It’s not just me who feels about as sorry for bankers having their gravy train upset as I feel sorry for cancer cells that eventually kill their host.
A nice rant on The Motley Fool today goes in for some rumbustious banker bashing, too.
I particularly liked the following paragraph, which I’d urge anyone who thinks the banks have performed some kind of heroic act by repaying U.S. TARP money to think about:
[Bankers] have generated big profits for their companies over the past 9 months. As interest rates have plummeted and central banks have been printing money like it’s going out of fashion, just about every asset class has been rising.
From the stock market, to gold, to commodities… they’ve all been on an unstoppable, inexorable surge. It has been virtually impossible not to make money in such an environment, something investment bankers seem to conveniently ignore.
Any banker who hasn’t made stacks of money with Central Bank rates of near-0% is cordially invited to a game of no-limits poker with me, any time and any place. (And bring the shirt on your back).
Bankers could have parked money in a Post Office account and profited! We shouldn’t be paying bonuses for succeeding in this environment. We should be taking the under-achieving bankers on special holidays to ride with the donkeys and to think about a new career in drug testing.
It’s the economy, stupid
Of course, the whole point of unprecedented low interest rates is to enable the banks to make money and so stave off economic Armageddon.
Otherwise we’re back to living in caves, cracking wheat between stones, and using bankers to distract predators away from the villages.
But the public doesn’t get this – it thinks we’ve bailed out the bankers, not the banks.
Then again, you can see why they get confused, since the bankers think the same thing. Hence all their umbrage over bonuses and regulation.
A comment on the Fool article nearly nails it:
Because these bankers deal in trillions/billions of dollars/pounds (a number way beyond normal values of understanding), then the value they place on themselves for dealing with such volumes becomes commensurate with the value of the bonuses.
That’s true. The bankers’ sense of ‘a lot of money’ has gone out the window.
But what’s worse is that their ability to cream off 1% has multiplied the rewards of banking many times over, as the world’s capital flows have surged over the past 20 years. Bankers have not got 100 times more skillful, or scarce, or anything like it.
They just don’t get it – they believe their own hype. They bank their bonuses, and like a soggy woman in a L’Oreal advert, they rationalise that it’s “Because I’m worth it” rather than “It’s because we can get away with it”.
Psychologists have shown you can train people into believing just about anything if you put them in the right role. Famous experiments have turned students into torturers, and faithful lovers into would-be cheats.
So perhaps it’s our fault, for allowing bankers to think that £100,000 was chump change for so long.
That’s about what I think the average high-flying medium rank banker should be earning in salary and bonus, by the way. I’m not saying banking is an unskilled job, or an unnecessary one, or that you don’t need to be fairly bright. I’m saying it’s grossly overpaid.
We laughed when that supermodel said she didn’t get out of bed for less than £5,000 an hour, but at least she had a shelf-life. Like the undead, these bankers are unstoppable. Shoot ’em down with a worldwide economic crisis they caused and they pop right back up, like ducks at the fairground.
Bankers to get their bonuses
At the end of the day, all our ranting and indignation about bankers has been a useful way of letting off steam – riots are so bad for tourism – but it hasn’t change their antics one jot.
When given the chance to do the right thing by the nation that bailed them out and the shareholders that supported them – or to instead pay themselves twice as much at the shareholders’ expense to get around the Government’s surcharge on bonuses – guess what the bankers have decided to do?
Yes, bankers have chosen to take the bonus despite the tax, thanks very much.
Don’t say I didn’t warn you.
We need banks to make billions to repair the economy. We need bankers to make millions like a hole in the head.
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I’ve never been able to figure out what it is that the bankers were supposed to have done wrong. Did they put on funny noses and glasses and put all our retirement money into suitcases and take flights to the Riviera?
They misassessed risk. That much is fair to say.
Didn’t just about everyone? Weren’t there lots of people who were investing heavily in stocks during the bull years? Wasn’t the decision to do that rooted in the same unwillingness to take risk seriously that the bankers engaged in?
All the textbooks push the Efficient Market Theory. All the graduate programs push Economic Man. The bankers got it more wrong than the rest of us because they studied this stuff longer than the rest of us and thus became more entrenched in their belief in the discredited ideas. That’s their “crime.”
I feel sorry for them. But only because I feel sorry for all of us.
Rob
Rob,
>Wasn’t the decision to do that rooted in the same unwillingness to take risk seriously that the bankers engaged in?
you’re missing something here. We do that, we get to lose our shirts. Bankers don’t, since the downside risk is socialised into bailouts, while the upside risk goes into their paypackets. Indeed, what’s happening now is they are creaming off some of the bailout through the rise in assets from the dip as the bailout works.
We need to split banking into safe stuff, and we need all banks to be small enough to fail…
Bankers don’t, since the downside risk is socialised into bailouts, while the upside risk goes into their paypackets.
That’s a fair statement, Ermine. I of course agree that what you describe is not right. But it seems to me that it is a wrong that logically follows given our failure to correct the Efficient Market/Economic Man stuff for so many years after we learned that it doesn’t hold water.
What would you do if you were in the bankers’ shoes? All of the Economic Man/Efficient Market stuff is written up in all the textbooks. If they fail to take that long-discredited stuff into consideration when approving loans, they would be violating industry practice and could be held liable. Yet if they act rationally, they cause economic meltdowns. And then they are to be refused bonuses? Because they did what they are required by law to do?
We bailed out the bankers for our benefit, not theirs. It seems to me that we need to address the underlying problem. Our entire economic system is built on a myth. We need to act as a community to change that. At least then this sort of thing wouldn’t happen again. There’s nothing we can do about the past.
Rob
.-= Rob Bennett on: Podcast #196 — Valuation-Informed Indexing and Buy-and-Hold Are Opposite Strategies =-.
Just wondering, instead of people ranting, why not just join the industry and take advantage of the system and government as well?
.-= Financial Samurai on: You Are Already Wealthy, Stop Complaining! =-.
Doesn’t one need a degree in mathematics to get into banking?
Faustus – No, one just needs to be in the top tier of their class/industry, have the highest grades, and no how to communicate and work hard like no other. Just as Monevator!
.-= Financial Samurai on: You Are Already Wealthy, Stop Complaining! =-.
@Rob – One of the many reasons I think bankers are overpaid is because I think the economic system is inevitably cyclical, and so they should not be given out-sized rewards for riding the good times and then escape with the loot in the bad. Compare that to real wealth generators, such as entrepreneurs, venture capitalists, the mobile and flexible self employed, or even artists, to push things to a provocative extreme. Genuine risk takers.
@Sam – I was sitting in a restaurant in the City with a chum last night thinking exactly that! 🙂 The truth is that I would last about a day with some alpha male big swinging d*ck telling me what to do, whether in the brutally direct American banker form or the snidey “our people” British version (let’s leave the French out of it). Still, if I’d known how insane the finance industry was going to get when I was a student around two decades ago, I might have bitten my lip and held my nose…
By the way, the fact that I couldn’t thrive as a banker is not proof that they deserve £500,000 bonuses (because I can’t hack it etc). I couldn’t hack it in the army either, for instance, and the salary there is c. 10-50 lower, with the only bonus being you might hope not to get shot.
Thanks as ever for your comments everyone. 🙂
One of the many reasons I think bankers are overpaid is because I think the economic system is inevitably cyclical…
I don’t see the economic system as being inevitably cyclical. I think it is cyclical because we encourage behavior that makes it cyclical. We could stop doing that.
The alternative is to keep doing what we have been doing. But that gets us in these circumstances where we need to bail out bankers whether we like the idea or not because the entire shebang will collapse if we do not. By permitting things to reach a crisis point, we put ourselves in circumstances in which we possess no good options. I favor taking the actions we need to take to avoid getting into the crisis situation in the first place (that requires stopping both the extreme economic ups and the extreme economic downs).
Rob
.-= Rob Bennett on: Podcast #196 — Valuation-Informed Indexing and Buy-and-Hold Are Opposite Strategies =-.
Best. Article. Ever.
The system is cyclical because of human nature. We can’t get enough of it or ourselves when the going’s good so we overreach or overinvest or overpay or overspend – be it an excessive factory, share price or spending on the mortgage.
When the brown stuff hits the fan everyone runs gets over-scared until its washed out and they’ve forgotten what hit them.
To change that you’d need to change human nature – I love human nature myself.
Or s’pose you could go to planned economies but we saw what happened there (starving millions, gulags and bad haircuts).
In that sense it’s correct it’s not bankers fault – they are cogs in the machine. I do see why people resent them being paid a fortune though – most are me-too Sir tossp*ts.
To change that you’d need to change human nature – I love human nature myself.
I understand the point you are making, Old Pro. There are lots of people for whom I feel deep respect who feel as you do.
I believe in the inspirational words of Robert Kennedy: “Some look at what is, and ask “Why?” Other look at what could be and ask “Why not?”
There was a time when it was “human nature” to have slavery. There was a time when it was “human nature” to have widespread illiteracy. There was a time when it was “human nature” to not have indoor plumbing or cars or cell phones.
I love some aspects of human nature. I am not so crazy about some others. The aspect of human nature under discussion here — the aspect that causes economic crises and all the human suffering that go with them — I could live without.
We the humans have the power to enhance human nature by educating people as to the realities of economic crises and the investing “strategies” that cause them. I see this as the most important work before us as a society for the next few years.
That said. I am truly grateful for those who state the other point of view, as you have here. I often learn more from those who disagree with me than I do from those who pat me on the back. We are all in this together and we are all trying to do the best we can to move things forward given the perspective we have attained from the life experiences we have been through.
Rob
.-= Rob Bennett on: My Google Knol on “Why Buy-and-Hold Investing Can Never Work” =-.