Bankers going to get their bonuses anyway

[jujumaman]

here

I don't know what to think about this.

We have a friend who works at another bank that has been bailed out by a foreign govt. He was telling us this weekend that he's planning to sue because he may not get his promised bonus of £2m or so, and will "only" end up with his salary which is prob around 250k

I know bonuses are intrinsic to banks' cultures but how - in these god awful times - can £2m bonuses be justified. My friend says his was the only division of his bank which made money last year, so why should he be penalised for others' faults? My feeling is every taxpayer is being penalised for others' faults and someone who is still earning an excellent salary should graciously accept it and be grateful he still has a well-paid job. But my dh tells me I'm being naive and that bankers will carry on getting these vast bonuses just as before. Not convinced by arguments in article I've linked to. Anyone with more knowledge of the city than me like to defend my friend's position (I v much like him personally.

What if the labour force becomes more skilled in countries like India..the financial services stuff will start getting outsourced like everything else. We need a strong financial sector but maybe the salaries will inevitably come down for the country to remain competitive.

It would be good if the government ploughed more money into green energy sources and the like that so we are more self sufficient, eco friendly and could also have a new expertise to sell to the rest of the world.

we also need to stop sending everyone (all academic abilities) to university. More people should be allowed to go into practical vocations like plumbing, electrics rather than wasting years studying for a worthless degree.

Britain needs to invest in building its manufacturing base where intellectual property as well as creativity give it the edge. The days of Britain manufacturing run of the mill goods are long gone. Where Britain can demonstrate its commercial advantage is in the design and manufacture of specialist products as well as in the re-engineer of manufacturing processes.

Also, we need to invest in new emerging economies like the green economy where a whole new and lucrative industry will be built. If anybody saw the Horizon programme last night, we are probably less tha 25 years away from achieving sustainable nuclear fusion which will render us less dependent on oil for our energy needs. Britain needs to invest in preparation for that in terms of encouraging more students to become scientist and engineers.

Too much emphasis has been placed on importance of the financial sector which has been spectacularly shown to be built on half-truths, obsfuscation and self-indulgence.

With respect to the house market, banks stalked consumers and lent without constraint or prejudice. DH and I are inundated daily with offers from banks for loans, credit cards etc. We just throw them in the bin because we have no debt and do not feel obliged to have any at the behest of banking industry. Banks are largely responsible for driving up the house prices with their irresponsible lending practices - they should have stuck to only lending 3 times multiples and they should have not been too willing to give out loans and other forms of credit. Banks were in the driving seat and should have shown more responsibility, discernment and prescience imo.

hope you throw the offers in the green bin (recycling) spokette

But of course

spokette - surely the onus of responsibility is on the borrower? i have no sympathy for anyone who borrow beyond their means, or who is financially illiterate.

It is not difficult to understand the concept of not borrowing more than you can repay, no matter who is offering the money.

I agree goodnightmoon that it is up to the borrower to work out what they can afford to borrow.

However those who have been financially cautious are suffering the consequences of the behaviour of the irresponsible. People have borrowed huge amounts and this has kept property prices high for everyone.

Those who saved are suffering lower interest rates on savings as interest rates have gone down so much.

Although I do agree that borrowers should have some responsibility (they are the ones who are actually defaulting after all) - there should be some protection for ignorance/naivety that counteracts the propaganda that owning a house/bigger house/more houses is always better. Plus with property prices rising so much -there was the belief that you couldn't lose if you were on the ladder. The question I have is whose responsibility is it to give the protection - the Government? Banks?

the irony is that the Banks are now rsetricting their lending (as everyone says they should have done before - saying unrestricted lending caused this crisis)- and now are being berated as the lack of liquidity caused the crisis

I agree that borrowers should show restraint and should accept responsibility for their profligate behaviour. However, the power resides with the lenders and they have, imho, abused that power by exploiting the consumer's weakness for easy credit. Without the free flow of credit, house prices would not have sky rocketed and so many people would not have these huge debts.

Why do lenders keep stalking people to take out new loans/credit cards etc, even when they know that that they are already in financial dire straits? Because lenders know that they will make lots of money from interest payments.

Yes borrowers must take responsibility for their financial situation but the greater responsibility does lie with the lenders who give out the money in the first place.

In terms of responsibility, I think it's fallacious to say that the banks have all or even the primary responsibility for loans defaulting.

Firstly, it implies that borrowers have no responsibility in this. The banks make financial products available on certain terms, however, they do not compel borrowers to take up these products. The terms of these products are also heavily regulated and all terms are required to be clear and obvious to the borrower. In taking on debt, the primary responsibility is that of the borrower as they are the one taking on the obligation to repay the money.

Secondly, it implies that banks have some sort of duty to care for their customers beyond that prescribed by law. They do not. They are commercial entities owned by shareholders and their primary responsibility (by law) is to these shareholders and other stakeholders. They seek to make as much money for their shareholders as possible as does any other commercial entity. Their only obligation is to operate within the law. If we thought the laws on lending were too lax, then the government and regulators should have stepped in.

Thirdly and most importantly, the failure of banks is the failure of current economic thought, in particular the efficient market hypothesis led by proponents like Greenspan. Assuming (which prevailing wisdom did) that markets are efficient and that assets are always correctly priced, it made sense for banks to lend on the terms they did. A 3x salary mark is no more a reasonable benchmark than 1x or 5x - it simply reflects what lending multiples have been under certain economic conditions.

For the last 20 years, governments and regulators have generally been willing to see lending expand believing that growth on any terms (including credit fuelled) was good and that there was no such thing as an "asset bubble". As such, any attempts to curtail lending was met with very limited support - only a couple of years ago the idea of regulators cutting back mortgage lending multiples or the government stepping into the banking market would have been met with derision from almost everywhere, from the CBI to the householder.

There is far more to this than just blaming the banks.

Why do banks keep lending to people who are already heavily indebted? Don't they believe in saying "enough is enough"?

As I said earlier, I am deluged by banks begging for my custom to take out loans/credit cards that I have neither asked for nor want. They know they will not make interest out of me because I pay my credit card off in full each month and DH and I have almost re-paid of our mortage in less than 9 years even though we took out it out with a 25 year term. Yet they keep sending out those invites.

So if they do that to me, I can only imagine how they pursue those who they know they will make money from. I understand that they are a commercial organisation. However, I believe that all organisations should behave ethically and responsibly. If that makes me naive, so be it.

Borrowers should show restraint and reacquaint themselves with parsimony, society as a whoe needs to eschew rampant consumerism (which is the real demon in all of this) and banks should rediscover the ethics that they use to uphold before they became gluttonous beasts.

spokette,

perhaps they are inundating you with offers because you are low-risk -- i.e. you have a good credit record. so if i was a shareholder of the bank sending you the invites, i would be pleased that you're the kind of customer they are trying to attract.

contrary to your assumption, they might actually be avoiding the ones who can't afford to pay because their credit risk score is bad.

i don't think it is rocket science to know when you can or cannot afford something so i do think part of the blame is on the borrower. Assuming banks are benevolent institutions i think is naive, they are commercial enterprises.

Spokette: as Page62 notes, the reason you continue to get deluged by banks begging for your custom is that you and your DH are a good credit risk. They are almost certainly not pursuing those who are bad credit risks; indeed the refusal to lend to anyone or any company that is anything but a high quality credit is part of the current problem.

It would be lovely to think that all organisations should behave ethically and responsibly. Unfortunately, organisations simply respond to the demands of their stakeholders. If their stakeholders demand they maximise their profits then that is what they will endeavour to do. And that is the fault of society and all of us.

Interesting as I thought we would be an undesirable customer because the only loan we have is our miniscule mortgage.

I suppose banks want customers who will repay their loans but I always thought they preferred customers who pay them lots of interest. After all, isn't that how they (clearing banks especially) make their money?

Spokette, Debt is a product just like any other. I get bombarded with advertising for luxury cars, holidays and jewellery, but if I buy them when I can't afford them I don't go blaming BMW, Conde Naste and Tiffanys.

Spokette: what banks want is the best risk/ return profile. For high quality credits (like yourself) they will very happily take lower interest rates because there is a high level of certainty that they'll get repaid. For lower quality credits (to the extent they're still willing to lend to them) they'll demand high interest rates because it's more likely they won't get repaid.

For example, if I said to you, I'll lend you £1,000 quid at 2% for a year and you in turn could lend this to one of two people. One, a rich guy with several million in the bank who would only pay you 3%. The other, an unemployed guy who would pay you 8%. Who you would choose to lend it to would be based on your risk/ return profile. It's certainly not (all meant to be) about the absolute margin. Right now, the banks are only lending to the former, hence part of the reason for the credit contraction.

When my flatmate was almost declared bankrupt he was still receiving those adverts, some with ready prepared cheques you could write out to yourself (shudder)

though i think borrowers need to be responsible, i have to concede that it is really shocking that the government allows doorstep lenders to charge APR of 1,000% or more. No joke.

Yes borrowers have to take some responsibility but surely it was irresponsible to lend people way more than 3x their annual salary? Just that ridiculous assumption that house prices were going to carry on going up and up.

I'm glad they've dropped down to a slightly more sensible level - I've got a mortgage and I suppose in that sense I've 'lost' money, but the idea that my two bedroom flat was worth what it was at one point is absurd frankly.