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

[nameymcnamechange]

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.

My DH is a Hedge Fund Trader/Portfolio Manager. Prior to that he was a prop trader for an US investment bank.

He can understand people issue's with bankers since some banks/bankers did some very irresponsible and fraudulent stuff.

However he thinks it all too easy to try to blame just the banks for the credit crunch. The bottomline is that banks did what they always did: they intermediated between borrowers/investors.

The investors were greedy and wanted high returns for seemingly no risk. The borrowers were also greedy since they assumed house prices would always go up and thus took out huge mortgages they couldn't pay off. The banks thought they were making billions.

The government loved all of this since the public was happy because they thought they were getting rich on rising house prices and went on a rampant consumption binge. All the tax revenues allowed the government to create millions of unneccessary public sector jobs in the public sector, creating an illusion of full employment.

The public at large refuses to accept its share of the blame and accept the improvement in the standard of living in the last 10-15 years was a complete fantasy generated by believing that DEBT = WEALTH. Reality now bites: the standard living will continue to fall and unemployment will rise steadily.

Siasl I agree with you. 100%

Siasl,

If the banks acted as intermediaries, why was the bailout necessary? The reality is they started acting as hedge funds in their own rights as they thought that was where the money was.

Also, the issue is not (only) whether the whether what the bankers did wsa right but whether they paid the price anyone else would in a capitalist system. If you take silly risks and get over leveraged in property, retail etc, and the market changes, you go into liquidation and your employees not only lose their bonuses but their jobs. The reality for those in the City who have kept their jobs is some basic salaries have risen 50% (although total comp is lower).

Tend to agree with the rest of your post, though.

By the way,

Having been moderately senior in banking (running small trading desks), I did not know a lot of what was going on until the sh*t hit the fan. How many people really knew what a SIV was, for instance, or how connected it was to the originating organisation, despite it being off balance sheet or what the quality of AAA rated MBS originated in 2006/2007 were until the trouble started? If you read the books by Gillian Tett or Michael Lewis, you get a flavour of what was really happening. A few people saw it (and made a fortune) but very few. In fact, one reason for the crisis is the banks had no idea what any other banks had on their books and ceased trusting one another.

So, the idea that the politicians etc were in collusion just is not the reality. Sure, they were happy to take the taxes and not probe too deeply.

Edam - morloth said finance institutions leaving UK we ere like rats leaving a sinking ship. This is not a correct allegory, because UK is not sinking nor sunk, and it is in better shape than Greece where no such financial exodus has taken place.

I suggested that a better analogy would be Jews and WWll Europe, because they fled Europe when they were persecuted and financial institutions are fleeing UK because they are being persecuted.

The analogy is perfectly clear and the key word is "persecution". As with all conversation when "Jews" are mentioned, you will of course get all indignant, but I hope you will have understood.

Morloth - re "He (DH) 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."

So you agree with me that banks are leaving the UK because it has become "unfriendly" and NOT because it is "sinking". Thank you.

Cote,

Understand the analogy as a Jew but surely you see that raising taxes is not actually akin to being made to wear yellow stars. It is a slightly crass analogy.

Are bankers really persecuted when a 30 year old trader can still easily take home £250k in a good year (after tax)? It is a big word.

Ran away because they were persecuted, that is all I have said. "Yellow stars" etc is your imagination running wild.

Another would be Russians leaving Monaco en masse when government started harassing them after several Russian "mob" families were kicked out for misbehaving. But I didn't think you would be familiar with that particular event.

As I've said further down, it doesn't matter much what individual "bankers" think. What matters is if "banks" and other financial institutions feel they are persecuted - tighter controls proposed, higher taxes than before and more importantly, higher taxes than elsewhere, villagers sharpening their pitchforks and about to light their torches.

That is why they are leaving. Frankly, if some people here understand so little about the industry that they don't even see that, they should not be talking about it.

ROFL @ bankers being persecuted

What planet do you live on?

They bring us nothing (line the pockets of a very few then bust the country is the general pattern), so please 'run away' as far as I am concerned

Good riddance

And they are leaving because the illusion has been uncovered. They need to find some other mug to support them.

LadyBlahBlah,

That is way too extreme a view. Banks perform some useful functions and some useless ones. Some people within them are genuinely talented, understand why they are there, and perform a very useful societal function. Others are there for the traders' option and believe that they have a "right" to their annual bonus, even in the worst year ever.

The UK does need a strong financial sector and, if it lost it entirely, it would not be a good thing. On the other hand, it is overly concentrated geographically and sectorially, so some exodus would not be a disaster.

If somebody seriously thinks they are being persecuted because they might have to give up the third annual family holiday and not change their car quite so often, they are clearly a few sandwiches short of a picnic, and we really would be better off without them.

That level of stupidity would explain a few things though.

Cote,

By the way

"What matters is if "banks" and other financial institutions feel they are persecuted"

Does a bank really have feelings?! Or is it the employees who are unhappy?

And, what of the shareholders. If you owned a business, you would feel it was your business, not your employees. Do you think the bank shareholders are happy with what went on? And, before you say they chose to buy the shares and could have voted for different actions, that is not true for individual shareholders. The RBS takeover of ABN Amro was voted on by about a 90/10 majority, yet of the shareholders who actually turned up to the meeting, it was 90/10 against. Fund managers are not disinterested parties when it comes to voting their shares.

Is it extreme?

The casino element of the banks makes no money cumulatively for our country. They have a run of a good few years where a few people line their pockets, then they implode and wipe out anything (and often more) they might have made in the good years. History shows this over and over.

People talk about unsustainable and unprofitable manufacturing, then shut them down.

It's the same argument.

LAdyblahblah,

Not all banking is gambling. Some banking is genuinely about solving problems for the "real" economy, lending money to help businesses progress and helping private clients invest their money.

We need to get to a happy medium where the above can take place without excessive risk taking.

Huge stretch from unfriendly taxation to persecution. The money is moving, we will go with it. It is totally mercenery, to pretend otherwise is to belittle real persecution.

There is no persecution, there is no fear, there is annoyance at the attitude and reluctance to cough up the 50% tax, but there are ways around that and that is what they are doing.

If the people of the UK think that high taxation on certain activities/incomes is the way to go that's fine, it is no skin off my nose, the banks can either choose to suck it up or they can choose to do business elsewhere. I don't actually know if it will hae a huge impact on the UK economy, I am only talking from my personal situation/experience.

Banking is something you do not something you are. DH can stop being a banker tomorrow if he likes the Jews couldn't just opt out, they had no choice.

The City traditionally was a huge service industry to the world - not a Casino.

The world's largest currency and commodity markets are in London. It has one of the biggest equity markets and bond markets. It is a very important part of our economy and it employs a lot of very highly skilled people. Not just traders, but brokers, investment bankers and lawyers and accountants.

All those people could still work in London even if they put not a single penny of their organisations money at risk. All they would be doing is providing a service of raising and moving and investing money and commodities between and on behalf of firms and investors that really need those services. That is the true economc role of banking.

The problem is that the banks started to take enormous risks on their own balance sheets. Not just providing a transaction service for clients but actually trading the products and risking their own capital with enormous leveraged bets and very poor quality lending. They lost that capital when the subprime mortgage market collapsed and that is why they had to be bailed out.

Yes we do need a basic banking industry in the UK for small and medium sized firms and ordinary citizens. We should also welcome a world leading service industry like The City. What we do not need is that service industry to risk so much of its own capital that we the taxpayer are forced to bail it out for fear it will destroy our economy.

Speculation is a zero sum game as it creates no net new wealth but creates enormous risks. Providing transaction services does produce wealth and minimal risks.

"Speculation is a zero-sum game" is a nonsensical statement, sorry. As long as market goes up, all speculators win. When it goes down, all speculators lose. Therefore, it is not a zero-sum game.

Speculation = short term trading, I'm guessing you mean.

There is a purpose to trading activity as opposed to long term investing, by the way, and that is liquidity. If all "speculation" was outlawed tomorrow (very easy to do) financial markets would cease to exist because nobody would buy bonds and equity if they couldn't count on finding buyers when they want to sell.

larry - re "Does a bank really have feelings?! Or is it the employees who are unhappy?"

Obviously, I was referring to the bank management (board of directors) being "unhappy" about the future prospects of their bank in a given jurisdiction, NOT the employees. I have said this several times before and would really like not to have to repeat it. Please don't insult my intelligence with questions such as "Dies a bank have feelings?".

if you would like to join our march, we plan to stop at several cafes and sandwich bars along the way , come and join us here www.mumsnet.com/Talk/in_the_news/1057521-so-if-we-really-are-all-in-it-together-let. It isn't quite the same protest but maybe you would like it.

CoteDAzur

"As long as market goes up, all speculators win. When it goes down, all speculators lose. Therefore, it is not a zero-sum game."

Sorry I really don't get that. Why if the market goes up are you assuming all speculators win? Why do you think they are all long?

C'ote D'azur,

"If all "speculation" was outlawed tomorrow (very easy to do)"

Actually, almost impossible to do! How can you separate out speculation from hedging. Banks have now pretty much "cut" their large prop desks. The reality is that all the risk is being taken on the so-called customer books. The large positions taken will be excused as "preparing for customer flow".

"There is a purpose to trading activity as opposed to long term investing, by the way, and that is liquidity"

Up to a point but the "pools of dark liquidity" and algorithmic trading in equities have not been shown to add liquidity but cause panic, as in the flash crash earlier this year. The systems are either designed to turn off when conditions get hairy or press on an already panicked market. Not very helpful, really.

""Speculation is a zero-sum game" is a nonsensical statement, sorry. As long as market goes up, all speculators win. When it goes down, all speculators lose. Therefore, it is not a zero-sum game"

Well, clearly wrong as some are short, as has already been pointed out. Also wrong, but less clearly, as when equities or bonds are revalued higher, it means the returns for people who HAVE to invest today (e.g pension funds with new money) by definition get lower returns. It is borrowing money from the future to pay MTM bonuses this year.

CoteDAzur* - not all speculators win when the market goes up.

A Zero Sum Game is an economic concept. It means that in pure speculation where one party buys and goes long an asset from another party who sells and goes short the same asset and they have no other economic interests then one party will gain and the other lose depending on direction of travel of the asset price. The amounts gained and lost are equal and hence no net new wealth is created.

We cannot and should not ban speculation (or indeed ban short selling) but we should not imagine that bankers trading pieces of paper between each other creates wealth. It creates liquidity and that in itself does creates some benefits to other market particiapnts who for example say have a need to hedge currency exposure on the sale of a piece of machinery to a foreign buyer.

The service provided by market makers is providing liquidity though typically earns them a small spread profit on each trade but they largely very low risk and only momentary exposures before covering their position.

LarryGryls - interesting point about HFT algorithmic traders. I would argue they are a perfect example of how trading bits of paper between highly leveraged entities providse no service and not even liquidity and has damaged market structure. It seems though that regulators are blind to this problem and the enormous risks it creates as seen in recent flash crashes - hence retail share investors are exiting US stock markets.