eddie_dane, I have to thank you once again for what appears to be a solid book recommendation. I'm currently reading Paul Krugman's The Conscience of a Liberal, but I see that Sowell's book is currently available at the local library. I'm heading over during lunch to grab it while it's still in. I've heard apocryphal tales from one of my co-workers who has a friend in the mortgage/banking business. As the story goes, just before the financial collapse, the mortgage broker was actively selling mortgages to people he knew very well couldn't afford it. His primary concern was the bonuses he was getting for each mortgage he sold, rather than whether or not the people could ever make the payments. I take the story with the requisite dose of skepticism due to its "friend-of-a-friend" nature, so I'm curious what Sowell has to say on the subject. Thanks again.
I would argue that the responsibility of financial security falls with the individual. The onus is on the investor/purchaser to ensure that they can afford whatever it is that they are putting their money into, both in the short and the long term, regardless of whether the purchase is made with credit or not. If they don't do their homework beforehand, then they have only themselves to blame if the deal blows up in their faces, when they can't afford to meet the credit repayments. I do agree though that there should be some distinction made between those who were basically conned, and those who were too greedy. I suspect that there were more who made bad choices through greed though. Sadly, that number never seems to be in decline either.
I think you will find Sowell's writing a breath of fresh air after reading Krugman. He is not as concerned with impressing you with his intellect as explaining things in terms that I can understand. I can't recommend his book "Intellectuals and Society" enough. It is probably the book that has influenced me more than any other. But I digress.
This is a pretty important point. The simple facts are about the housing crisis is that if people had paid their mortgages, this wouldn't have happened. Having financed my own house I know what it is like to sign that contract and it is very complicated. There's no accounting for the cost of ignorance on the part of the buyers. The bottom line is, even if you didn't understand the language of the contract. You should be able to budget your money. I'm shocked that the ARM loans ever took off. I would never agree to such a payment system. I think some valuable lessons have been learned as a result of what has happened, unfortunately, the hard way but sometimes that's how it has to be. I feel bad about contributing to sidetracking this OT but I think it goes to the root of the animosity towards banking professionals, in general, that we have all paid the cost for poor judgements. People only tend to probe into other people's lives/livelihoods unless they are convinced that it is at their own expense. In my case, I bear a lot more ire at the government policies that not only incentivized this behavior, but in several chapters of the story, forced it to happen. After all, what would you do if your business was lead to adopt riskier behavior that you have ever historically participated?
I can recommend the book The Big Short: inside the Doomsday Machine by Michael Lewis. He focuses on some of the characters involved which gives you an insight into how they operate. It's a fascinating read. We should maybe have a serious discussion recommended reading thread? As I mentioned earlier I feel the animosity towards the bankers comes from a sense of injustice. We are suffering from the crisis while those at the top of the organizations which perpetuated the fraud are still rich and relatively unscathed.
I think the other way to look at that is would everyone have been quite so well off in 2007 without the easy credit provided by the banks which wouldn't of been available if the sector was more tightly regulated. % wise the people at the top have probably been hit harder than any other group. Of course they are still very rich.
Onus is on financial institutions to make damned sure that people they lend to can pay it back. When I worked in mortgages in the early 00's every successful mortgage needed a deposit component and a strict affordability cacluation was always enforced. It was never nice phoning people up to tell them they couldn't afford the house they wanted but it had to be done. Anyway, the trouble is we had banking institutions paying little care to the risks they were taking knowing full well that the Government could not let them fail and would bail them out with taxpayers money. We then have Cameron saying shareholders should be more involved in the companies in which they have shares but don't want to have a say, as a shareholder, in the banks that we own. The financial institutions we bailed out with taxpayers money are hounded by taxpayers for paying bonuses that then seem insignificant when that causes panic, or a backlash in reality, by the financial sector that wipes hundreds of times more in value off the shares that taxpayers own than was ever going to be paid in bonuses. We have to stop looking at the low level and consider what type of financial sector we wish to have as at the moment we are pulling each other in opposite directions occasionally taking nibbles out of each other and damaging us all at the same time. In the meantime we now have our third quantitative easing that really just shows how daft it all is, money is fiction, an illusion, we can just magic into being if we wish to but for the time being we're stuck with it. At the same time people are being discouraged from credit and borrowing this 'easing' is wiping value off pensions and giving no incentive to people to save. It's a mess, those in power and, more importantly, those with the power, really need to decide of the future course of our financial sector and implement changes intelligently.
A very good review of what happened but I do have a comment on the article. You really have too read it the right way as they don't actually say that bonuses as they are now are a good thing, just that small bonuses seems to make people more short sighted than the big ones, which makes sense in a way. They also establish that they can motivate to meet very specific goals, but again this does not apply to many of the current bonuses that are mostly paid out due to pre arranged agreements. The stupidity of people sometimes astonish me as we have some people that have been taking small loans over the MOBILE phone. some of these with an yearly interest of 40-100 percent. Why anyone would be that stupid is beyond me, but they seem to get away with it. In average properly yes however where the rich went down 70 % in their stock revenue 30 % of the workers went down 100 % in revenue. Where would you rather be (I know my numbers are guesses but you get the point(Spain 22% unemployment)
I saw an article on the BBC Website 'Barclays Bank profits fall 3% to £5.9 billion'. http://www.bbc.co.uk/news/business-16977865 Excuse me but thats still a 5.9 billion profit, i know all the shareholders will be up in arms but where do these profits come from? Its all our money. This is the big problem with private banking. They make the money, but its never enough, profits have to rise year upon year, usually at the expense of the customer and more recently the expense of the tax payer. Banks should be run by the people who invest in them, for the people who invest in them. The rich seem to confuse money with wealth. Its an addiction to money, an illness if you ask me. The majority of us work our asses off to get by, i have never had a bonus, let alone one that doubles my wage every year.
Not everybody is blessed with an above average IQ. The fact that it is an average means that, yes, there are going to be "stupid" people out there - those who can't understand APRs, loans, or anything approaching finance. Basically, not everybody is going to understand that a 4000% loan off Wonga is a bad idea.
I believe bankers deserve their bonuses - they work a job, they were picked for that job because of the skills they posses. You want to keep the talent, you got to pay the money. It's as simple as that
I think that the argument is that the 'talent' is not remarkable, nor rare enough to warrant that sort of reward. The responsibility? Bonuses seem to bear little relation to how well the banker performed or how badly they messed up.
I may be a bit late to the party - I don't visit these parts often - but this is a subject that concerns/interests me greatly. I know that this wasn't directed at me - I haven't posted in this thread before - but I do indeed work for "a bank". More accurately: I work for an insurance company that is wholly owned by, yet is a separate business entity to, Lloyds Banking Group (who, in case you haven't been keeping up, have just posted a rather large annual loss). Bonuses do provide an incentive. In an ideal world, you are employed to do a specific job; if you go over and above that and are one of the best performers, you are rewarded with a bonus - be it a commission based on sales or a percentage of annual salary. Why wouldn't you want to be the best, especially when there are rewards on offer? The business is not going to get rid of incentives, because they drive people to work harder and therefore earn more money for the business (which is why businesses are in business in the first place). What bothers me about the whole affair is the blanket application of the term "bankers" and "banks". Most large high-street banks are extremely large entities, comprising many different businesses; the parts that have caused the most problems (i.e. investment banking) are usually the smallest parts of the overall company. But that doesn't stop the pressure being applied to investment banking from trickling all the way down to people like me. Not long after proverbial hit the fan, the department I was part of at the time, comprising around 400-500 staff, decided that they were no longer going to hold their annual party (we don't use the term "Christmas Party", because of the negative connotations it holds). It was decided that there was too much risk of the press finding out about it, and headlines being splashed across newspapers the next day along the lines of "BANKERS LOSE BILLIONS BUT STILL PAY FOR LAVISH PARTIES!". None of those 400/500 staff, myself included, were in any way responsible for or part of the financial collapse (or even part of the same area of the company), yet we still lost out on one of our few benefits/rewards. In my current role I am entitled to an annual bonus - yes, it's part of my contract - and it usually works out to between 5 and 10% of annual salary. On my annual salary, that'll be £2k at most. Yet for the last three months we've been held in limbo, while the group decides whether or not bonuses for last year will be paid. From what I have heard, the contributing factors in delaying this decision was due to the media pressure on "bank" bonuses and the loss that has just been posted (which, by the way, was caused by PPI complaint payouts and nothing to do with the financial collapse or bad management). I am 100% with you on this one. Over the last year I have worked my bo***cks off; partly motivated by wanting to do a good job and partly motivated by a nice fat bonus in March. Yet when I am seen as guilty by association, just because I work for "a bank", and when others complain about "bank bonuses" and how they should be stopped, it absolutely boils my blood. I am contractually entitled to a financial bonus if I perform over and above the expectations and the targets set; when I work my ass off to exceed those targets, I expect to be compensated for it. I'm not defending multi-million pound bonuses, and nor do I think I am in a position comment on whether or not they are right. The impression that I get from reading this thread isn't one of criticising the bonuses paid to people like me or IamJudd. My point is rather that when people talk about "bank bonuses" they tend to forget who exactly is responsible for the current state of affairs, and the small percentage of a bank's overall workforce that those people represent.
Firstly, the necro really wasn't justified, and secondly, there are lots of them. In the US they have credit unions all over the place. The UK must have some proper building societies left, and the CO-OP bank is an actually cooperative bank.
At the end of the day these guys have got contracts specifying their performance - they make the banks big bucks so get rewarded big bucks - if the banks dont pay they dont stay!
Where else would they go? And would it be impossible to find a guy just as skilled at making money who would be prepared to work for less? It happens in other sectors.
