Bonuses for bankers

The term Bankers is misleading for a start. The vast majority of people who work for banks receive average or lower salaries. The people who serve you in your branch for example probably get paid less than you. Even the branch manager these days is little more than a glorified supervisor. If they get a bonus at all, it might be 3 or 4 % of their salary, and then only if they are deemed to have "performed" really well. I'm sure we all know people who work in banks who would laugh at the idea that they get enormous bonuses.

The people getting the big bonuses are the people in the top jobs and the traders in the global markets who effectively gamble with the banks' money. These people are not "bankers" in the traditional sense, they are commodity traders who might just as easily be dealing in petrol or gas or gold. These traders should be grouped together under a global title, not just conveniently called bankers. 

Looking at bonuses themselves, these are an effective incentive if they are used properly. They are used in all walks of life. No one ever questions a footballer getting a huge bung for winning the cup, do they? A bonus is the "at risk" part of your salary. A "Banker's" salary might be say £100,000. His employer's say to him, we will pay you £50,000 guaranteed. To get the other £50000 you have to make the company £1 million. If you don't, you don;t get the bonus. If he does, he appears to get a bonus of the equivalent of his salary. What if they had jsut paid him £100,000, would you be happier because it was less transparent?

Taking it further, the employer says to the"banker" for every £1 million profit you make for the company, we will give you £50,000. The guy makes a profit for the company of £10 million. His bonus is £500,000. He has added £10 million to the companies profits though. Does this show that incentives a work? Maybe.

And what happens to those profits? They go to the rich eh? well actually most of them go to you and me. The big investors in companies are pension funds, and other investors such as unit trusts, mortgage equity savings, etc. You and I demand that our pension funds make as much money as they can for us. The pension funds in turn put pressure on the companies they invest in to perform well and make big profits. The companies offer their staff bonuses to make big profits. Who is behind the banker's bonuses, why it's YOU!!

So a bit less of the hypocrisy. It's very easy to put your head in the sand and point the finger at others. A bit more honesty all round when it comes to our own greed would not go amiss.

ITV, some years ago, were showing a League Cup Semi Final Mach live. Gary Newbon, one time sports reporter and latterly chief editor, was on the touch line for a live feed. Cue thousands of fans behind him, who started chanting::

"Gary Newbon.....he's a wa**ker, he's a wa**ker....."

The camera cut out, and the editor went back to the studio. Cue embarrassed silence, whereupon Jimmy Greaves turns to a distraught presenter (Tony Wilson), and says deadpan:

"I didn't realise Gary was a merchant banker, Tony!"

The adverts followed immediately as the entire studio collapsed laughing. 

Many a true word spoken in jest, eh?

Yes but again, if they bought all that sovereign debt with money they have that would be quite legitimate, the problem is that they buy debt with money they do not actually have.

Last year, with most of the Spanish banks bordering bankrupcy which was strangling Spanish economy to death because companies could not receive financing from the banks (caused by a crazy real-state bubble which is not the purpose to discuss here), the EU Central Bank finally provided an injection of capital for 40 billion euro to re-capitalise the Spanish banking sector. What has happened? Since the interest of the Spanish debt is very high (around 6%) the banks are using the money they received to buy Spanish debt instead of pumping it into the real economy. The economy is not moving at all because the companies do not yet get any financing from the banks, a relatively safe and attractive 6% interest from the Spanish government is more interesting than lending money to a company which who knows if they will make profit or losses. The government is happy because they can show decreasing risk premium figures but it's all a masquerade quite removed from real economy. A lot of money pumped in but not to boost real economy, just to make 'the investors' quiet and safe.

Nowadays it has become a business where they lend money they do not have, the whole economy is built on money or wealth which does not yet exist, only on the expectation (or rather, hope) that it will exist in the future. This is what makes the modern financial world an irresponsible risk to the rest of the society.