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Bonuses for bankers

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Poll Question: Should any banker be awarded a years salary or more as a bonus?
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Blacksword View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Blacksword Quote  Post ReplyReply Direct Link To This Post Posted: March 05 2013 at 15:40
Originally posted by Easy Livin Easy Livin wrote:

Sorry, I still think there is a lot of misinformation here. I think it's convenient to jump on a bandwagon to criticise  the "system" without accepting responsibility for it. As I explained previously, bonuses are the "at risk" portion of a person's salary. If you simply paid them the higher salary without any incentive to earn it, would that really be better? A company may be making loses and still need to pay contractual bonuses (to current and former employees). The fact is that if they have met or exceeded the targets they were set to generate in terms of income for the company, they get the contractually agreed bonus. Those who failed and caused the loses don't. As I also explained, sometimes reducing losses is actually meeting an agreed target. That is the real world.
Oh and as for blaming the government. Lets remember that the government is a reflection of the people. The party in power got the most votes and were democratically elected by you and me. The "I didn't vote for them" excuse doesn't wash as the problem emanate from all sides. If you didn't vote at all but could have, you are even more culpable. If you think you could do better, stand for election and persuade the electorate that your way is better.
As I probably have already said too often, I don't seek to condone or justify the way things are, but I do get irritated by those who seek to blame others for the issues without accepting their own share of the responsibility.


Probably worth remembering that all the main parties on the ballot paper are supporters of the system, so the electorate has little choice. They could of course form their own political parties and challenge the status quo. How successful do you think that would be?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote rogerthat Quote  Post ReplyReply Direct Link To This Post Posted: March 05 2013 at 18:53
Originally posted by Easy Livin Easy Livin wrote:

Sorry, I still think there is a lot of misinformation here. I think it's convenient to jump on a bandwagon to criticise  the "system" without accepting responsibility for it. As I explained previously, bonuses are the "at risk" portion of a person's salary. If you simply paid them the higher salary without any incentive to earn it, would that really be better? A company may be making loses and still need to pay contractual bonuses (to current and former employees). The fact is that if they have met or exceeded the targets they were set to generate in terms of income for the company, they get the contractually agreed bonus. Those who failed and caused the loses don't. As I also explained, sometimes reducing losses is actually meeting an agreed target. That is the real world.


Actually, the whole point of the credit boom was bankers, stock markets and rating agencies pretending and telling everyone in the world that the "fundamentals had never been so good".  Do I not know it, listening to them regurgitate that nonsense almost everyday around 2005-06 - when some more farsighted people had already begun to warn of the coming crisis - and reflecting wryly on their empty words once the meltdown set in.    So by building this bubble, they could make believe that bankers weren't really taking any risks at all and all their growth was risk free.   That is the point, there was no counterweight for the cost of risks in their reward structure.  They were rewarded for generating growth in the short term through risky strategies.  As I already said before, this is not empty rhetoric if you'd like to believe that is the case; IMF published a paper to this effect, warning of the possible problems arising out of this skewed reward structure. 

 A few lower level employees did pay the price after 2008 (and it is not at all clear that this was due to their involvement in this rather than simply being a 'rightsizing' activity) but the banks were handed out massive bailouts as America opened the ta(r)ps.  Largely the only top level executives who have borne the brunt are the ones who got implicated in corruption investigations by govt depts.   The banks themselves have not acted on it internally and nothing so far demonstrates that they won't return to their bad old ways given the chance (they probably have!) as they unrepentantly defend more and more de-regulation and decry govt 'interference'. 
Originally posted by Easy Livin Easy Livin wrote:

Oh and as for blaming the government. Lets remember that the government is a reflection of the people. The party in power got the most votes and were democratically elected by you and me. The "I didn't vote for them" excuse doesn't wash as the problem emanate from all sides. If you didn't vote at all but could have, you are even more culpable. If you think you could do better, stand for election and persuade the electorate that your way is better.


It remains to be seen who the American people will vote for to bring about change.  They probably thought they were doing so by voting Obama who wrote a book about all these amazing changes as part of his presidential campaign and got the Nobel Prize for it.  Except, they simply voted in one Wall Street Govt to replace the other.   Reagan and Clinton both backed Greenspan and so did Bush.  Bernanke was a Bush appointee and continues admirably with his task of note-printing well into Obama's second term.   Are the American people then to blame for not somehow voting the Libertarian party to power, which has only a 1% share of vote today?   It's been a long time since adult franchise truly reflected the will of the people.   That system was corrupted long ago and bought over by the wealthy.  

Ultimately a system exists to further the power of the ruling class and increase their hold over the middle and working class.   Democracy is a beautifully stable way to achieve it without incurring their wrath (perhaps, until now, when distrust of govts may just have hit an inexorable nadir).   If the people are responsible for the govts they vote to power, why is the President or the Senate given sweeping executive powers?  Shouldn't there be a public referendum for important decisions (like whether Citigroup deserves a bailout)?  And surely that is not even as tough to administer as before with the advancements of the internet.  This is a power struggle, that's what it is, and being the only sections that were really affected by the crisis, the middle and lower classes are rightly protesting it. 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote thellama73 Quote  Post ReplyReply Direct Link To This Post Posted: March 05 2013 at 19:23
I challenge the premise of the question.

It's not for me to decide how much bankers should make just like it's not for me to decide how much hot dog vendors or florists or manicurists make. They should make whatever people are willing to pay them.

What I do object to is banks getting bailed out by the government because they are "too big to fail". I imagine bonuses would go down a bit if bankers knew that they would have to suffer the consequences of their business decisions.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote rogerthat Quote  Post ReplyReply Direct Link To This Post Posted: March 05 2013 at 19:43
Originally posted by thellama73 thellama73 wrote:



What I do object to is banks getting bailed out by the government because they are "too big to fail". I imagine bonuses would go down a bit if bankers knew that they would have to suffer the consequences of their business decisions.

I completely agree, the too big to fail theory goes against their free market rhetoric.  But then, they never really believed in free markets as an ideology, only in doing whatever was necessary to further their self interest.  
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Easy Livin Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 02:52
But imagine the situation if they had not been bailed out. If a bank such as RBS/NATWest or HBOS/Lloyds/TSB had been allowed to fail, everyone in the country would have suffered. Bear in mind what happens when a company goes bust. Those with deposits in the bank could potentially have lost their money, those borrowing money would have found their loans and mortgages being called up. Wages could not be paid as the payment system could not operate properly. And it would not have been just the bank going bust that would have suffered. The whole banking system nationally and potentially internationally would have been at threat. It's a real house of cards situation. 

Like them or loathe them (and who actually likes them!?) banks are a cornerstone of our society. What is needed is tighter regulation of speculative activities (including commodities trading) globally. 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Dean Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 03:20
^ to invest so much in a house of cards doesn't seem to be the wisest thing to do then. When a company goes bust the assets are sold off - loans and mortgages are assets and they would not be called-in, they would be sold (transfered) to another bank.


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Post Options Post Options   Thanks (0) Thanks(0)   Quote rogerthat Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 08:09
Originally posted by Easy Livin Easy Livin wrote:

But imagine the situation if they had not been bailed out. If a bank such as RBS/NATWest or HBOS/Lloyds/TSB had been allowed to fail, everyone in the country would have suffered. Bear in mind what happens when a company goes bust. Those with deposits in the bank could potentially have lost their money, those borrowing money would have found their loans and mortgages being called up. Wages could not be paid as the payment system could not operate properly. And it would not have been just the bank going bust that would have suffered. The whole banking system nationally and potentially internationally would have been at threat. It's a real house of cards situation. 

Like them or loathe them (and who actually likes them!?) banks are a cornerstone of our society. What is needed is tighter regulation of speculative activities (including commodities trading) globally. 

I am aware of the potential consequences of not bailing them out.  But that would have been a more just solution when what was happening was not just market failure but financial fraud.  Weren't Enron, Arthur Andersen, Merck allowed to die?  If the market was supposed to take care of itself, they should have had more faith in its ability to do so than press the panic button. 

By the way, the meltdown happened because they let Lehmann Bros bankruptcy go through anyway which sent ripples through the global financial system.  So they neither averted the crisis nor saved taxpayer money, made a fairly equal mess of both.  Both consequences could have been avoided if only the Fed hadn't tightened so drastically.   Cooling off a loose monetary policy has to be a calibrated process, or the consequences will tend to be drastic.  
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Post Options Post Options   Thanks (0) Thanks(0)   Quote ExittheLemming Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 08:39
At the risk of sounding glib, why do we merely mutter curses when our chosen horse pulls up lame but strike heroic moral poses when our pension funds go teats skywards in the marketplace?

All investments are speculative and subject to the performance of any underlying stock at any moment in time.

Most of the comments to date in this thread consist of those faintly risible protestations to the effect that 'my continued investment is guaranteed but only if the market conditions are favourable but if they are not, I blame the traders and professional financiers for this unfavorable climate'

Contrary to popular belief, your savings and investments are insured by banks (to which you pay squat)

Let's allow all who invest our money go to the wall and attempt to extract our losses from zero shall we?


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Post Options Post Options   Thanks (0) Thanks(0)   Quote rogerthat Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 09:44
Originally posted by ExittheLemming ExittheLemming wrote:

At the risk of sounding glib, why do we merely mutter curses when our chosen horse pulls up lame but strike heroic moral poses when our pension funds go teats skywards in the marketplace?

All investments are speculative and subject to the performance of any underlying stock at any moment in time.

Most of the comments to date in this thread consist of those faintly risible protestations to the effect that 'my continued investment is guaranteed but only if the market conditions are favourable but if they are not, I blame the traders and professional financiers for this unfavorable climate'

Contrary to popular belief, your savings and investments are insured by banks (to which you pay squat)

Let's allow all who invest our money go to the wall and attempt to extract our losses from zero shall we?




I'd agree with all of what you said if it were true that everybody who was affected by the events of 2008 had tried to ride the tide of dirt cheap credit, hoping to get rich the easy way.  But nothing could be further from the truth.  I am not sure how much you appreciate the level of interdependence in the world economy today.   All the more reason that govts should be prudent and contain risk to a minimum instead of fuelling more risk taking by speculators with easy money. 

Coming to my own case, I predicted the stock market crash of 2008 even though I was not aware of the magnitude of the financial crisis yet because I saw penny stocks going for crazy valuations and knew the market was headed for a steep fall.   My colleagues didn't listen to me and they lost money when their investments dropped from a cliff.   So far so good (or bad, however you put it).   But the impact also extended to widespread fall of demand and economic growth.  It so happened that I had just finished my apprenticeship and was looking for a job in the industry then and much to my dismay, I found the going very hard.   At least I was fortunate not to have been one of those engineers who had been offered a job in campus by IT majors only for their employment to be kept on hold for months, if not more than a year or so.   How am I or those engineers supposed to be only owning responsibility for excessive speculation or investment risk?   How are we supposed to be taking up hypocritical positions?  I don't see, at all.  The crisis affected many who had absolutely nothing to do with it and continues to because there is next to no political will to come up with any meaningful solutions.


Edited by rogerthat - March 06 2013 at 09:48
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Dean Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 10:12
Are people in this thread whining about the value of their investments? I'm not. I'm questioning the validity sanity of paying bonuses in the current economic climate based upon the questionable justifications that have been put forward for continuing to pay them. If I am partially to blame for the ills of the banking world then I am perfectly entitled to complain about their subsequent behaviour.


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Post Options Post Options   Thanks (0) Thanks(0)   Quote Padraic Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 11:36
I'm still trying to sort out how I'm personally to blame for a global financial crisis.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote The T Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 11:44
^But Pat, all evidence points towards you. YOU are responsible for the crisis.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Finnforest Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 12:00

That's what I found too.  I did several months of research on this a while back and found it was not some secretive group of bankers.  It was indeed Pat.

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Post Options Post Options   Thanks (0) Thanks(0)   Quote The T Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 13:00
Hang that b*****d
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Padraic Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 13:06
Originally posted by The T The T wrote:

^But Pat, all evidence points towards you. YOU are responsible for the crisis.

Funny, still haven't received my bonus check in the mail.  Wink
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Gerinski Quote  Post ReplyReply Direct Link To This Post Posted: March 06 2013 at 20:22
Originally posted by Easy Livin Easy Livin wrote:

But imagine the situation if they had not been bailed out. If a bank such as RBS/NATWest or HBOS/Lloyds/TSB had been allowed to fail, everyone in the country would have suffered. Bear in mind what happens when a company goes bust. Those with deposits in the bank could potentially have lost their money, those borrowing money would have found their loans and mortgages being called up. Wages could not be paid as the payment system could not operate properly. And it would not have been just the bank going bust that would have suffered. The whole banking system nationally and potentially internationally would have been at threat. It's a real house of cards situation. 

Like them or loathe them (and who actually likes them!?) banks are a cornerstone of our society. What is needed is tighter regulation of speculative activities (including commodities trading) globally. 
The insurance business has a common practice called re-insurance, which basically means that the risk of the insurance company is itself insured. Let's say a certain insurance company A operates in region X, if there's an earthquake in region X it is most likely that the insurance company A will not be able to cover all the damages it has insured and would go bankrupt. By re-insurance the damages will be covered by other insurance companies B, C and D, and A can survive. Conversely A is re-insurer of B, C and D so they will pay a part of the costs if the same would happen to B, C or D.

A similar principle should be mandatory for banks so if they do something wrong their customers do not loose their savings and they do not need to be bailed out by yours and my money.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Dean Quote  Post ReplyReply Direct Link To This Post Posted: March 07 2013 at 03:24
Originally posted by Gerinski Gerinski wrote:


A similar principle should be mandatory for banks so if they do something wrong their customers do not loose their savings and they do not need to be bailed out by yours and my money.
This already exists - in the USA it is the FDIC, in the UK it is the FSCS, Belgium and all the other EU countries have their own systems. These are funded by the banks.


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Post Options Post Options   Thanks (0) Thanks(0)   Quote Gerinski Quote  Post ReplyReply Direct Link To This Post Posted: March 07 2013 at 07:16
Originally posted by Dean Dean wrote:

Originally posted by Gerinski Gerinski wrote:


A similar principle should be mandatory for banks so if they do something wrong their customers do not loose their savings and they do not need to be bailed out by yours and my money.
This already exists - in the USA it is the FDIC, in the UK it is the FSCS, Belgium and all the other EU countries have their own systems. These are funded by the banks.
It did not work well enough when it was needed, the EU Central Bank has had to inject 40 billion euro into the Spanish banking sector to keep it from bankrupcy.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Dean Quote  Post ReplyReply Direct Link To This Post Posted: March 07 2013 at 07:21
Originally posted by Gerinski Gerinski wrote:

Originally posted by Dean Dean wrote:

Originally posted by Gerinski Gerinski wrote:


A similar principle should be mandatory for banks so if they do something wrong their customers do not loose their savings and they do not need to be bailed out by yours and my money.
This already exists - in the USA it is the FDIC, in the UK it is the FSCS, Belgium and all the other EU countries have their own systems. These are funded by the banks.
It did not work well enough when it was needed, the EU Central Bank has had to inject 40 billion euro into the Spanish banking sector to keep it from bankrupcy.
Well, quite - that's a bail-out. The "insurance" schemes only kick-in to protect investors money after the bank goes bust. The bail-out was not to save customer's savings, it was to save the banks.


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Post Options Post Options   Thanks (0) Thanks(0)   Quote Gerinski Quote  Post ReplyReply Direct Link To This Post Posted: March 07 2013 at 07:38
Originally posted by Dean Dean wrote:

Originally posted by Gerinski Gerinski wrote:

Originally posted by Dean Dean wrote:

Originally posted by Gerinski Gerinski wrote:


A similar principle should be mandatory for banks so if they do something wrong their customers do not loose their savings and they do not need to be bailed out by yours and my money.
This already exists - in the USA it is the FDIC, in the UK it is the FSCS, Belgium and all the other EU countries have their own systems. These are funded by the banks.
It did not work well enough when it was needed, the EU Central Bank has had to inject 40 billion euro into the Spanish banking sector to keep it from bankrupcy.
Well, quite - that's a bail-out. The "insurance" schemes only kick-in to protect investors money after the bank goes bust. The bail-out was not to save customer's savings, it was to save the banks.
Yeah that's what I mean, these schemes provide some protection to the bank's customers (often not enough, you may read about the recent case of the 'preferentes' by the big Spanish bank Bankia where a lot of people have lost their savings, my father among them) but they do not really add responsibility to the banks behaviour.
These are funds collected by the government from the banks by the hard way (by law). In a 're-insurance scheme' on the other hand, the re-insurer will carefully judge the risk it is taking, and will not allow excessive risks being taken by the insured party. It provides a more self-regulating mechanism.
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