When I heard that the City bonuses are going to amount to £7 billion this morning, I sincerely wished that someone somewhere would start a revolution

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Coming as it does after yesterday's Child Benefit announcement, I am beginning to feel positively anarchic.

I think there should be a General Strike over this, or at least a protest march in London.

I love the way it is always 'the banks fault' - the banks loaned money to people they shouldn't have, true, but they didn't force people to take the money and spend it. If people hadn't have borrowed too much that they couldn't afford then the sub-prime crisis wouldn't have kicked off the whole thing.

The current crisis is a combination of the banks lending to the wrong people, the PEOPLE for spending far beyond their means and borrowing too much money, and the government for not having stronger regulations on what could be borrowed.

Also, for those saying that the bankers won't move and it doesn't matter if they do anyway - JP Morgan have already moved a big chunk of their operations to Switzerland (and their staff) so that is not just the millions of pounds that the company pays in tax (and they do pay here) as well as the tax & NI payments of the staff that moved with them. HSBC are reported to be looking at moving too and most of the big banks have such plans just in case. Considering we need all the tax revenue we can get, do you really think we should be doing things that discourage the banks from investing here simply because PEOPLE can't control their own spending, having to have the latest stuff that they can't afford, and having to have someone else to blame.

Vix,

Have you read about how the subprime mortgages were sold in the U.S and to what demographic? Have you come across the term NINJA?

Yep, i know about the demographic to whom the subprime mortgages were mainly sold, and the NINJA term - which is exactly my point - these were people who had no way of paying back the mortgages but wanted them anyway - so they were borrowing money that they couldn't afford.

Hence the combination of banks (who shouldn't have sold them), governments (who should have regulated against selling to these people) and THE PEOPLE themselves (who shouldn't have tried to borrow in the first place).

Actually i'll add one more category, the fund managers who managed to package up a pile of poo and sell it on as A rated bonds.

Vix,

It was the BANKS that did the packaging and the stupid fund managers who did the buying. And you need to add one more category, the stupid rating agencies.

If you are 50 years old, never worked and someone comes up to you with a suitcase containing $100k (yes it did happen) and telling you to buy a house, what are you going to say? You hope to sell it in 2 years and then refinance the mortgage.

Of course the borrowers were stupid and irresponsible but, when they failed to pay back, was not the lenders who lost out, but the taxpayers.

And it wasn't just NINJA's in the US, it was people here, self-certing on mortgages that they knew they couldn't afford, getting interest only mortgages on properties when they could only just afford the repayments on that and had no way of affording to repay the capital or factoring in possible interest increases and generally wanting stuff that they couldn't afford.

I don't think it was the actual lenders that did the packaging up - some small bank in the Midwest can't do that - it was the big commercial banks that bought the subprimes off the lending banks, their guys packaged them up and sold them on.

I agree about the 50 year old - and that is where it is the banks fault, but its not JUST the banks fault, because it wasn't just the naive and stupid that were sold these, it was also people who did know that they couldn't afford it and were trying to make a fast buck or who wanted stuff that they couldn't afford.

Vix,

Agreed, not just the banks' fault and I never said that the lenders did the packaging. I said it was the banks (as opposed to the fund managers as per your last post) like Goldmans, Deutsche, Morgan Stanley and Greenwich Capital (subsid of the great RBS).

And, as for anger against the banks, it is the employees that people resent. The shareholders did pretty badly out of the whole sordid mess.

I also agree that the bankers merely represented the general "I want it all and I want it now" culture. However, it was crass to pay large bonuses the year after the bailout.

Sorry, used the wrong words in fund managers - i was trying to differentiate between the banks that did the lending, and got bailed out here, and the banks that 'did the crime' as it were!

I agree that it could be considered crass, but at the same time, how else are they going to keep good staff if other banks are paying bonuses. Most of the banks that were bailed out made profits this year (quite big ones) which is down to the employees and the bonuses may be impossible not to pay if the companies are contractually obliged to pay a bonus based on an EBITDA number.

Vix,

I assure you that the banks that "did the crime" were the same ones as got bailed out. In fact, they were so desperate for a slice of the pie (or "pipeline" as it was delightfully called) that they were either lending directly or buying lenders.

I am not saying they could duck contractual bonuses. The banks could hardly not have made profits that year. Interest rates were close to zero, their illiquid assets were marked about as low as they could get and lending margins were fabulous. Does not take a genius to make money in that environment.

And, anecdotally, for one amusing example, I know of an illiquid asset trader at a large European bank in the states whose desk lost 500mio in the year of the crash. He was retained (as he knew where the sh*t was). The following year the assets rallied in a completely illiquid market. He failed to trade at all but spent an hour every day marking the book to market. At the end of the year his 500mio loss was "just" 250mio. He was telling everyone he knew that he had had his best ever year and was expecting a bonus of $25mio. Not sure whether he got it!
That is what the profits of 2009 were, in a microcosm.

and what about the regulators and the politicians? Do you think they didn't have a clue about what was going on?

Since we are in the finger-pointing mode, #1 culprit of the sub-prime crisis is the 2000 deregulation of credit derivatives, ushered through by Clinton after Bush was elected, after heavy lobbying by Phil Gramm. He later became a director in UBS.

I met him a few years ago. Of course I didn't know then that he was to cause a global crisis.

No they dont. Thats how we got in the mess in the first place.

In fact the senior managers in the banks didnt have a clue either. Their traders didnt undersyand either or at least they didnt care enough or have the incentives to explain the risk to senior managers.

Th intensely annoyng thing about this whole mess is that 15 year ago I was a consultant to investment banks helping them to understand and measure risk. The technology is all there. The problem is senior managers in banks over the last ten years just didnt implement proper risk controls. They still took home huge bonuses even though they destroyed the very institutions they worked for. Regulators and Govts also failed to stop what was hapenning.

I think that the Traders understood exactly what they were doing but "the powers that be" couldn't understand every section of complicated financial transactions, every thing was repackaged until you had a tiny number of individuals knowing what they were doing in their sector but nobody with teeth who could see the effect that they had on each other.

What most people miss on these threads is that individual players are out to make money for themselves, and that it is the duty and the responsibility of the state to see the big picture and legislate accordingly.

You cannot expect a 25 year old derivatives trader to think about, figure out, and act according to systemic risks to his industry. That is government's job. What he thinks about is being successful, making money for his bank, being noticed, and promoted.

That is, being as successful as he can be given the framework he works within. It is the job of the relative parts of the government to provide that framework and adjust it over time to minimize systemic risk.

I agree with Alouiseg that legislators couldn't (and still can't) understand the details of the industry they are supposed to be overseeing. But that is hardly the fault of individual bankers.

Even directors of most banks would not understand most derivatives and their valuations. Several decades ago, they needed no finance degree to move up in the bank. Now they are in the cushiest jobs and yesterday have no idea what some divisions of their banks do and how they do it.

I've had the misfortune to have to work with one of these dinosaurs. His ignorance was staggering, but he was very influential.

yesterday yet they

Just an aside the 7bn "city bonus" pot isn't just for Bankers.

There are a lot of smiling Brokers out there at the moment who have never been bailed out.

I'm not sure that I buy the line that financial products are too complicated for anybody to understand except traders.

The maths required to see that eventually Enron was going to go down the tubes, or that the US mortgage system was going to implode are learnt in primary school.

Basically, profit built on hot air will eventually evaporate.

I do think that people are dazzled by very high short term profits, and in a macho culture, don't want to be seen as being cautious and low risk. People also don't want to point out the flaw in a financial product in case they look stupid.

There is a level where banks provide a service - this is useful and why they were bailed out.

And there is a level where they are just Ladbrook's but with access to more money.

I seriously doubt that anybody with shedloads of money in bonuses is sitting down once a year and filling in their income tax return without the help of a tax consultant, or that the banks themselves aren't paying as little tax as possible.

I don't think it's wrong to reward staff. I do think that cash available for high bonuses should have been reduced by higher debt repayments. But on the other hand, cash and profits are two different things. Understanding the difference between the two has historically been a little challenging for many city types, as we all know.

Cote - are you seriously trying to compare the position of bankers in the UK today with Jews during Nazi persecution? Are you mad? Good grief. Even for an industry whose sympathisers and defenders often use ludicrous 'arguments' that's a new low.

Its true edam DH now has to wear a dollar sign at all times...

I agree that it is an terrible analogy and offer again my Rats and Sinking Ships.

Is your job moving, Morloth? Will you go with it?

Tbh I think 90% of people in this country would happily wave bye-bye to the casino bankers. We have some need for banking as a function serving the real economy but no need for a bunch of spivs who made Gordon Gecko look good.

(oops, should clarify, didn't mean to imply I wanted you to go, Morloth, merely interested in what's happening in your firm and how you feel about it and reflecting how many people feel about speculative bankers, not you personally!)

We are being moved back to Oz where the economy is booming - we go where the work is.

DH isn't a real banker in that he works in IT but he works with the traders and is part of the whole machine.

He works for a very large American ivestment bank which is pretty much intending to only run a satellite office in London from now on - they will still be doing the same stuff but will be doing it from 'friendlier' locations.

It is tricky, on one hand I agree that the cowboys are a bunch of tossers, on the other they do provide an industry that supports a huge amount of people as a trickle down. DH makes a lot of money and we spend a lot of money, he will be doing the same job, for the same money but we will be spending it somewhere else.

I have three very good friends all expats and all with DH's in the industry, they are all leaving and there have been no new people arriving in the last 2 years (very unusual in expat circles especially in London). The little school we use is in trouble. I know lots of people don't like private education but when it goes it is going to take a bunch of jobs with it, which means those staff are not in the area buying lunch/coffee from the cafes, which means the cafes need to let staff go and so on etc.

It is easy to say 'Piss Off Then' and I do understand the sentiment, but if the money doesn't keep moving it could be a problem for the UK. There are other markets and other places to make money London is pretty special but it isn't completely failproof.

Yeah, but same point about supporting other jobs applies to every worker. Those savage public sector job cuts are going to really hurt the rest of us, especially all the businesses that supply public sector organisations or sell stuff to people who work in the public sector.

Has already hit me - I'm freelance but some of my repeat work has been for private/third sector organisations that derive some of their funding from government in all its many forms. That kind of work has really dried up.

edam is right, there will be a far greater loss of jobs, with all of the knock-on effects, than the jobs that will be lost in finance.