Read the Rule Book

[danieldwilliam]

Every time I hear someone complaining that bankers have done nothing to deserve the bonuses they are paying themselves I want to jump up and down in rage and shout “Read the Fucking Rule Book”. If you think bankers haven’t done anything to deserve a bonus then I think you’ve missed the point of their employment. They are paid to make money for the owners of the business. As merchants banks are quasi-partnerships this includes themselves. Whenever they con or finagle some money out of the system into their own pockets they have done their job.


If you want bankers to be paid for delivering banking services to the wider economy then may I suggest you do three things.

1) Threaten to take your money elsewhere.
2) Form or join a Mutual or Co-op.
3) Don’t vote for Thatcher.

Comments

[fearmeforiampink]

Quite. I've tried to explain it a few times to people; it's like door to door sales — the response you get is quite variable, thus the best way to get people to make as much money for the company as possible, is to make that give them more money. Were some of the bonus structures a bad idea? Definitely. Doesn't mean that bonuses in general are — the staff of Northern Rock got a reasonable bonus a year or two ago, because they were substantially ahead of what had been expected in terms of paying off what they owed to the government.

Generally people largely ignore my explanations in favour of going "But it's so awful/They should do their job without bonuses/whatever".

[danieldwilliam.livejournal.com]

I think the tricky case with bankers' bonuses specifically is that because merchant banking is (I think) more akin to a partnership than a traditional joint stock business the bonuses exist in part to pay a partners' income to the quasi-partners of the bank.

Were some of the bonus structures a bad idea? Definitely.

And definitely we as customers, shareholders, voters and tax payers should have been more careful about who we did business with.

[f4f3.livejournal.com]

Nah, not with you here. I read this and I hear "You shouldn't complain about drug dealers getting a lot of money for selling drugs to kids because those are the rules" or, "You can't complain about serial killers killing people because, duh, written into the job description", or, "torturers are just doing their jobs", or "well someone has to sell arms".

I don't care, really, at all, how hard they work for their bonuses. The bonuses are wrong because they incentivise gambling with other people's money. Actually, it isn't really gambling, because there is no risk - we'll take the losses, they keep the winnings.

I think you miss a point 4 above, too, which is next time we give our money to the banks, we put some more strings on it.

[danieldwilliam.livejournal.com]

My 3 points were more about not undoing the strings we attached after the last time we let a badly incentivised, ineffably interconnected and over leveraged banking system kick the legs from under the economy.

We set the rules of the games and it’s our own fault we lost out.

I think the drug dealers analogy is really sound and rather perfectly illustrates what I’m irritated about. One shouldn’t complain, or at least one shouldn’t be surprised, that handing over the sale and supply of highly addictive chemical to armed, violent and greedy criminal gangs results in those criminals selling drugs to kids and shooting each other dead in public. Given that *we* set the rules and we have a choice about the legality or otherwise of drug supplies and the licensing or otherwise of drug retailers and wholesalers we’ve only ourselves to blame for our failure of wisdom when we decided whether GP’s or criminals were going to be running the drugs retail industry.

So too with bankers. We saw what happened last time this happened in 1929. Only the names have been changed to protect the guilty. Right down to the poor bloody Casandras being vilified on the front page of the Wall Street Journal it is the same story of badly designed incentives, ineffective regulation, overly complex financial instruments created in the dearth of anything more productive to do with the spare money, idiots of all pay grades trying to make money out of things they don’t understand and financial systems that failed to compartmentalise loses.

And we were not just ignorant stooges in this. We are complicit.

We voted for a succession of governments that went about deregulating our financial system.

As shareholders we cheered when the dividend cheque arrived and we didn’t attend the General Meeting and ask about bonus structures. We didn’t recognise that the beta value of banks is twice the beta value of oil firms so we should maybe save some of the dividend income against the day when the system blew up (again). We took the money carpetbaggers promised us when we privatised our mutuals and, mistaking capital for income, spent it.

As tax payers we took the corporation tax receipts and the income tax receipts and the VAT receipts and we didn’t ask ourselves if the financial stability of our state was wisely built on an industry known to be very risky and which we knew or ought to have known had the worst possible incentive scheme.

As customers and lenders we never asked “Is my money safe in your bank?”

All the time we watched the money role in and we didn’t stop to ask ourselves “Who’s the sucker here?”

And then the shock and outrage that exactly what happened last time happened this time.

So, yes, the bonuses are wrong because they incentivise gambling with other people’s money. Don’t you think that the onus is on us to be a little more careful with our money.

[rhythmaning.livejournal.com]

I couldn't have out it better myself.

No one else I know would agree, though.

Perhaps it's an accountant thing...