Sunday, February 08, 2009

More More Bloody Bankers

The professions were invented to let the middle classes partake of the profits of business without partaking of the risks. In that context, I had, until today, thought the banks' big mistake was to turn themselves into businesses rather than professions, taking on risks they did not understand. But a remark of Nassim's  - 'profits were privatised, losses were socialised' - has just made me realise I had got it wrong. The banking crisis was brought on by hyper-professionalisation. Bonuses for short term gains were simply the most extreme case of making profits without taking risks. This is why I think there may be merit in clawing back bonuses rather than just stopping further payments. We should see the behaviour of the banks, not as a business failure about which people might say, 'it could happen to anyone', but rather as a gigantic professional fraud about which people should say, 'the guilty must pay'. In that light we can see more clearly what actually happened and what must be done. 


  1. It has been a con job of the greatest magnitude ever. False profits, from false accounting, have been used to justify huge remuneration. Don't forget the ratings agencies and auditors who were complicit in this. We have been mesmerised by money.

  2. ...and lets not forget a massive serge in New money from SE Asia taking the place of us having to bother saving up for anything.

    add to that the fractional reserve banking system that allowed Banks and bankers to create even more money by issuing credit.

    add to that Mercantilist China distorting it currency to keep its exports cheap

    add to that the resulting distortion of interest rates in the west.

    add to that the effect of lower interest rates driving Banks and investors into bigger and bigger risk taking

    add to that regulators who did not understand the system they were supposed to be regulating

    add to that Govts, taking in billions in tax receipts and voters having their pockets filled with cash...and of course not doing their job in looking out for problems in macro economic policy.

  3. btw on the main point of the post.

    Bad news I am afraid the bankers will get the money.

    Tiger tim has a good post on the issue here

    You can read between the lines when the politicos think about having a go at bankers, they take the foot of the pedals just before they go too far, as they know that if individual bankers want to make an issue of it they can open a serious can of worms, afterall bigger idiots than themselves are the politicos who allowed an economic problem to go in the dust bin and not be addressed.

    Oh what a circus, what show :0)

  4. Yes, passer by is right, the bankers will get the money and the bonuses. The rest of us will suffer with pay cuts, job losses, inability to live anywhere decent, etc.
    I fell out with my husband last night about the bonuses - we donn't usually speak very much but circumstances made it necessary last night (we had to leave the house as our daughter was having an 18th birthday party). He said that as the banks haven't been nationalised, the govt can't make them stop the bonuses. I said "but they've been rescued with all our money...." blah blah. His line was that we aren't in a communist country yet, and so the bonuses will happen as the banks can decide how to run themselves whatever GBrown tells them. I will now draw a veil over the rest (actually, we went to see Frost/Nixon and the movie was just about to start - just as well before I got very cross indeed).

  5. Here is the problem. Just as the Allies discovered they couldn't run Germany or Iraq without the Nazis and the Ba'athists, so we can't do without the bankers unless we want to go back to the 30's or even the Middle Ages. OTOH, they have betrayed out trust outrageously and profited from gambling with our futures. So the only solution is to vent our rage by marching a dozen of them summarily to a public execution at dawn and then rely on the rest of them to get us out of this mess.

  6. I think Peter has it about right.

  7. Bryan

    What on earth do you mean that 'the professions were invented to let the middle classes partake of the profits of business without partaking of the risks'?

    How does the medical profession fit into this? And the criminal Bar?

    It might be true that all professions are a conspiracy against the layman, (GB Shaw) but before recent governments they represented an independent bulwark against the power of the state; now they have been emasculated (nationalised really) with the tacit encouragement of the layman, but it will be to his eventual detriment.

  8. Professional, probably the most misused word in recent times, as in "front line health service professionals", "front line teaching professionals", "front line emergency services professionals." Strange how they have become front line, these people.
    AKA professional government employees.
    Puzzled I am, the shorter the training period the more professional the job becomes.

    Like the IT world, but that's a story for another billion pound fiasco.

  9. Admittedly I am rather old, etc, but I thought the professions had something to do with education and training. If you had the relevant level of knowledge, you were counted as a professional - degree, perhaps, or qualification from an expert body. Or you could become a professional through experience without a qualification, out of respect for accumulated knowledge and imparted wisdom thereby (to colleagues, customers etc).

    However, in my working career I have observed a gradual, now almost complete, disregard for people who have this accumulated wisdom and experience. Young people are hired on short-term contracts or on promises of bonuses if they meet "targets", and thrown in. IT makes it all worse - casual emails etc. Structure and experience has given way to over-confidence and lack of adequate knowledge.

    I don't work in banking or any of those commercial businesses because I found other paths more rewarding to me personally - communication of scientific knowledge. I don't mind not being paid as much as bankers and all those people, in a free market economy. But what is going on now is totally galling - because what I am doing for the market economy is far, far, far greater than what they are. They are now a massive drag on the economy - I don't care so much for myself as I wrote previously on this blog, but I do care for my children - their generation is going to have to live through the consequences of all this mess, and it will not be easy for them. But small business and companies, containing professionals who are contributing something to the economy, should now be valued.

    In the heyday of the city and these "masters of the universe" we may have been sneered at, but now, publishing companies and other smallish business sectors are "it" - we are the economy. The rest of it seems to be about picking up the pieces from these ill-educated, overconfident greedy....I will stop there!

  10. Professional = a person who's chosen means of employment requires a high degree of skill whether cerebral or manual. The learning of these skills is not a short term experience. Learning of these skills, although mainly by formal means within the education system can also be self taught.
    Is frequently circumnavigated by the application of nepotism, especially in the entertainment industry. Isn't it, Mr Briers.

  11. "In that light we can see more clearly what actually happened and what must be done."

    Public castration? It would be a kind of national catharsis.

  12. Nah, that's too easy, Bryan. Americans are simply paying the cost for their optimism (= systematic overestimation of their chances or skills) and for the idea that it's good enough to give education to the top while the remaining 90-95% of US population is seriously undereducated relative to what is possible and done in other countries such as Finland, Germany, Switzerland, etc. Sure, the real estate agents, originators, advertising and media industry, and fixed inc/securitization bankers, and rating agencies/risk managers were the enablers (in that order!). But they could not have operated if there had been no suckers. THe real scandal is that the world is now paying for American stupidity or undereducation and feelgood mentality!!!

  13. "Should" won't get you there. The bankers, or we, should see/do something or other - just an expression of personal irritation, widely shared but that's all.

    This is a time for what do I know? and starting out from some bare facts. Just my 2 cents, but the press have let us down pretty badly on this one. Hardly anyone in the press saw it coming and even today hardly anyone is telling us what is going on behind the scenes. Really going not, not recycled press releases from PR flaks. Who is saying what to whom, which ones are steadfast and which ones are lying, panicking, on the bottle or all three. Considering this is one of the biggest stories for a generation, the amount of real, hard info coming out is pretty unimpressive.

    Oh well, I suppose even the bare facts such as we have them are startling and surreal enough. You are one of the key players in a bank that loses a fistful of billions and you still think it's normal and deserving then to receive a million-pound bonus, paid by the State this time because the activities for which you are receiving a bonus have bankrupted your own company and others like it. Insane is hardly the word. Enjoy the show while it lasts.

  14. The punishment must be specific and relevant, as well as cruel and unusual.

    Once the bankers are rounded up and stripped of their bonuses - rounding up is very important - Nassim Nicholas Taleb will ask each in turn whether he thinks he knows any more about predicting financial outcomes than any oik picked at random from a Wetherspoons.

    The first banker to say 'Yes' should immediately be bludgeoned to death with a clawhammer by Taleb pour encourager les autres. Any that survive will be allowed to go back and try to dig us out of this mess. There will be no bonuses for success and failure will mean the Gulags.

  15. Eh...I have to ask myself: If I found myself engaged in a remunerative enterprise where nobody seemed to understand what was going on, would I leave it on that account? I kind of doubt it, and so I find it difficult to portray bankers as evil agents.

    I like this observation from Jerry Z. Muller: The financial system created a fog so thick that even its captains could not navigate it.

  16. I like that observation a little less, Kynefski.

    Good captains do not pretend that they have x-ray vision for seeing clearly through fog when they're just guessing, and they do not awared themselves enormous bonuses for crashing into icebergs.

  17. No, kynefski is being honest and that's the only way to be if the deadly incentive structure that led to the crash is to be understood and fixed.

    Two suggestions. First, concentrate not just on the bad examples but on one real professional, to remind ourselves what the word should mean. Note how desperately Americans have been doing that, like ingesting a life-saving drug. That popular instinct is 100% right.

    Second, read Michael Lewis' brilliant account of the credit meltdown, not least his confrontation at the end with John Gutfreund, his disgraced ex-boss at Salomon Brothers. Yes, Gutfreund is right about the greed. It destroys our humanity. But Lewis is right too. The system, built on the worst traits of fallen humanity, has been deeply flawed.

    Fixing the system, which needs to include sincere repentance from various people in the banking world, is the crucial thing, not indulging our own feelings - and not pretending that we would have been beyond temptation, given the opportunity.

  18. What is really puzzling to me is the point Alan Greenspan made in his congressional evidence:
    'how come these bankers with so much to lose themselves in shares & share options were so reckless'?