Be afraid ...very afraid!....of what you wish for

Thursday, Dec 03 2009 by
10

There are a swathe of articles in the press today, concerning RBS:

The Times, The Sun, The BBC and many others are out putting their spin on the situation - and even Robert Peston has been provoked into blogging on the topic!

This is the way The Times puts it:

The Treasury signalled last night that it was prepared to veto a £1.5 billion bonus pool at Royal Bank of Scotland in a move that could trigger the resignation of the bank’s board.

RBS directors have been advised by the bank’s lawyers to resign if a Treasury bonus veto means they are unable to run the bank commercially and in the best interests of all shareholders.......

Ronnie Fox, principal of Fox Lawyers, said: “If you are put in a position where you can no longer do the job you are paid to do then I cannot see how you can remain in place as a director. I would advise the board of RBS to resign in this situation.”

Vince Cable, the Liberal Democrats Shadow Chancellor, said: “I would welcome their resignations. The bank cannot hold the taxpayer to ransom.”

The Treasury has intervened directly to demand the right of veto over this year’s bonus payments at the bank, which is 70 per cent controlled by the taxpayer.

Institutional shareholders have raised concerns that restricting RBS’s ability to make reasonable bonus payments this year will impede the bank’s ability to compete commercially and retain top bankers next year. Investors have urged Stephen Hester, the chief executive, to drive a hard bargain with the Treasury over the final size of the bonus pool.

RBS said last night: “Our agreed business plan requires us to operate commercially in competitive markets and this plan underpins the prospects of recovering value for taxpayers and other shareholders alike. We understand and embrace the need to ensure pay meets the new G20 and Financial Service Authority requirements and will continue to advocate this and other ways to address public concerns relating to banks and always pay on the principle of no rewards for failure.”

One shouldn't underestimate the seriousness of this situation. This is a potential LOSE-LOSE of massive proportions!  The Government is applying pressure because of the expectations they have been wrongly stoking in the public.....all the populist rhetoric about "greedy bankers" is now on the verge of revealing some very serious consequences - and even the otherwise pretty reliable Vince Cable seems not to have grasped the problem this time!

Peston puts the situation well:

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The board believes that up to half the intrinsic value of the bank is in its investment bank. So if the chancellor were to veto bonuses which the directors believe to be essential to preserving that value, they would be under a legal obligation to quit - because they would be prevented from taking actions they perceive to be in the interests of shareholders.

It is understood that Royal Bank's chairman, Sir Philip Hampton, argued to the chancellor that he was playing with fire by insisting on the final say over bonuses.

Mr Darling now has the appalling choice of either approving bonuses that will be described as grotesquely unfair by opposition parties and by many voters, or of sparking a crisis at RBS by prompting the mass resignation of directors.

I am in no doubt at all that the RBS board is right to take the view it is reported as taking! The board has a responsibility to look after the interests of shareholders - and it seems very clear to me that encouraging the most successful staff to walk out of the door will be very destructive - not least because it would demonstrate that governments cannot be trusted to act responsibly when they own banks!

There is, of course, a very neat finesse available to the government.......

.....and that is to impose a one-off windfall tax on the profits of ALL banks for 2009.

I would argue that 2009 has been an extremely exceptional year and, whilst I am opposed in principal to the idea of windfall taxes on banks (or any other businesses which happen to take the eye of Governments), I think there is a real case in logic for saying that global banking profits in 2009 have derived almost entirely from the actions of governments in bailing out the failing banks .....ie from the liquidity pumped into the financial system and from the record low interest rates. Bankers simply COULDN'T FAIL to make money in that environment! Anyone in banking who has made money has been able to do so directly because of the taxpayers' efforts to prevent a failure of the banking system.

Therefore the great majority of profits booked in the profitable parts of banking industry in 2009 have been paid for (in a VERY direct and unprecedented way) by the losses racked up in other parts of the banking industry - for which taxpayers have been footing the bill.

So - my solution to this would be a one-off (and it MUST be a genuine one-off!) windfall tax of about 50% of the profits of all banks in 2009......

....and if the Government doesn't go down this route, then it surely faces the choice between looking politically inept (not difficult - especially as they've unnecessarily ramped up the anti-banker rhetoric!) or directly causing further multi-billions value destruction in the state-owned banks!

ee


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HSBC Holdings plc (HSBC) is a global banking and financial services organizations. As of December 31, 2012, it provided a range of financial services to around 58 million customers through four global businesses: Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking. In June 2012, the Company’s indirect wholly owned subsidiary, HSBC Iris Investments (Mauritius) Ltd, sold its 4.73% interest in Axis Bank Limited and 4.74% interest in Yes Bank Limited. In July 2012, its subsidiary, HSBC Europe (Netherlands B.V.), sold its 100% interest in HSBC Credit Zrt, to CentralFund Kockazati Tokealap. On March 31, 2013, Enstar Group Ltd’s subsidiary completed the acquisition from Household Insurance Group Holding Company of HSBC Insurance Company of Delaware and Household Life Insurance Company of Delaware, as well as its three subsidiary insurers. more »

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Lloyds Banking Group plc, is a holding company. The Company is a financial services group providing a range of banking and financial services, primarily in the United Kingdom, to personal and corporate customers. The Company operates in four segments: Retail, Commercial Banking, Wealth, Asset Finance and International and Insurance. Retail provides banking, mortgages and other financial services to personal customers in the United Kingdom. Commercial Banking provides banking and related services to business clients, from small businesses to large corporate. Wealth, Asset Finance and International provides private banking and asset management and asset finance in the United Kingdom and overseas and operates the Company’s international retail businesses. Insurance provides long term savings, protection and investment products. In April 2014, Lloyds Banking Group PLC acquired Barons Holdings Spa & Resorts Ltd. more »

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Standard Chartered PLC is a United Kingdom-based holding company. The Company operates globally and is principally engaged in the business of retail and commercial banking and the provision of other financial services. The Company operates in two business segments: Consumer Banking, which private, small and medium-sized enterprises (SMEs), priority and personal banking customers across its franchise and Wholesale Banking, which includes lending and portfolio management; transaction banking, including trade and cash management and custody; global markets, including financial markets, asset and liability management, corporate finance and principal finance. The Company’s subsidiaries include Standard Chartered Bank Korea Limited, Standard Chartered Bank Malaysia Berhad, Standard Chartered Bank (Pakistan) Limited and Standard Chartered Bank (Taiwan) Limited. more »

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21 Posts on this Thread show/hide all

emptyend 3rd Dec '09 2 of 21
1

In reply to loglorry (post #1)

I think people have to realise that RBS etc. don't want to pay these people but they must or else they will just walk out the door and work elsewhere.

....like Switzerland, for instance! One might argue that, relative to the rest of the economy, banking has been a very overpaid profession - and most certainly it has got a lot worse in the 11 years since I left it.......but it MUST be the case that people should be allowed to earn whatever their particular market will bear. Otherwise, where do pay caps stop? Sorry Mr Cowell, we aren't going to allow you to earn more than £1mn pa.....sorry Mr Beckham.....sorry Mr Hamilton etc etc  Of course most of the really high earners have already left the country - but I don't think we want to encourage the whole of the City of London to follow them........it would be a grand example of  "cutting of our nose to spite our face" if we did so!!

In any case the government will get back 40-50% of the bonus in the form of income tax and vat so its not such a big deal is it?

.......and then of course there are all the multiplier effects of the bankers' money being spent elsewhere in the Home Counties economy!

The worst of all possible outcomes is that the government makes it too difficult for banks to do business in London that they all up sticks and leave - plenty of other countries offer the opportunity for civilised living and business-doing without such gross state interference!

ee

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Fangorn 3rd Dec '09 3 of 21

As an aside are many banks recruiting at the moment? Surely the number of vacancies must be at a historical low as they go through the motions of shrugging off the continued effects of the credit crisis? Some parts of course will have been very profitable over the last 6 months or so - but senior management? There must be many senior managers of similar qualifications out there hthat have been made redundant who could fill the shoes over the disgruntled RBS board.

Now, in normal conditions I've no problem with bankers and their bonuses, having enjoyed them myself previously, so if the likes of Hsbc and Barclays want to then so be it. No qualms here. But where I do draw the line is for such generosity to exist at effectively state owned banks, who's very survival is the result of taxpayer bailouts. Employees at such institutions should frankly be grateful they're still in jobs as we approach christmas, and not out on their ears on the street with their likely large mortgages like many other less fortunate people.

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deucetoace 3rd Dec '09 4 of 21
2

The people who you most want to keep are the ones who will find it easiest to walk - they aren't grateful for a job they know what they are worth and know they can walk into another job easily.

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Fangorn 3rd Dec '09 5 of 21

But are Banks recruiting in general though, let alone for such management talent. As far as I can see there's plenty of talent out there looking for work given all the redundancies we've had.

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samenic 3rd Dec '09 6 of 21

So - my solution to this would be a one-off (and it MUST be a genuine one-off!) windfall tax of about 50% of the profits of all banks in 2009......

Great idea ,the only problem l can see is that is that Bank profits are calculated for tax purposes after deduction of bonuses so l can't see it being much of a deterrent.

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emptyend 3rd Dec '09 7 of 21
1

Re Fangorn's point about recruitment, I don't doubt that ANOther Gofers are ten a penny at present. But they aren't the ones who would be in line for big bonuses. The guys who would be getting the big bonuses would readily be snapped up by other banks, because they have scarce skills and significant experience (usually in the trading or deal-doing areas) that enable their employers to make profits that are a significant multiple of their expected bonuses.

Re samenic's accounting point, this is of course technically correct. However, banks are likely to cut back bonus pools in proportion to the profits they have booked - and, in any event, if the Government took 50% of the profits from those who have profited from the taxpayers largesse, the equitable nature of such a move coupled with the recouping of multi-billions of money for the taxpayer is actually FAR more important than the over-dramatised and envious concerns over bankers' bonuses.

The fact is - if a banker doesn't make any profit then he isn't going to get any bonus.....and that applies very largely to the aggregate numbers too [bonuses would still be paid to the best performers....paid for by firing those who have underperformed!].

Most people who have never worked in bank trading rooms have NO IDEA of the dog eat dog culture that underpins all this talk of bonuses......only the very good, very fit and very profitable survive.

ee

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lfc 3rd Dec '09 8 of 21
1

Most people who have never worked in bank trading rooms have NO IDEA of the dog eat dog culture that underpins all this talk of bonuses......only the very good, very fit and very profitable survive.


Is it really possible to deconvolute the contributions individual employees make in this way? tbh I have a real problem understading how this can be the case when surely all the jobs within an organisation are part of bigger risk management and profit-making strategy. And when an entire organisation fails is it valid to say that certain individuals are exempt from that failure as though they were acting in a bubble isolated from both the mistakes of their comrades and corporate policy?

I don't have much knowledge of banking but every organisation I've worked in operates on the principle that everyone supports everyone else (well, ideally anyway!) and no individuals actions are independent from those of others. Sort of sink or swim together.

The test of whether certain individuals are worth their bonuses whilst others are not is surely to see how they get on post failure rather than to carry on paying them big bonuses with tax-payers money on the assumption they were good at their jobs as though they were sole traders/whatever?

Maybe I'm just too cynical!

lfc

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rhomboid 3rd Dec '09 9 of 21
1

In reply to emptyend (post #7)

Hello EE, couldn't agree more with your posts, there is nothing more nauseating than seeing leeches on the public purse like Harriet Harman ranting about a topic that they know even less about than dismal knowledge level they habitually display. The plain fact is we all as taxpayers need RBS and LLOY to rebuild their capital base as rapidly as possible..and that means rewarding those who perform, those who don't have been shown the door already in the main.

 

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emptyend 3rd Dec '09 10 of 21
2

In reply to lfc (post #8)

Hi lfc,

Is it really possible to deconvolute the contributions individual employees make in this way?

Yes. All trading rooms have their P&Ls made up from the sum of the different "books" being traded in the room. Someone is always responsible for each book - taking the credit when they have a good day/week/month and being vulnerable to being fired if they have a bad week/month.

And when an entire organisation fails is it valid to say that certain individuals are exempt from that failure as though they were acting in a bubble isolated from both the mistakes of their comrades and corporate policy?

Thats not quite the right way to look at it. The big mistakes that were made were generally made by a tiny handful of people in each organisation....from the boardroom (the most culpable area, IMO) right down to small groups such as mortgage traders.  The rest of their organisations were generally doing OK (at least until they got dragged down by the general concern). Put yourself in the position of a trader who has spent the last year working 70 hour weeks and making $20mn profit on his book alone - would you expect to be paid? ......Yes, everyone would recognise that overall bank profitability affects the overall aggregate size of the bonus pool (hence my windfall tax suggestion)......but the best performers would certainly and rightly expect to be the best paid - and not completely legged over as a by-product of the actions of a few morons elsewhere in the bank!

 

rgds

ee

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Monevator 3rd Dec '09 11 of 21
3

EmptyEnd, genuine question.

I admit I lean towards the bankers are grossly over-paid point of view (not that they don't do a job that's hard and competitive and worth a good wage, more that the earnings seem disproportionate to anything other than the sums of money they handle -- i.e. they're creaming it off the top).

So I would say cap/tax them -- and not just RBS, but all or none. I like your windfall tax idea as a compromise, acknowledging it's this year that really sticks in the craw, but I'd prefer a longer-term solution.

Now here's the question. We frequently hear these people will leave the country. We frequently also hear that they pay very little tax because of the way their assets and income is structured.

Do you agree with this view on their tax affairs? And if so would the loss be more felt in terms of their spending leaving the UK, rather than their tax?

In the latter case (a) It might solve some problems, too, such as the insane price of property in the capital, and (b) Would we really care as a nation if fewer luxury goods and cars made elsewhere were bought here? (We'd lose some VAT and retail turnover would fall, but might that be a price worth paying?)

I think bankers incomes have detached from the real world to such an extent that it threatens (mildly but potentially) people's faith in capitalism and fair economic play, and, roughly, that we live in a meritocracy.

Since I believe capitalism is demonstrably the best system we have, that concerns me. (Capitalism within the parameters we set for it, before anyone says "how can you be a capitalist if you'd tax salaries and be a capitalist" -- "we" as society make up the rules of capitalism and already set all kinds of parameters, checks and balances, including a minimum wage).

Even better, if internationally some sort of cap/tax regime could be introduced, either on bankers or on banks, then all the smart people of my and now my girlfriends generation I see go into banking could go into science or engineering or business and industry or heaven forbid the arts.

Thirty years ago all those activities, with the exception of the arts, rightly, could offer a similar-ish level of financial reward as banking. Is the world really better off now that's no longer true today?

You rarely hear people complaining anything like as much about a Branson or a Dyson, or even a Hamilton, as you do about bankers and certain other financial operators.

The public knows in its gut there's something off about bankers' incomes, and this bonus year on the back of last year's swan dive and Government support has really proved it's right.

Sorry, bit of a ramble.

best
M.

Blog: Monevator
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Monevator 3rd Dec '09 12 of 21

p.s. I appreciate that The City does pay a huge wodge of tax -- I'm talking about individual's tax affairs, and presuming (or asking if) most of the tax take is corporation tax and perhaps naively that the City wouldn't decamp even if some of the top echelons did.

Blog: Monevator
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marben100 3rd Dec '09 13 of 21
5

Someone is always responsible for each book - taking the credit when they have a good day/week/month and being vulnerable to being fired if they have a bad week/month.

And to what extent is monthly (or even annual) performance in the trading room the result of skill rather than luck? Taleb certainly takes a very cynical view of this. How does a bank measure whether a particular trader has simply had a "lucky streak" rather than being "uniquely skilled"? One should also take note of the fact that dealing rooms have access to superior information and properietary technology (such as HFT) than that available to "the man in the street", so all else being equal, one would expect them to outperform non-bank counterparties.

The FT's John Kay spoke on the radio this morning and likened these activites to gambling. IMO there is a grain of truth to this - and they don't sit well within a largely state owned institution. Taking the case of RBS specifically, ISTM that the govt (as the largest shareholder) should instruct the Board to examine how those parts of the bank which are core to the UK economy can be separated from the parts that are not. Those that are not should be sold. Niall Ferguson proposes a pretty radical solution today.

Dealmaking skills, I grant, are a another matter and an individual that is repeatedly able to bring multi-million fee-based (i.e. non-risk) business to the bank may possess a talent and work-ethic that is rare indeed. However, I would very much favour a radical rethink of the scale of fees that banks (and FTM lawyers etc) charge their corporate customers. I find them morally indefensible. IMO these charges have, in recent years, got totally out of hand, as has boardroom pay in relation to that of most businesses ordinary workers.

Mark

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emptyend 3rd Dec '09 14 of 21
2

In reply to Monevator (post #11)

Now here's the question. We frequently hear these people will leave the country. We frequently also hear that they pay very little tax because of the way their assets and income is structured.

Do you agree with this view on their tax affairs? And if so would the loss be more felt in terms of their spending leaving the UK, rather than their tax?

I think one has to disinguish about which groups one is discussing. Hedgies have, as I understand it, been very smart in organising their affairs to pay minimum tax - therefore if hedge funds left the UK then (IMO) it could easily be net beneficial as you imply, because they would take various other distortions with them! [though of course there are ineteractions with other parts of the markets which might prejudice the continued prescence of more important entities and people].

When it comes to the major banks, and the traders they employ, in my experience there is a significant tax-take and the situation becomes more complex....though with fewer collateral distortions to other markets.

You rarely hear people complaining anything like as much about a Branson or a Dyson, or even a Hamilton, as you do about bankers and certain other financial operators.

Thats partly because they haven't had the entire political and media establishment on their back for the last two years! Personally I find it utterly risible that apparently the public consider that virtually no bankers are "worth" £1mn+ per year [Myners estimates that there would be 5,000 in that position......and I estimate that about 10-20% of that number probably work for Goldman Sachs! ;-)].....whilst at the same time being content to see TV "celebrities" and media types pulling down similarly-large amounts, along with some vastly overpaid sportsmen (notably footballers....some of whom "earn" up to £7mn* pa (plus bonuses and endorsement income).

*http://www.telegraph.co.uk/sport/football/2317807/Chelsea-make-Terry-Premierships-top-earner.html

Incidentally....returning to the matter of "whose fault the whole banking debacle was anyway", I am interested to see Ben Bernancke's comments at his confirmation hearings today:

"over the past few years the government of Britain removed from the Bank of England most of its surpervisory authorities. When the crisis hit - for example when the Northern Rock bank came under stress - the Bank of England was completely in the dark and unable to deal effectively with what turned out to be a destructive run and a major problem for the British economy. So currently the trend in UK and elsewhere is quite the opposite of taking away those authorities - it is to give the central bank the authority and information it needs to know what's going on in the banking system....for financial stability maintenance I think it's very very important for the Fed to have that kind of information and insight into the banking system"

And who was responsible for that?? ....Yup...... Gordon Brown - the cheerleader of the present mendacious "bash the bankers, it wasn't our fault" government!

By the way, re:

p.s. I appreciate that The City does pay a huge wodge of tax -- I'm talking about individual's tax affairs, and presuming (or asking if) most of the tax take is corporation tax and perhaps naively that the City wouldn't decamp even if some of the top echelons did.

I should point out that some major banks (eg HSBC) have certainly in the past given consideration to redomiciling. I have little doubt that they will continue to do so. And I would suggest that, for example, some foreign banks would find it quite attractive to move their main European offices to Switzerland, Brussels or Frankfurt.  I do think that it is complacent to believe that a much-weakened City won't see a major exodus - especially if our German, French and Swiss friends choose to try to persuade them to do so. After all - why would the decision-makers choose to stay in a country where they are publically vilified, relatively-heavily taxed and have their incomes capped by a meddlesome government keen to deflect attention from its own shortcomings?

ee

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emptyend 3rd Dec '09 15 of 21
2

In reply to marben100 (post #13)

Hi Mark,

And to what extent is monthly (or even annual) performance in the trading room the result of skill rather than luck? Taleb certainly takes a very cynical view of this. How does a bank measure whether a particular trader has simply had a "lucky streak" rather than being "uniquely skilled"?

This is always a contentious issue. The books I used to run in trading rooms produced what I regarded as "clean fee income" - and should therefore have carried higher importance in terms of repeatability of revenue than the profits of most other books which had a higher element of "risk income" and which were also dependent on having large trading limits granted to them. It didn't often seem to work out that way though! ;-)

However, the general principle is that banks try extremely hard to both risk-adjust and to look for persistence of outperformance. The usual way in which this gets reflected is by granting the best traders bigger risk limits so that (if you wish) they can bet more of the bank's money........but they ONLY get bigger limits once they have built something of a (multi-year) track record in outperforming their peers. This should be a profit-maximising approach to running a trading room (though limits also most definitely vary according to market conditions and the risk they impose on the whole entity).

One should also take note of the fact that dealing rooms have access to superior information and properietary technology (such as HFT) than that available to "the man in the street", so all else being equal, one would expect them to outperform non-bank counterparties.

Absolutely correct - which is one reason why I never delude myself into trying to out-trade them!

I must say that I have known a number of traders who have made £10mn pa plus for their employers, year in and year out, over all sorts of market conditions. I can say from first-hand experience that these guys have skill.....it isn't luck....and it most certainly isn't common. You might liken it to my football example above....just as a football team may have one or two star players, so it is with trading teams.

rgds

ee

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Monevator 3rd Dec '09 16 of 21
1

Hi EE,

Thanks for the thoughts.

Re: Celebrities, you won't find me flying the flag for most of them. Clearly they're benefiting disproportionately from the way we're increasingly living in a mass-media world. (Even typing this -- 20 years ago you and I may have been discussing this in a pub or club).

It annoys me that, say, a BBC News presenter who is perfectly competent but no more so than dozens of others "has" to be paid £500,000 in case she goes to ITV -- and in the very act of working out another year becomes *more* famous, and so the next year needs to be paid £600,000. If only we all became more valuable simply by being seen at work!

Footballers at least are different in that AFAIK the best footballers of their generation are roughly paid the most (give or take 'team spirit ethos' etc, and disregarding sponsorship - and the views of fans from rival clubs!).

I don't say it's a sensible sum, but equally I don't feel the footballer brain drain is drawing skills away from cancer research or the search for nuclear fusion. ;)

Also on the Taleb tip re: Mark's comments above, another issue is that much(/all) of trading is a zero sum game (or less than zero, I'm pretty sure Taleb would say, once you net out the blow-ups and repair work).

In fact, it seems to be true of much of the City. What does it matter if Goldman outdoes Credit Suisse if the net result is just a greater cost/drag to society for our financial services?

I am more sympathetic when useful financial innovation is being rewarded (i.e. opening up new kinds of securities, or markets, or genuinely useful financial innovation that helps industry/business/society reduce risk and increase efficiency).

The problem is from an outsider's point of view it's very hard to see what is innovation, and what is enormous capital flows many times on the scale of what occurred in 1980, say, yet having the same 2% creamed off the top as back then, and polarisation that increases the rewards in the good times, gets bailed out in the bad times, and multiplies the risk for all of us?

best

Blog: Monevator
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emptyend 4th Dec '09 17 of 21
4

In reply to Monevator (post #16)

Also on the Taleb tip re: Mark's comments above, another issue is that much(/all) of trading is a zero sum game (or less than zero, I'm pretty sure Taleb would say, once you net out the blow-ups and repair work).........

The problem is from an outsider's point of view it's very hard to see what is innovation, and what is enormous capital flows many times on the scale of what occurred in 1980, say, yet having the same 2% creamed off the top as back then, and polarisation that increases the rewards in the good times, gets bailed out in the bad times, and multiplies the risk for all of us?

This is where one comes back to the regulatory issue. What was needed was a single, well-informed organisation that was responsible for systemic risk. That organisation would have been concerned to delve below the aggregate figures for the trading activities in banks and, IMO, would have had the capability to spot that what was going on was what might be termed "systemic over-trading" - and would then have moved on to search for vulnerabilities and control methods.

In the old days (pre-1997) that was clearly the Bank of England which, though it recognised that it faced a continual challenge in skilling its people to understand modern banking instruments, clearly saw systemic risk as part of its remit. The same was certainly not true of the FSA which (as far as I could tell from my communications with three successive chairmen of the FSA and discussions with some senior people there) really wasn't concerned to actually tackle matters of systemic risk - and was much more interested in ticking the regulatory boxes regarding the activities of individual firms.

The point is that actually "outsiders" really shouldn't have to worry about the point you make. From an insider's standpoint, as someone working in one of the major growth areas of the 1990s, it was perfectly clear to me that most of the growth in activity through the 1980s and 1990s was indeed driven by genuine innovation that added value to the external economy, by providing new ways to manage risk and their financing needs. Equally, it was also evident to me that "something" was wrong with the markets soon after the start of the current decade but, even though I had some of the pieces of knowledge in my possession (such as the rise of securitisation and the exposure of rating agencies to both moral hazard and the risk that their securitisation rating models were incomplete) I was in no position to be clear on what the central problems were.  If, however, there had been a group of people like me (with knowledge of different parts of the capital markets and what was going on) working for an organisation charged with identifying systemic risks, I have little doubt that the problem areas would have been spotted some 3-4 years before the "bust" occurred......

....though whether anyone would have had the political clout to take on a banking system which had by then insinuated itself into the fabric of Whitehall (via a number of well-publicised connections between prominent City firms and the Labour Government) I am much less sure!!

In sum, it seems clear tthat the entire financial system, and the political systems that were supposed to control it, were completely subverted by the combination of naked greed with complacency and hubris. The CENTRAL problem was, IMO, that Blair believed that Brown knew what he was doing - and that Brown believed the praise that Blair heaped onto him was merely recognition of his "immense capabilities" as Chancellor.  In reality what was happening was that both of them were following the example of Emperor Nero and fiddling complacently whilst all around them The City was quietly burning!........

...and the analogy continues - because Brown's search for scapegoats has led him to blame the bankers for the troubles that he himself caused.....and throw them to the baying mob with the help of the press. Nero blamed the Christians and threw them to the lions.

ee

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fuiseog 4th Dec '09 18 of 21
1

In reply to emptyend (post #17)

We get the government we deserve, but it's helpful to be able to make better informed decisions, so I find all this 'insider' banking information very helpful.

There is a couple of (IMHO) excellent posts on this topic across on TMF:-

Avidya http://boards.fool.co.uk/Message.asp?mid=11767396

King McKong http://boards.fool.co.uk/Message.asp?mid=11767156

fuiseog

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emptyend 4th Dec '09 19 of 21
1

In reply to fuiseog (post #18)

Yeah - took a look earlier. Very good posts from avidya.....persuade him over here, would you?

I note he lays much of the blame at the boardroom door and the regulators......which are points I (and BertEEE and zakmundo) seem to have been making for ever!

I've been sticking my 2p in over here too http://ftalphaville.ft.com/marketslive/  ....which prompted one or two interesting responses.

 

ee

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emptyend 6th Dec '09 20 of 21

There is, of course, a very neat finesse available to the government.......

.....and that is to impose a one-off windfall tax on the profits of ALL banks for 2009.

I would argue that 2009 has been an extremely exceptional year and, whilst I am opposed in principal to the idea of windfall taxes on banks (or any other businesses which happen to take the eye of Governments), I think there is a real case in logic for saying that global banking profits in 2009 have derived almost entirely from the actions of governments in bailing out the failing banks .....ie from the liquidity pumped into the financial system and from the record low interest rates. Bankers simply COULDN'T FAIL to make money in that environment! Anyone in banking who has made money has been able to do so directly because of the taxpayers' efforts to prevent a failure of the banking system.

Therefore the great majority of profits booked in the profitable parts of banking industry in 2009 have been paid for (in a VERY direct and unprecedented way) by the losses racked up in other parts of the banking industry - for which taxpayers have been footing the bill.

So - my solution to this would be a one-off (and it MUST be a genuine one-off!) windfall tax of about 50% of the profits of all banks in 2009......

It would appear that the Government is indeed going to do something like this - no surprise really, given the corner theyy had painted themselves into. Peston "broke" the story an hour ago: http://news.bbc.co.uk/1/hi/uk_politics/8398189.stm 

....short-term uncertainty this week then for bank shareholders and employees (until Wednesday at least!) - though frankly only the silliest will have disregarded the risk of a windfall tax as the year has gone on and the extent of trading profits made from the taxpayer's assistance have become clear!

ee

 

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Isaac 6th Dec '09 21 of 21
1

Darling should scrap the 50% tax hike plans but instead tax the banks heavily as a one off to recoup as much money as possible to help balance the books.

Better to get this country back in shape ASAP.

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