Provence isn't any sort of wealth redistribution at all.

 

[beorhthelm]

They'd absolutely love to. But the technology isn't quite there yet. Still need a few trading monkeys around the place to handle the last remaining 5% of the decision making.

but you said the deals would have gone through regardless. im confused, are the traders currently needed pending techological improvements, or not? and presumably you dont object to the banks making the money then?

 

[tedebear]

Fair enough. But if you think anybody on this entire planet is worthy of a million quid bonus then you're in the same bubble of self-delusion that the recipients of these bonuses are. They/you still don't get it. There IS such a thing as society, or as you call it, 'the majority of the public'. And the level of these bonuses IS obscene. No matter how much you manage to convince yourself otherwise.

Whatever.....It will get paid no matter how much you think it is obscene, personally I'd prefer them to be working here in Canary Wharf or the City, returning the taxes to this country, rather than in New York or a foreign country, where society gains far less from their taxes. Which if the general pubic carry on their whinging and baying will happen.

By the way, it is your personal opinion that this amount of money is obscene, granted it appears that a lot of people think this amount of money is obscene, but how many of those people play euromillions or lotto each week?

 

[Herr Tubthumper]

Whatever.....It will get paid no matter how much you think it is obscene, personally I'd prefer them to be working here in Canary Wharf or the City, returning the taxes to this country, rather than in New York or a foreign country, where society gains far less from their taxes. Which if the general pubic carry on their whinging and baying will happen.

By the way, it is your personal opinion that this amount of money is obscene, granted it appears that a lot of people think this amount of money is obscene, but how many of those people play euromillions or lotto each week?

Let's call their bluff then. If they bugger off to New York or whatever then I'm sure there are a few barrow boys in the dole queue willing to be trained up to take their places.

 

[tedebear]

Let's call their bluff then. If they bugger off to New York or whatever then I'm sure there are a few barrow boys in the dole queue willing to be trained up to take their places.

Yes - call their bluff if you want. But there could be alot of downsides for RBS if they start losing their high income earners. Downsides for RBS means downsides for the taxpayer.

 

[Herr Tubthumper]

Yes - call their bluff if you want. But there could be alot of downsides for RBS if they start losing their high income earners. Downsides for RBS means downsides for the taxpayer.

Being slightly more serious I'm sure some employees will leave due to money, but others will stay. People do have ties and sometimes a desire to stay somewhere which is not based purely on money. And, folk always counter issues like this with doomsday scenarios.

 

[mona]

Yes - call their bluff if you want. But there could be alot of downsides for RBS if they start losing their high income earners. Downsides for RBS means downsides for the taxpayer.

If Sir Fred Goodwin is typical of their high earners, the sooner they lose them the better. His understanding of Economics made me feel an expert with my A Level from long ago. Obviously all this shows up how badly the Government handled the matter.

One of the good things about football in this era where the cult of management is all important is that football managers are accountable. Too often the consultants/managers and sundry fraudsters that rule the roost get away scot free with appalling decisions in the real world.

 

[El Presidente]

Part of the bonus problem is that from the trader's perspective it encourages them to take risks. If they gamble and win, then they get a bonus, if they gamble and lose........well we have all seen the consequences.

There's a brilliant book called Fool's Gold by Gillian Tett, who writes for the FT, that documents the whole saga. A must for any TV business expert's Christmas stocking if you ask me.

 

[Gwylan]

Part of the bonus problem is that from the trader's perspective it encourages them to take risks. If they gamble and win, then they get a bonus, if they gamble and lose........well we have all seen the consequences.

There's a brilliant book called Fool's Gold by Gillian Tett, who writes for the FT, that documents the whole saga. A must for any TV business expert's Christmas stocking if you ask me.

That's not part of the problem - it isthe problem. It's a distortion in the reward system and ultimately a distortion in the market.

Is Gillian Tett the woman who trained as an anthropologist and used her training to analyse the way that financial traders behave?

 

[beorhthelm]

Part of the bonus problem is that from the trader's perspective it encourages them to take risks. If they gamble and win, then they get a bonus, if they gamble and lose........well we have all seen the consequences.

if they gamble and lose consistantly, they lose their job. not really sure where teh myth that all traders are in a job for life, not matter what, has come from. the traders will tell you the reason for the bonuses is because this year might be their last, bit like footballers. yeah, there are some that get a guaranteed bonus, but from what i gather they are not necessaryily active traders and responsible for the client relations side (ie getting the money in), past glory or mates of the board. the problems didnt happen due to too much risk taking, but because a few banks became overexposed to a narrow and unstable market. stopping bonuses will not fix this, only some sensible regulation.

 

[User removed 4]

if they gamble and lose consistantly, they lose their job. not really sure where teh myth that all traders are in a job for life, not matter what, has come from. the traders will tell you the reason for the bonuses is because this year might be their last, bit like footballers. yeah, there are some that get a guaranteed bonus, but from what i gather they are not necessaryily active traders and responsible for the client relations side (ie getting the money in), past glory or mates of the board. the problems didnt happen due to too much risk taking, but because a few banks became overexposed to a narrow and unstable market. stopping bonuses will not fix this, only some sensible regulation.

good post, it amazes me how many "experts" on here think that traders/brokers will keep their job regardless of whether they're profitable or not.

 

[User removed 4]

Part of the bonus problem is that from the trader's perspective it encourages them to take risks.

If you can show me a way of trading that is WITHOUT risk, please let me know , we'll make a fortune together.




** waits for some clever dick to cite working for RBS is without risk, as the govt will bail you out if you lose. **

 

[El Presidente]

If you can show me a way of trading that is WITHOUT risk, please let me know , we'll make a fortune together.




** waits for some clever dick to cite working for RBS is without risk, as the govt will bail you out if you lose. **

I'm not denying they have to take risk, you take it even when you are crossing the road, but the use of CDO's and the ridiculous belief in ongoing housing market inflation showed that the bankers were too focussed on the computer models and too little interested in the real world.

Bear Sterns and Lehman were clients of mine, and they didn't pay their suppliers when they went bust

 

[User removed 4]

I'm not denying they have to take risk, you take it even when you are crossing the road, but the use of CDO's and the ridiculous belief in ongoing housing market inflation showed that the bankers were too focussed on the computer models and too little interested in the real world.

Bear Sterns and Lehman were clients of mine, and they didn't pay their suppliers when they went bust

I agree with you there mate, and i dont deny that complex derivatives like CDS need to be seriously looked at with a view to regulation, perhaps the LTCM meltdown of a few years ago was a missed opportunity in terms of regulation.

 

[Lokki 7]

I'm not denying they have to take risk, you take it even when you are crossing the road, but the use of CDO's and the ridiculous belief in ongoing housing market inflation showed that the bankers were too focussed on the computer models and too little interested in the real world.

Bear Sterns and Lehman were clients of mine, and they didn't pay their suppliers when they went bust

I agree with you to a point. The main problem with CDO's was that credit agencies would AAA rate tranches when in fact the whole thing was quite often a toxic timebomb. Once the AAA label is slapped on the asset you can sell it to anyone. Swedish pension funds, the Swiss railways etc and that is exactly what happened. Turning toxic waste into AAA class assets (in name anyway) is what caused the crisis. The ratings agencies should be totally over hauled, swiftly followed by the regulators that allowed it to happen. Probably the biggest fraud ever committed.

 

[cunning fergus]

I agree with you there mate, and i dont deny that complex derivatives like CDS need to be seriously looked at with a view to regulation, perhaps the LTCM meltdown of a few years ago was a missed opportunity in terms of regulation.

The Gov't didn't want sensible regulation and therefore it (inadvertently or not) allowed the regulator to focus on micro issues that were not relevant to how the market was performing.

The regulator has long been focused on matters like PPI and how firms marketed/sold their products but have ignored the massive risks arising from banks operating in markets and arrangements where they had no recent experience (e.g. BBG and Northern Rock with buy to let mortgage products and mortgage self certification).

Given that one of the four objectives the Govt set the FSA in the FSM Act was to to maintain public confidence in the UK financial system I would say this objective has been missed by a country mile?

In fact the Govt and Gordon Brown have behaved in exactly the same way as the US Govt's did under Coolidge and Hoover when they allowed the financial market to police itself in the 20's; and what happened there? Unrestricted access to credit drive unprecedented growth generating wealth for citizens, companies and the Govt (albeit only in the short term).

Remember Gordon Brown praised the City in his 2006 Mansion House speech years ago and said:

The City's openness has led London to innovate the most modern instruments of finance, an ability to compete that depends upon an open competition policy which rewards and is a stimulus to innovation and which does not restrict new entry and so helps new companies, new products and new services to come into the marketplace.

He later said

In 2003, just at the time of a previous Mansion House speech, the Worldcom accounting scandal broke. And I will be honest with you, many who advised me including not a few newspapers, favoured a regulatory crackdown.

I believe that we were right not to go down that road which in the United States led to Sarbannes-Oxley, and we were right to build upon our light touch system through the leadership of Sir Callum McCarthy - fair, proportionate, predictable and increasingly risk based.

He must be made up with the public reation to the bankers, no one moaned when the FSA got £33 million of bonuses this year did they?