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A pause for repentance or the end of big bonuses?
October 10, 2008
I have a column in the Weekend FT about bankers’ bonuses and whether they will be able to resume earning lots of money after a pause for the next year or so. I conclude that they have a shock in store.
Gordon Brown, the UK prime minister, says that he is upset at the bankers whom his government has been forced to bail out. “I am angry – I am angry at irresponsible behaviour,” he said this week. “The days of big bonuses are over.”
Mr Brown is not the only politician to demand restraint from bankers in return for taxpayers’ cash. The uproar that has followed announcements of bail-outs in the US, UK and elsewhere has led to politicians telling bankers off like schoolchildren.
To which, the whispered reply from those at the back of the class on Wall Street and in the City of London is: “Yeah, right.”
You can read the rest here and comment below.
“they have no choice because the best bankers and traders could, despite all the turmoil in markets, leave to get a new job with a hedge fund or private equity fund instead”.
Posted by: PDC | October 11th, 2008 at 10:04 am | Report this commentI have a feeling that understanding this foolish way of thinking would be of pivotal importance to clarify many problems tha arise periodically, not just with the banking sector but with any kind of company. I would call it “the oligarchic reflex”. That is: a consensus grows among the ruling class that only a few, special individuals have the “right talents”, and so they must be rewarded accordingly and summoned to share the big money and the big power. Through a feedback mechanism, this leads to the creation of a more and more self-supporting tribe of rulers, increasing steadily in wealth, power and arrogance. Of course, in the long run, it falls, causing a lot of damage around.
Investment banks play such a crucial role in capital allocation for developed economies, effectively channelling capital from investors who have it, to corporations who need it. To think that big bonuses will generally die away, because of bankers’ recent bad publicity, can seem far a bit fetched. Agreed, executive of banks that take on some form of government cash, will find it near impossible to take a large bonus, if any at all. However, for the thousands who do not have their bonus figures reported in the annual reports, life will be different.
As much as it is hard to swallow, bankers will always get paid a high portion of what they generate for their firm, full stop; otherwise, Hedge Funds and Private Equity Houses would be waiting with open arms. In addition, bank revenues are directly related to the economic situation, full stop.
The only reason big bonuses may fall away for most investment banks is as a result of declining revenues on the back of an economic collapse (as is most likely to happen). In which case, there will far fewer investors and companies doing business, and hence, a reduced role for the banks as a middle-man; at least, not in their traditional way.
In this scenario of a severe economic decline, I think most people on Main Street should be more worried about their own personal situation, rather than whether or not banks are paying big bonuses. After all, Joe ‘six-pack’ on Main Street is going to face a bit more financial difficulty, than that Ivy league educated banker who now has to take a massive pay cut, delay the purchase of that Ferrari, but can still pay the basic bills; and if need be, is better qualified to take Joe’s current job.
In case you were wondering, I am a banker.
Posted by: Nana Mbaeliachi | October 11th, 2008 at 10:14 am | Report this commentPeople who want to make risky investments should be able to, and those who take risks can be rewarded appropriately. BUT there must also be a way for people (and institutions) to make safe, secure investments. If banks become safer, and other outlets become riskier, that doesn’t seem to be a problem, to me.
Posted by: Sam | October 11th, 2008 at 9:07 pm | Report this commentAnd then we learn that his new Grand Panjandrum, Mandy, got a one million pound golden parachute from the EU.
Posted by: dearieme | October 12th, 2008 at 5:08 pm | Report this commentAt my school the dimwits and troublemakers were made to sit at the front of the class; the back was for the clever laddies. Is that what you meant?
Posted by: dearieme | October 14th, 2008 at 2:15 pm | Report this comment