Isn’t it time to stop bashing the banks? Reading about the ‘total compensation’ (ie pay to staff by way of bonuses in everyday PAYE speak) of the US based investment banks, JP Morgan and Goldman Sachs both being north of $15bn, you can’t help feeling a sense of awe and shock. Incidentally, I am not sure if these figures are for all staff world wide or not, but whatever the spread is, it is a big number.
Interestingly though, it does rather suggest that these investment banks are founded on the principles of ‘partnership’. It seems that investment banks are capable of making astronomical profits, but they all seem to pay out a fair chunk of that profit to their staff who have made the deals work. This feels like fairness to me. Workers have worked hard to bring their company profit, and when they do so, their company has rewarded, or compensated, them very fairly and equitably. I bet many fellow workers would like to get a big share of the profits that they feel that they make for the companies they work for, right?
I am not sure I can argue with this policy. I run a business and our ultimate aim and neccessity is to make a profit. The problem seems to be that the sheer size of the profits made in investment banking are indecent to the vast majority of people, outside of sports stars and other investment bankers of course. No one can argue with that can they? But for this to work, and for these vast amounts to be sustainable, someone, somewhere has to lose out. However, if the number of investment banks in any market is few, as it does seem to be today, then a small piece from trillions adds up to a big number time and time again. If the number of players were to increase, as a free market requires, then the argument could go that the pot of cash that they are all chasing stays the same, and therefore the share per combatant reduces. Except that in a capitalist system the winner takes it all and someone has to lose for someone to win. Therefore introducing more competition is only a temporary change, as winners get bigger than losers in the pursuit of market share, losers either die or are bought but winners or fellow losers who want to get bigger to beat the winners. Still awake?
Ultimately, the obsecene amount of profits that investment banks continue to make suggests that our monetary system is either relatively worthless, because the numbers are so big, or simply many are losing out to a few. After all, investment banks can take away value, as is the case with most Hedge Fund business models, as well as add it, the way that they are supposed to do. Frankly, I cannot get my head around this system and the sheer amounts of money that seem to flow one way. Are these banks fair employers? Who knows. But one comment that was recently attributed to a banker recently when talking about their bonus being paid not in cash but in a mix of share options and cash:-
“You don’t want to earn shares in your own company – it’s doubling a risk,” he says.
“You want to own shares in someone else’s company. Because if your company goes belly up, you will lose your job and you will lose your stock options.”
So we are not really all in this together, are we, not even the bankers. It really does seem ‘all about me’.