Diamond and Guido either evade or miss the only point that matters - the structural point. As everybody, me included, has pointed out bonuses are a one way bet. You can win but you can't lose. Diamond kept droning affectlessly about Barclays bonuses being performance related. Well, large parts of them aren't and, anyway, they're not truly performance related in that traders don't have to pay if they fail. This makes it logical for traders to take short terms risks that may - actually, will - in the medium and long term hurt both the bank and society. The case is overwhelming for a compulsory split between investment and retail banking. Diamond, I notice, kept going on about the virtues of the 'universal' bank, but then he makes £20 million a year out of this grand scam. Furthermore, why do banks in particular have such stratospherically generous schemes? Chris Dillow suggests they are bribes to stop traders plundering the firm - the banks are, in fact, being blackmailed. This, if true - and Dillow, for me, is the best at this stuff - makes matters much worse and would provide further evidence for the conclusion that is finally sinking into the popular imagination - the banks were run as market-rigging machines for rewarding traders and executives and ripping off shareholders, depositors and taxpayers. The truth is that no other conclusion is now possible. Sorry, Guido, this is real politics; sorry, Affectless, these are real feelings. It's over. Or should be - your best hope is Brown's dithering and his tendency to grovel to the City, which, I admit, could yet prove to be your salvation.
Tuesday, February 10, 2009
Affectless Bob
The chairman of Barclays Capital, Bob Diamond, a masked man seemingly devoid of affect, defended City bonuses to Jeff Randall last night. Meanwhile, Guido puts his case for the defence. I suspect there's an illusion abroad among bonus defenders to the effect that this is all the usual grievance politics - the poor whining about the rich - and that, by some magic. the market they call free will soon assert itself. This is a grave miscalculation. What has emerged about bonuses indicates that they were a fundamental social injustice and a cynical rigging of the market.
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A blog about, among other things, imaginary ideas - What ifs? and Imagine thats. What if photographs looked nothing like what we see with our eyes? Imagine that the Berlin Wall had never come down. What if we were the punchline of an interminable joke? All contributions welcome.
For me, Guido is to blogging as Sean Penn is to acting. I don't care what awards they've won, they offend my sense of aesthetics.
ReplyDeleteGuido is defending some players according to the rules of the current game. As you say, that game now has to change.
But, annoyingly, Guido is probably right that the current players have to be paid off first. I can't really see a way out of that.
What Dillow describes goes on in every company and businesses in every part of the world.
ReplyDeleteIts Happened to me 3 times in 17 years in business and to be honest I wish I had paid them, I also wish I read Dillows post in 1992, I would have paid them more in the first place.
OK, but if you want to see an end to "bonus culture" you have to address the reason why it exists in the first place, that is the ability traders have to plunder the banks (or, to put it in a form that is more broadly applicable, to walk out the door and take millions of revenue with them. Rather like a star columnist switching newspapers and taking readers with them). If you just try to stop bonuses, but don't do anything to stop the revenue generators taking themselves elsewhere, all you've done is nationalised a bank and then crippled it. As I've written elsewhere, it risks being like nationalizing Manchester United and imposing a £500,000 salary cap and asking other teams not to poach your players. This is genuinely difficult co-ordination problem - I'm not saying it can't be done, but I haven't seen any sign of any of the politicians or pundits showing any awareness of the problem - most people seem to think we can just "stop" bonuses and it'd be problem solved. Even if we legislate payment scales across the industry, there are plenty of bits of banking where there's money to be made (M&A, equities) and these guys can quit, establish partnerships and get around payment legislation by paying themselves via dividends, and if the global banking industry buggers off to Dubai or somewhere, much as you might detest bankers that really wouldn't help the UK - finance is our big export industry.
ReplyDeleteand ... don't get too carried away, we all "blackmail" our employers - if they don't pay us enough, we walk out the door. It's just that most of us are not in such a strong bargaining position as somebody who can claim to take a few hundred thousand in revenue out of the door with them.
ReplyDeleteThere's might be some traders who could literally plunder the bank, the hold most bankers have over the organization is simply that they make a lot of money for the bank so they get paid a lot of money. It's not really about skill, they don't deserve it in any moral sense, other then they have got themselves into a position where they have bargaining power.
In a few years- maybe five to ten - with five to ten terraflops of computing power on a home pc - and a a proper broadband, then the home consumer will be equal with the city trader and typical modern banking crook. You will be able to simply trade your own insurance, mortgage, loan or ISA around the whole world - changing every minute or second as they do. Then the consumer will be equal with the lender ruthlessly pursuing the lowest cost - by changing every few minutes or seconds....
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