≡ Menu

Weekend reading: Bankers!

Money articles

My weekly commentary followed by this week’s links to blogs and financial articles.

I only wrote two posts for Monevator this week, instead of my usual three.

I’m currently working long hours, you see, and that’s devoured most of my free time.

But never mind, because according to the specious logic of self-justifying bankers, I must be entitled to a six-figure bonus check as a result of my labours.

After all, “We work hard!” is one of the cries that the denizens of the financial goldfish bowl use to justify their inflated incomes.

As if nobody else works hard.

They’ve been justifying themselves a lot this week, after Goldman Sachs announced stunning results:

Workers at Goldman Sachs have racked up an average $527,192 (£324,607) in salary and bonuses so far this year after the American investment bank made a $3.1 billion profit in the third quarter.

Average pay for staff at the group, which employs around 5,500 staff in London, is 46 per cent higher compared to last year.

Come on, you must remember Goldman Sachs? They’re the princely free marketeers who were bailed out by the US government last year, like humble autoworkers or farmers.

I am so sick of the hypocrisy that bankers and other financial service providers spout. Unfortunately I know some read Monevator, and I know from experience that they’re completely incapable of looking objectively at their grossly inflated incomes, so they won’t take this post well.

It’s bizarre — most of them are pretty smart, and the can debate the legs off a cow. They can be thoughtful and generous too, just like anybody else can.

But when it comes to pay they start from the conclusion “I deserve a £300,000 bonus” and then work backwards, reeling off disconnected statements that on the surface might justify their position but are logically irrelevant.

We work long hours! — So do factory shift workers and illegal immigrants. They don’t earn six figures a year.

Our jobs are insecure! — Yep, that’s why most staff from Lehman Brothers are now working at Barclays or Nomura or similar. Besides, out here in the real world we lose jobs, too. Just ask anyone in the unemployment queues.

It’s very, very hard! — Lots of jobs are hard. Vets train for seven years before they’re allowed to stitch a cat, which is about seven years longer than bankers study banking. Even London taxi drivers study ‘The Knowledge’ for a year. Researching cures for cancer is hard — I must have missed the stories about lab workers earning £1 million a year.

It’s really competitive! — This is certainly true. But then lots of jobs are competitive. Being a lap-dancer is competitive. Being a music journalist is competitive. Far more people want to play classical music professionally than there are jobs for violinists or viola players. Their average salary is about £30,000 a year, and they supplement it with teaching.

It’s a free market! — True, when we’re not bailing it out for everyone’s sake. Or when a company wants to raise money or mount a takeover, and can only choose from three or four names — and it can hardly shop around publicly. Like law, it’s a racket.

You pay your hairdresser a tip! — So therefore bankers should be paid £300,000 bonuses? This idiotic comparison was made by the Miss Moneypenny columnist who writes for the Financial Times. She’s usually savvy and a good read, but even she threw up these kinds of inanities in her desperate argument to justify obscene City salaries. Is the reverse true? She earns a bonus — so should she clip my ear lob hair and rub wax into my scalp, then sweep the floor?

It’s stressful! — Even French workers with their 30-hour weeks and excellent social safety nets find work stressful. In fact, some are killing themselves.

It does something useful! — I am not one of those people who argues the City does nothing for its money. I fully accept that the crude image of a 22-year old gambling away a pension in one window while he’s on the phone to a lap dancer booking the evening’s entertainment is misplaced. All the phones are recorded nowadays, so he’d have to use his personal mobile.

More seriously, of course we need efficient financial services, deep and sophisticated credit markets, people who can wrap up the obligations of a country, company or individual and turn them into financial packages with defined risk that enable them to be traded, insured against, or whatever.

But we don’t need pay them on average £300,000 a year.

Why does it happen? The answer is obvious to anyone who’s had a job.

If you work in a crisp factory, you get free crisps. If you’re an estate agent, you see the best houses first. Nobody who works in a sweet shop ever went without sweets. Staff at Gap and H&M get big discounts.

And if you work alongside money, and you’re moving billions about, and 1% is neither here nor there in the good times — there’s your £300,000.

They make lots of money because they handle lots of money, and they take a commission, whether individually or as a company.

At best they provide innovative and socially useful functions akin to engineering or air traffic control, and they should earn say £100,000 a year for the role.

(This is more like the money most earned in the 1960s and 1970s, when it was a slow job for simple posh chaps from the right schools. Contrary to banker propaganda, the world kept turning and the communists were kept at bay.)

In the middle, they are engaged in zero sum games — fund management, say — so in aggregate are just enormous friction. Use an index tracker or pick your own stocks to do your bit to help fight this flea that’s smothering the dog.

At worst? They put people into crummy pension schemes and charge 5% upfront fees and deliver mediocre returns. They create complicated products designed to extract value from customers, not to deliver value. They speak humbly about their $800,000 salary as being a lot from where they came from, like John Mack of Morgan Stanley did on TV this week, because they think that candid talk will play well to the masses — but they neglect to mention the $69 million he was awarded between 2005 and 2009 alone.

Oh yes, and they cause little hiccups like the credit crisis.

From this week’s personal finance blogs

  • Communist, capitalist or socialist joint finances — Plonkee Money

Other interesting financial and money articles

  • Smart people getting into banking caused the crisis — New York Times
  • British are in denial about pain ahead: ex-FSA head — The Telegraph
  • It is cheaper to buy than rent in much of the UK — Love Money

Save the cost of a weekend paper by subscribing to get this free update.

Receive my articles for free in your inbox. Type your email and press submit:

{ 7 comments… add one }
  • 1 Graeme October 17, 2009, 1:54 pm

    I agree, except for your comment about fund management: if everyone put all their money in index trackers, the market would not work.

  • 2 The Investor October 17, 2009, 3:57 pm

    @Graeme – This is a really interesting philosophical conundrum that I’ve failed to find answers to before. I agree with you that clearly some active participation in the market must be required for trackers to track; what is the minimum number? Two agents? Two thousand? Two million? I’d love to see some research on this.

    That said, I still don’t see that it follows that they need to earn unbridled sums from their input though. As I say above, I fully agree some of these jobs are tough. Fund management clearly is given most of them fail. Now if you’d said 30 years ago that a fund manager would earn 5 times the average working man, back then it would have seemed like very generous compensation. But the equivalent today – say £150,000 a year – would seem barely get out of bed money in some parts of the city.

    Thanks for your comment and glad to see you’re still around!

  • 3 Graeme October 18, 2009, 5:51 am

    I agree that they do not really need to be that well paid.

    Then again, I do not think Bill Gates deserves his money (which is, in large part, a reward for being born to a well connected family, and for being ruthless in eliminating competition, although he is a brilliant business man).

    In general most of the worlds money goes to people who can either trade or make deals, or who inherited money (ideally, all three) and not just in the financial sector.

  • 4 FB @ FabulouslyBroke.com October 18, 2009, 12:53 pm

    I too agree they shouldn’t be paid that much because WE don’t see the value in what they’re doing to be worth that kind of salary….. but it is what clients are willing to pay for their services.

    Many people fall under the trap of: if it’s more expensive, it’s better.

    On another note, if we’re going to skewer i-bankers, we should also consider pro athletes getting a ton of bucks a year for playing a game.

    Sure it’s hard on their bodies, but so is factory work and any hard physical labour.

  • 5 Lemondy October 19, 2009, 1:39 pm

    IMO, the only kind of bonus compensation that employees at the bailed-out UK banks get should be stock options which have a strike price set at or above that which the government bought in at. And they should not vest for several years. Beyond that, it’s an effing insult to be compensating these people above their basic pay.

  • 6 Mogden October 22, 2009, 12:10 am

    I’d like to see the forces in Afghanistan redeployed to Wall Street, with instructions to hang anyone that moves.

  • 7 Conrad November 8, 2009, 7:12 am

    I don’t think there’s anything fundamentally wrong with banks paying their staff whatever they choose. After all surely in a capitalist society it’s up to the employer to set salaries not the government.

    What the government could do I suppose if they want to effectively cut bankers salaries is to tax them more.

    To make a significant dent in their salaries though it would have to be a lot higher than the new 50% tax bracket for earners over £150k.

Leave a Comment