After my doom and gloom week,
I thought this was a good title for a blog entry although this is not
me talking … rather it seems to be a campaign with a certain
associate editor and chief economics commentator at the Financial Times named Martin Wolf.
The campaign began a while ago, with a column entitled "Why banking remains an accident waiting to happen" in November last year. Martin’s column begins:
does banking generate such turmoil, with the crisis over securitised
lending the latest example? Why is the industry so profitable? Why are
the people it employs so well paid? The answer to these three questions
is the same: banking takes high risks. But the public sector subsidises
this risk-taking. It does so because banks provide a utility. What the
banks give in return, however, is gung-ho speculation."
other words, bankers take high risks, but suffer no consequences as
they are underwritten by governments. Certainly, with the example of Northern Rock in the UK, some may say this is true.
Then Martin picks up on another FT columnist
from a week ago. The article was by Raghuram Rajan, a professor of
finance at the Graduate School of Business at the University of Chicago
and former chief economist at the International Monetary Fund.
Raghuram writes an insightful piece entitled "Bankers’ pay is deeply
flawed", with an opening line that gives away it’s point: "Morgan Stanley announced a $9.4bn charge-off in the fourth quarter and at the same time increased its bonus pool by 18 per cent."
Finally, we get another column by Mr. Wolf on Tuesday entitled "Regulators should intervene in bankers’ pay", and this one’s a real doozy. A few choice snippets include:
world has witnessed well over 100 significant banking crises over the
past three decades … no industry has a comparable talent for
privatising gains and socialising losses … they know that as long as
they make the same mistakes together – as “sound bankers” do – the
official sector must ride to the rescue. Bankers are able to take the
economy and so the voting public hostage. Governments have no choice
but to respond."
This is followed by: "That is so for
three fundamental reasons: first, these are virtually the only
businesses able to devastate entire economies; second, in no other
industry is uncertainty so pervasive; and, finally, in no other
industry is it as hard for outsiders to judge the quality of
decision-making, at least in the short run. This industry is, in
consequence, exceptional in the extent of both regulation and
subsidisation. Yet this combination can hardly be deemed a success. The
present crisis in the world’s most sophisticated financial system
Followed by lots of other good stuff.
Mr. Wolf is on a personal tirade to expose the fact that bankers are
overpaid, greedy pigs who feed at the trough of society and are never
held accountable as, when their excesses are untangled, all the other
farm animals have to pay.
It starts to sound like something out of an Orwellian Animal Farm, with
the farmers being Bush, Bernanke, Brown, Barosso and all the other
politico’s. The governators of the world have to tax the workers to
fund these capitalist pig-dogs.
Oh, I’m sorry. Am I getting a bit too worked up here. Am I in danger of biting the hand what feeds me?
Bear in mind, it is not my voice here, but that of the Financial Times: the journo of the bankers and for whom I sometimes provide input.
own view is that some bankers are overpaid … I mean even David
Beckham might balk at the idea of being paid $160 million for being the
man who led his team to relegation and lost the championship, and yet Merrill Lynch’s Stan O’Neal
had no such qualms. But this is only in certain parts of the market.
So yes, in some areas, they are not compensated on the risks they are
personally taking, but on the risks they are taking with other people’s
money. And many banks and bankers do blindly follow each other around
the markets because they cannot bother to think for themselves.
this is true. After all, a seasoned investment banker told me years
ago that bankers are lemmings, rather than pigs. They follow each
other in packs and fall off cliffs, only to turn and hope they can
avoid the drop at the last minute. Some do and some don’t, and right
now there are a number of banks tettering on that cliff-drop.
bottom-line here is not that bankers are feeding at the trough of
society as overpaid capitalist pig-dogs, but that they have made a
fundamental error of judgement. And the fact that they do this again,
and again, and again (1985, 1987, 1998, 2000, 2007 …) with increasing frequency is going to put them in the public eye and open to this sort of questioning.
fact that we have another day of reckoning just means that the media is
enjoying every single moment, because most of these journo’s earn less
than one-hundreth of the remuneration that these masters of the
Me? I’m going down the pub.