Tag Archives: Bankers Bonuses

#oneaday 14: Peter is skint, but are banks perfect employers?

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’.

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#oneaday 8: Robbing Peter, lending to Paul?

So all the tough talk about ‘us all being in this together ‘ (sic) (for those non residents of the UK, this was the phrase introduced by David Cameron, now Prime Minister of the UK at the Conservative party conference in October 2009 and has been the rallying call in these tough times) has proved to be a little wide of the mark. As purchase tax, or value added tax (VAT) as it was rebranded some years back rose 14% to 20% on the 4th of January, and thousands of public and private jobs are slashed,  as deep and rapid cuts to the welfare state and the education system,  the majority of folk in the UK are now getting used to a time of austerity. And you know what, we have no choice. The economy of the UK has taken a major battering, why, well in truth there are so many factors it would be a long essay and stuff that I simply don’t understand. But basically we spent more than we earned and we have to do our financial porridge for some years.

One factor that does stand out amongst all the others however, is the fact that some of our banks became insolvent in 2008. Instead of ‘the bank calling the debt in’ as normally happens when businesses and institutions fail, this time the banks carried the debts and could not meet their commitments. There was no one bank to call all the other banks in so to speak. They really were ‘all in it together’. The decision was taken, we are told, in the national interest, by Prime Minster Gordon Brown to bail the banks out. Amazingly no one actually seems to know to what extent. Namely we don’t know the final number. Some sources quote upwards of £1 Trillion. in the case of RBS (Royal Bank of Scotland) we are told that the citizens of the UK now own 83% of the shares. In return for these share the nation poured £45Billion in cash, insured £280Billion of risky loans and set aside a further £8Billion in case things get really bad. So you’d have thought as majority shareholders in this company, we i.e our Government would have had a say in how that business should be run, in the national interest and all that.

But the Government insisted earlier today (when I wrote this anyway) it would not intervene to stop Royal Bank of Scotland’s chief executive, Stephen Hester, earning up to £9Million for last year’s work. Furthermore it will not seek to cap the bonus pool of more than £1Billion that the bank intends to pay it’s high earners. A spokesman for David Cameron said: “We’ve made a broad statement which is about the need to see some restraint and some responsibility from the banks, but we are not going to set bonus pools for individual banks.”

We know the sketch here. Money talks blah, blah. But for all the recent fighting political talk – see below – of those who govern us, those that our pickled voting system has thrust upon us, right or wrong, is always the same. It is just talk and talk, unlike property is cheap.  Indeed the extra tax rate/levy on bonuses from last year has been wiped out,  replaced by a lesser yielding tax on the banks’ balance sheets.

So if you are young and  live in London, or are trying to buy a house in London, or indeed in the countryside close to London – aka The Stock Broker Belt as it used to be called when VAT was purchase tax, one of the consequences of this indecent and bloated excess is that property prices will rise again, thus putting property even further off the radar of those starting out in their working life, those trying to bring up a family. The very same people, many of them pay as you earn (PAYE) tax payers (you know the ones who pay the correct amount of tax as they do not have access to fancy schemes for tax optimisation) are royally being shafted.

The youth should always be at the centre of any society’s future, yet they find themselves over taxed, if they are lucky enough to have a job, under served and utterly betrayed. And the bank band played on. Pfffff. I am not given to cheap prejudice, but I can tell you now, I have complete and utter contempt for these people.

So there you go and to keep it interesting, I have a meeting with our bank manager planned for next week to discuss our  ‘facility ‘for 2011. The name of that bank? I will give you 3 guesses. You should get it right first time. Wish me luck.

Footnote what our leaders said when in Government (courtesy of The Independent today)

‘It is wholly untenable to have millions of people making sacrifices in their living standards only to see the banks getting away scot-free – the banks should not be under any illusion: this Government cannot stand idly by.’ – NICK CLEGG, Deputy Prime Minister17 NOVEMBER 2010

‘I make no apology for attacking spivs and gamblers who did more harm to the British economy than Bob Crow [the RMT union leader] could achieve in his wildest Trotskyite fantasies, while paying themselves outrageous bonuses underwritten by the taxpayer.’ – VINCE CABLE, 22 SEPTEMBER 2010

‘Every decision the banks make like that [paying large bonuses] makes it more difficult to keep a tax regime that they might favour.’ DAVID CAMERON, Prime Minister 17 DECEMBER 2010

‘We will not allow money to flow unimpeded out of those banks into huge bonuses, if that means money is not flowing out in credit to the small businesses who did nothing to cause this crash and suffered most in it.’ – GEORGE OSBORNE, Chancellor of the Exchequer 4 OCTOBER 2010

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