Bankers’ value to society? You’ve gotta be kidding
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Ah, pity the poor investment bankers, for it seems their already maligned reputation has taken an even bigger battering recently. First, Britain impose a “windfall tax” of 50% on bonuses. Then the world’s most respected reserve banker, Paul Volcker, last week observed that the “only useful thing banks have invented in 20 years is the ATM’. The man credited for defeating inflation in 1979-80 noted “you can innovate as much as you like, but do it within a structure that doesn’t put the whole economy at risk”. If that wasn’t bad enough, a British left-wing think tank released a study claiming that “rather than being ‘wealth creators’, these city bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse. While collecting salaries of between £500,000 and £10 million, leading city bankers to destroy £7 of social value for every pound in value they generate.” (In fairness, bankers were found to be less destructive than advertising executives, who destroy £11 of value for every £1 they create by their encouragement of “high spending and indebtedness” or tax accountants, who allegedly destroy £47 for every £1 they create.) (By contrast, the report, by a group called New Economic Frontiers, found that “for every £1 they are paid, childcare workers generate between £7 and £9.50 worth of benefits to society” due to them “release[ing] earnings potential by allowing parents to continue working [and unlocking] social benefits in the shape of the learning opportunities.”) The study was a little harsh on bankers — some bankers do provide great value for society. If it weren’t for investment bankers, there would be minimal merger activity. Mergers and acquisitions create great value for lawyers, bankers themselves, tax specialists, taxi drivers, printers (someone has to produce the hefty takeover documents that no one reads), Australia Post and most importantly, the forgotten executives who receive more money for managing larger companies (executive wages are almost solely dependant on the size of the company being managed — hence Gail Kelly’s enthusiasm for Westpac’s over-priced acquisition of St George). Other important groups who benefit are opportunistic hedge funds (who are able to make a windfall profit by “shorting” the purchaser and buying the “target”) and banks who lend money to raiders at high interest rates. Not forgetting real estate agents in Toorak or Double Bay, who have S-Class Mercedes leases to pay off. And investment bankers allow companies to raise equity — this ensures the survival of our most loved businesses (even if it would be better for everyone if these businesses collapsed and we replaced by healthy, well-run entities). It also allows those companies to continue to pay their executives (who destroyed company’s balance sheet in the first place) millions to remain ensconced in their highly paid roles. Bankers’ key roles in facilitating private placements also ensures that lazy and incompetent fund managers, who are struggling to beat a passive index fund, can report stellar gains at the expense of irrelevant small shareholders (who probably don’t even realise that their holding has been heavily diluted). Lest we forget the valuable impact traders have on the economy — ensuring that assets are correctly priced. Just like last year when oil reached $US147 per barrel or when the Australian stock market hit 6800. The traders did a sterling job of “price discovery” and made the market more efficient for everyone. (In fairness, the claim by New Economics Frontiers that bankers destroy £7 of value appears at best a highly inaccurate guess by an organisation virulently opposed to finance and many aspects of private ownership. The study based the figure on the increased debt allegedly “caused” by bankers and an alleged 5% “loss of economic capacity”. The claims appeared to be a convoluted way to criticise bankers without having to resort to any real fact-based criticism). That said, it is difficult to determine any real value that the average banker provides to society, especially in comparison to their rampant paypackets. As Jordan Belfort wryly recalled in The Wolf of Wall Street, “it’s a fucked up racket being a stockbroker. I mean, don’t get me wrong: the money’s great and everything , but you’re not creating anything, you’re not building anything … the truth is we’re nothing more than sleazoid salesmen, not of us has any idea what stocks are going up!” In other news, the great Ben Bernanke, the banker’s banker (and the current boss of the Federal Reserve), was just awarded the honour of Time Magazine’s person of the year — alongside other greats such as Adolf Hitler, Joseph Stalin and Ayatollah Khomeini. While (the first two of) those well-known dictators were responsible for the slaughter of millions, Bernanke has been responsible for the slaughter of the US dollar through quantitative easing and lax monetary policy in an attempt to re-inflate a credit-funded consumer spending bubble. The honour came less than a week after Bernanke was described as “the definition of the moral hazard” at a confirmation hearing by republican Senator Jim Bunning. And that’s not even the worst of it — it was revealed yesterday that the great Goldman Sachs, doer of God’s work, is being sued by one of its own shareholders. The Security Police and Fire Professional Retirement Fund alleges that Goldman’s compensation policies “blindly reward” executives with an “extravagant compensation bonanza”. The lawsuit does not appear entirely unjustified — shortly before the sub-prime crash Goldman CEO Lloyd Blankfein was paid $US68 million for one year’s work. Shortly after, Goldman’s received a $10 billion loan from US taxpayers and another $13 billion (indirectly) after AIG’s collapse. Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed, by Adam Schwab will be published by John Wiley & Sons in March 2010. |
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8 Comments
Bankers: a profession the government will “bail out” from even the most egregiously greedy and criminally stupid business decision-making - at taxpayers expense.
That’s right - YOU end up paying for the greed and ineptitude of the banks, all the while they are “feeing” you silly.
What a racket. So who’s really in charge around here??
Too big to fail, eh?
Journalists, shareholder groups and large investors such as super funds need to keep banging on about obscene remuneration packages of dud managers and embarrassing the recipients at every opportunity … and there are plenty of opportunities.
(((((Ben Bernanke, the banker’s banker (and the current boss of the Federal Reserve), was just awarded the honour of Time Magazine’s person of the year — alongside other greats such as Adolf Hitler, Joseph Stalin and Ayatollah Khomeini))))
…and Barak Obama Nobel peace prize winner ….as he sends in another 30,000 troops into Afghanistan. It’s not that something is rotten in the state of Denmark…it just stinks to hell.
All the best with the book Adam…and I look forward to picking up a copy or two.
What a joke! I believe that history will show that Bernanke was part of the problem in a big way, not part of any solution.
I guess its easy to blame others for all the wrongs in the world, particularly those more fortunate than ourselves… i’m not a communist, but think it’d be good if the give-&-take ethic was a more prominent feature of our wonderful civilisation…
I find it hard not to view people who have no qualms about earning yearly incomes equal to the lifetime incomes of entire middle class families as being morally suspect. However, it does not profit society to shoot the messenger. The job of banking is to 1. mobilise savings 2. price risk on investments and 3. provide capital. The question is whether the ‘bannana smoothy’ version of banking, which seems to be some kind of starbucks of credit, does any of these things. It is pretty obvious that the current crop of banking executives have comprehensively failed to price risk, mainly because the tax payer has taken all the risk from them. They have failed to mobilise savings because their modus operandi is to shop credit as much as possible. They have failed to provide investment because the entire domestic savings pool is now tied up in non-product assets e.g that lovely granite top kitchen conversion and loft extension in Paddington rather than factories, small businesses or infrastructure. So the question is, have any of these people at the top of the banking tree actually earned their keep or justified society giving them a monopoly on drinking deeply from the flow of money? Basically I think our banking sector is a non-contributer and for that alone it deserves to be condemned.
Whatever you think of Hugo Chavez, he nailed it at Copenhagen when he said words to the effect that if the thing the leaders were trying to fix was banks they’d have fixed it in about 3 hours and found all the gazillions of money they needed in an instant. Didn’t anyone read the fantastic Vanity Fair article on how these bankers got their bail out billions? They had to fill in two things on a 1 page faxed letter. First blank to fill in was ‘how much do you want’ to which they dutifully added the numbe of billions, Second thing was sign the letter and fax back…That’s how simple it was for these shockers to rake off simply billions from the taxpayer in the U.S. These people are completely in debt to the ordinary taxpayers they treat with such utter contempt. They go on with their contempt because our governments bow down to them and refuse to rein them in with reasonable regulations. Contrast the response of governments to the bailing out and shoring up banks as opposed to their attitudes to Climate Change. On climate change its all too hard and expensive. On banks they instantaneously handed over our money before we even realised how much they’d shovelled out, now they (generally with widespread media support), are gradually again walking away from any responsible regulatory regime.
Bankers represent the pinnacle (nadir, perhaps) of the cult of the individual best exemplified in that ultimate of individuals (in American law, at least) the corporation. It is naive to think that corporations are anything other than self-serving and, increasingly, powerful enough to buy political influence. While America is a democracy (duocracy, really) corporations are ultimately fascist, seeking to remove all competitors and drive an unfair advantage (aka “market domination”).
Corporations can’t and shouldn’t be blamed for these impulses (which are embedded in their very raison d’etre), but they are too simplistically vicious that they should be allowed anywhere near the controls of our social institutions. In fact, the predominant occupation of our governments needs to be in the exercise of appropriate control over corporations such that their considerable energy and presence, although based on greed, actually does some good.
The appropriate way to manage corporations so that they don’t drive us to ruin for a short-term gain, is to ensure there is always competition. This can be done by suitable legislation but also by providing public alternatives to their products and services - hence public health and private health, public education and private education - and so public banks and private banks. People will use their improves offering only if it truly represents value - and not because their isn’t an alternative.
To return to the discussion, the basic problem is that the Public Bank part is currently missing.