Bankers are bloody getting away with it.

[julesrose]

unlimited bonuses and this crappy government can't / won't do anything about it.

I think I'll move my bank account to the bank who pays the lowest bonuses. Anyone care to join?

There is no simple answer to this one.

Are bankers pretty much amoral? Probably yes. Are they any less moral than anyone else? Probably not. They are just a mirror of society's values in an industry where people have the opportunity to be overcompensated. How many people would refuse a lot of money were it offered to them?

Having worked as a banker for 23 years, there are some moral bankers and some immoral bankers, just like in any other industry.

The industry is changing and bonuses are coming down. A lot of compensation has to be paid in stock or deferred and large bonuses are taxed at a marginal rate of 52%. To give some perspective, a bonus of £100k, with 75% deferred (as it probably will be) will allow the "rich" banker to take home an additional £12k on bonus day. In addition, capital requirements against risk are going up all the time so it getting harder and harder for the banks to make the money to pay big bonuses.

To earn this money, your typical trader will be in 7 until 7, take 10 minutes out at lunchtime to grab a sandwich, and be expected to reply to Blackberry messages as late as 10pm. It is no longer a fun industry, more like a factory job, albeit an extraordinarily well paid one.

On the other hand, to pretend the whole financial system did not change after the bailout is to willfully misunderstand the nature of it. All banks were bailed out, some by actual taxpayer funds and some by softer support such as repo facilities from the BOE. And, finally, the government's explicit and implicit guarantee to savers stopped a real run on the banks which would have taken down the likes of Barclays (who always claim they were solvent) along with the worst basket cases.

The real problem is that the government did not put any conditions on the bailout and cannot really apply them retrospectively to private companies.

Who are the real mugs here? The shareholders. They have lost up to 90% of their money over 10 years, effectively transferring it to their employees. The big question is why is corporate governance of banks so bad and why do shareholders continue to accept the compensation levels available? That is not a question for the government, however.

hoarse I have no problem with state bailouts. I do have a problem with the banks and others expecting things to carry on as if they were in a free market, taking taxpayers money then not expecting to curb the behaviour that got them into the mess in the first place. When are we getting this money back? The banks can borrow from the government at favourable rates - will the repayments take account of this, especially as it means they can make more profit than they would have before.

Hoarse,

"cost of Iraq war 2500 billion". I doubt it and, even if that number is correct, the biggest estimate with respext to the uk is £20bio. RBS alone was bailed out with over £80bio.

"The former CEO of Merril Lynch Stan O'Neal was born into abject poverty - he worked his ass off to get where he got to no signs of any old boys network to help him"

Possibly the worst example you could have chosen. He was shown to have been, at best, inept and, having bankrupted his institution, he took over $100mio personally on the way out. In a way, he is the poster child of all those who think bankers are talentless and immoral.

iggly - I'm interested in general to ask - what does everyone think was the "behaviour that got them into the mess in the first place". Much of it was the adventures into the US subprime market - which i suspect you'll find no one is really venturing into now, and exotic deivatives activity which has also been scaled back. It wasn't paying bonuses that got the banks into trouble.

In answer to your question of when are we getting the money back some of it has already been repaid - Northern Rock has repaid a chunk already although admittedly there is further to go. It is also worth noting that many banks would now actually like to pay back the taxpayer in Europe but that at the time of the initial loans they had to agree to specific repayment schedules - i.e. if you pay us back 2 years early you have to pay a penalty for early repayment as we the government will lose out on interest we have forfeited - hence many are tied in until 2015.

I do not know the exact repayment schedule but the whole point of low rates and cheap funding is to allow the banks to recapitalise their balance sheets (i.e. earn enough money) to be able to survive unsupported. You are quite right that they can thereby make more money than when funding was more expensive, but the whole world is now living in an era of cheap funding - not just banks on state support. At the time it was offered it was lower than market rates as the wholesale funding market had dried up as the world was running scared. Now that wholesale markets are functioning again the advantagious rate of state funding isnt so much cheaper anymore.

Ultimately the banks if they are to repay the state have to be allowed to make money and in some segments of their business they need to be able to employ some very specific people with a very specific skill set and if they dont pay them a bonus - they will be offered a job by a competing institution and their opportunity will have vanished.

re the cost of the iraq war - unfortunately i cant get the graphic - but look on i player and watch the episode if you have time - its fascinating anyway. I think the BILLIONGRAM mentioned is somewhere in the second half hour of the program.

"To earn this money, your typical trader will be in 7 until 7, take 10 minutes out at lunchtime to grab a sandwich, and be expected to reply to Blackberry messages as late as 10pm. It is no longer a fun industry, more like a factory job, albeit an extraordinarily well paid one."

Can I just dispel the myth that this is not the norm in private industry. Everyone I know who works to any management level within a private organisation works these hours - 7am til 7pm. THe hours thing is a cultural thing in our country, not a specific bankers' culture. But generally (not always - I have some examples of sales people earning £350k basics and bonuses of well over £1m, however in general.....) the wages do not match those of the bankers - I would say the level I am talking about is £50 - 100K. Most people I know in what are classed as decent positions are also expected to do a reasonable amount of travel meaning you are away from home for considerable amounts of time. There is a myth that bankers work harder than anyone else and it needs readdressing - bankers work no harder than most people and their wages should reflect that. Add into the fact that many of these banks are effectively bust, then the argument for such large payouts evaporates.

"cost of Iraq war 2500 billion"

Nonsense. That's equivalent to the entire UK budget for more than four years.

I've heard the £20 billion figure as well and it's meant to cover both Iraq and Afghanistan.

I can't find the unbiased link that I grabbed that figure from but here's a link to a very very left wing site that is not going to pander to the Government and go with figures that aren't reliable.

www.morningstaronline.co.uk/index.php/news/content/view/full/91782

That £20 billion is on top of the normal defence budget and comes from a different budget within Whitehall.

The normal defence budget is about £35 billion.

Spread the £20 billion over the 10 years we've been at "war" and you get £2 billion a year on top of the £35 billion defence budget, so £37 billion a year in total.

To put that in perspective.

Total Government spending is about £600 billion a year.

The amount the Government will overspend by is £140 billion.

Even if we spent nothing on defence at all, absolutely nothing, we'd still be in a huge hole and spending far beyond our means.

The "£2500 billion" figure is only possible if you start to try and add up the indirect costs of the war rather than the actual spending by the Government upon it. And that's fluffy, inaccurate and very open to bias.

Less than £40 billion a year is the absolute hard figure and covers both Iraq and Afghanistan over the last ten years.

The hole in the budget isn't here...

Hoarse,

You once again write a well argued post but are "economical with the actualite" when it comes to your facts.

"Much of it was the adventures into the US subprime market - which i suspect you'll find no one is really venturing into now, and exotic deivatives activity which has also been scaled back. It wasn't paying bonuses that got the banks into trouble."

The behaviour was leverage and using it to pump up unsustainable bubbles. It was .com iver the millenium and subprime in 2005/2007. Arguably, it is food and commodities today. There is definitely less leverage. I think most IBs have gone from the 30s to the low 20s, but it is still there.

"but the whole world is now living in an era of cheap funding"

Absolutely not true. For an individual or an SME, rates are the same or higher than before the crisis. The lower rates are only for a favoured few who are already in a very good position.

"Ultimately the banks if they are to repay the state have to be allowed to make money and in some segments of their business they need to be able to employ some very specific people with a very specific skill set and if they dont pay them a bonus - they will be offered a job by a competing institution and their opportunity will have vanished."

This is partially true at best. Why does this argument only apply in the banking sector? Is it the only competitive business requiring skilled employees? In addition, if the banks are doing so well due to this skillset, where are the dividends and the share price appreciation? This is the test of a successful business model in a shareholder democracy.

hoarse - the bansk are paying 0.5% interest in teh UK. It is virtually free money wich theyare not pasisng onto consumers and businesses except at extortionate rates.

As for this comment.

"go ahead - remove free funding and see how a second credit crunch feels...it wont be very nice...thousands will suddently not be able to afford their mortgages - porperty crash number 2 will loom large..."

Bring it on. The economy needs to rebase and reboot. House prices need to fall 50% to be back to historic normal levels. They have already done so in Ireland.

This process has to happen the debts written off, the banks busted and the assets sold off. It is the only thing that will get us out of recession.

That's capitalism.

there is so much rubbish, knee jerk banker bashing on this thread, as usual.
most people in investment banks are not high powered traders, they are grunts in technology, quant research, analysts, etc.
They may get £50k in bonus, as a reward for their massively long hours helping the bank make money off clients.
Working for a bank does not make you immoral and greedy - it can be a good outlet to do highly skilled and interesting work.

The bonuses are for rewarding risk taking. At the expense of the taxpayers wallet.

If banks are doing well enough to pay bonuses, use that money to repay the taxpayer.

I did not argue there is no leverage in the system anymore- of course there is - but it has been vastly reduced from where it was and quite rightly so - increased capital reuqirements from the bank regulators are also going to ensure that leverage remains in check.

The whole world is living in an era of cheap funding - i did not mean to imply that you as a private individual are paying 0.5% to borrow money - but in international wholesale markets money is cheap - we were discussing how banks are funded, and are not talking about private individuals. it irks me too that i pay 6% to borrow at present but can only get 3.5% on savings....(dont live in the uk at present).

the argument about paying certain skilled individuals does NOT only apply to banks - it applies in ANY industry. I notice there is no uproar however that certain hospital consultants can earn 100,000 in overtime a year - the discussion here is about bankers - hence the reference to bankers.

the point also made above about a typical salary in the "private sector" of 50- 100k....go to an investment bank - the vast majority will be in this bracket too - only a select few will get above that.

"bonuses are for rewarding risk taking"?

ok- so you are an account manager at an investment bank - you bring the bank 15 new major corporate clients in the year who tehy can subsequently lend to and offer other corporate services - for this major coup you get a bonus - please explain how you took risk here???

Hoarsewhisperer,

If the banks are not taking risk, what are they doing with the 20/1 leverage?

To be honest, successful risk taking should be rewarded. The problem is that, taken as a whole, it has not been successful over the long haul. It is no good saying that XYZ department lost 2bio but everywhere else in the institution there were talented individulals who made 1.8bio and need to be paid to be retained. Where is the money going to come from other than shareholders and (recently) the taxpayer?

How about only allowing banks to pay bonuses if they can afford to pay a dividend over and above the 1 year money market rate and the share price has appreciated over the year? Oops, that rules out all the UK banks.

I am actually a fan of risk taking but I think that it does make sense moving that into COMPLETELY separate funds that can lose everything. In those funds, there should be no restriction on bonuses. It is the combination of retail banking with speculative risk taking, underpinned by an implicit government guarantee which, IMO, causes the resentment towards bankers.

The point Chandellina, is that a 50K bonus for just doing your job for a company that would be bankrupt without taxpayers money is RIDICULOUS.

How is that knee jerk banker bashing?

THere is no other situation I can think of where it is acceptable to be rewarding people when their company has failed. Back in the real world, the bankers would be ON THE DOLE. They should be thankful they even have a job, never mind a bonus ( of any size)

It is the constant "But we work really hard" whinging that makes it really tedious. Lots of people work really hard and lots of people don't whinge on about how much of a bonus they deserve

Of course they are taking risk - supposedly calculated - otherwise they wouldnt be earning returns over the risk free rate of return - which is the holy grail of management/shareholders/markets.

i am just trying to make the point that not everyone in an investment bank who makes a bous is engaged in some kind of high stakes poker on a daily basis - which is what alot of the hype in the media would have everyone believe. Alot of what brings in money is bread and butter wholesale lending combined with the occasional corporate finance deal which will earn a big one off fee - like when you help Company A to buy a competing company and structure the deal and arrange the funding for them.

i agree on the last point you make larry about the combination of retail banking and speculative risk taking - the glass steagal act and its equivalent was there for a reason. Investment banking and retail have little in common and quite simply one became a cheap source of funding for the other and former retail banks were allowed in the 90s and 00's to expand into the investment banking sphere in a "regulation lite" framework and no questions were asked in the good times by the then government who were quite happy to take the tax revenue, without bothering to look a little closer at exactly how this money was all being generated.

poor regulation contributed alot to the problem to my mind.

"poor regulation contributed alot to the problem to my mind."

Yes it did, but you would not have needed the regulation had the senior bankers pursued sound moral banking on behalf of their shareholders and the banking system.

Not all banks were equal. JP Morgan and Deutsche (on the whole) avoided most of the pitfalls of the recent crisis.

Banks pay what they need to pay. If the regime becomes too difficult for bankers they will move to hedge funds. If UK tax on their income becomes too much they'll go to Zug or the Cayman Islands. If we think we want to risk UK plc any more than we are already doing with the exodus of non doms and the 52% upper tax/NI rate, then the poor and the country will suffer. I am probably one of the few mumsnet posters old enough (just) to remember the late 70s. After my father died I was reading a tax etc assessment document he was sent by his accountant. It was not happy reading. We had years of 18% inflation, 20% inflation.

We have had by contrast reasonably good stability in the last 30 years.

I was criticised for writing about jealousy but surely i t is simply that, that those who don't earn much are jealous of those who earn more and feel it's not fair.

As for what caused teh crisis we have always had cycles. It's how markets work. It doesn't mean they've gone wrong because we have a recession or depression. It's like menstrual periods in a sense and the moon, we wax and wane. But people like to find a whipping boy and this time round it's banks but of course not the idiots in teh US who borrowed what they couldnt' afford to repay because we are now in total nanny state time... the poor who are profilgate shall never be castigated for that because they are regarded as too stupid to be anything but innocent sheet led to slaughter by institutions prepared to lend in the sub prime market.

"I was criticised for writing about jealousy but surely i t is simply that, that those who don't earn much are jealous of those who earn more and feel it's not fair."

How do you know how much I earn? I don't think you actually know anything about me.

Fairness and jealousy have nothing to do with one another. I can think something is not fair without being jealous.

Why do Bill Gates and Warren Buffett give away all their money?

And swc - I couldn't disagree more - equality is certainly a basis on which to make policy.

swc - there is also quite a lot of research showing that monetary incentives often backfire, reducing the performance of agents AND their compliance with rules. So yes, there is an argument that they have a causative role in the crisis in that they encourage a certain type of behaviour.

"...but this argument has no foundation. Performance-based remuneration has been the norm in the City for many years, at all levels."

There is lots of evidence. You can chose to ignore it however if you like. I would disagree that the current levels of renumeration have been around for a long time, and they certainly have not been evaluated as being "effective in the intended way".

Wayne Rooney would still go out and play for Man U on a Saturday if his wages were only £1000 per match, and most people would go out and play for Man U for free if they were given the chance. (BUT there is a particular nuance in reducing wages after they have been very high)

You might even be able to look at whether Rooney's recent lack of form might be due to the intrinsic motivation being lost due to his now extrinsic reward structure but that is a whole new thread.

Not surprised at all.

As riven said; "quelle surprise"

sigh.

Some papers for you:

Fehr, E., Armin, F. Psychological foundations of incentives. European Economic Review 46 (2002) 687 ? 724

Baker, G., 1992. Incentive contracts and performance measurement. Journal of Political Economy 100 (2),
598?614

Deci, E.L., 1971. The effects of externally mediated rewards on intrinsic motivation. Journal of Personality
and Social Psychology 18, 105?115.

Fehr, E., List, A., 2002. Do explicit incentives reduce trustworthiness? ? an experiment with CEOs. Working
paper, University of Z%urich.

Fehr, E., Rockenbach, B., 2001. The hidden cost of economic incentives. Working paper, University of
Zurich.

Frey, B.S., Jegen, R. 2001. Motivation crowding theory: A survey of empirical evidence. Journal of Economic
Surveys 15, 589?611.

Wiersma, U.J., 1992. The effects of extrinsic rewards on intrinsic motivation: A meta-analysis. Journal of
Occupational and Organizational Psychology 65, 101?114.