Latest JANUARY 31st 2012
AUGUST 4th 2009

I suggest:
The word wealth comes from the Old English word “weal” (well-being) and the suffix “th” (condition), so it means “the condition of well-being”. In modern societies, wealth is associated strongly with a shared financial security provided by reserves of tradeable currency and what we call 'liquidity' in the flow of this currency to provide the daily essentials of life to the members of a community. This is the essential background to ensure the possibility of employment for most and support for those who for one reason or another cannot find paid employment. It is also strongly associated with the possession of or access to a place to live or 'home' and of personal effects, property and means to carry out the demands of daily life.

Success is also commonly assocated with the achievement of 'goals'. A football team may play brilliantly and literally achieve goals. These are successes. But if they do not score more than their competitors, they are judged 'unsuccessful'. On the other hand if they are amongst the best losers and draw big gates and a lot of money, they cam claim financial success if their expenses are proportionate. The same can apply to a business.

Another element of success is judged simply by the ability to survive. To survive is success, to have to liquidate is to fail. To have be rescued is to fail if the rescuers can not be later paid off. A corporate entity is 4-dimensional. It can survive the death of its founders and any of its managers, shareholders and staff. Survival is therefore often defined as keeping its original purpose and ethos, although its role may be modified to achieve this. A business may also keep its name and reputation and completely change its activity in order to survive.

The heading of this file names both 'Banks' and 'Big Business', but it will have occurred to the reader that Banks actually are a Big Business in there own right. They are not in the UK (apart from the Bank of England) a public service or non-profit organisation though mutual societies and true cooperatives are special cases. The question therefore arises as to what extent should those organisations that are allowed, permitted or licensed to act as banks in the broadest sense, clearing cheques, issuing credit and debit cards and handling the monetary assets of the general public, offering mortgages to house buyers and loans to businesses, trading in foreign currencies, investments and debentures and using the interbank electronic network to lend and borrow long and short and in so doing make substantial profits, be permitted to use their privileged position to enrich their most talented staff to any extent they so choose simply on the grounds that the goods they deal in is money itself, and that if they appear to make some by dealing in it, that is wealth they have created, and any percentage or 'commission' they cream off cannot possibly be theft. They claim a win-win equation is at work

The same rules do not apply anywhere else in any other business. Workers in automobile manufacturing are not given free cars as a percentage of production, they are paid a salary or a wage. But in the world of banking, where production and shipping of money can take place at the speed of light, we are faced with an uncomfortable truth. A variation of Clausewitz famous dictum that applies could be: "International Finance is War Pursued by Other Means". The most highly skilled traders are a bank's weapons in that war and they need to buy the best. The individuals in question appear to have no morals or patriotic loyalties of any description. If they are not paid at the international rate, we are told, they will jump ship and work abroad for the opposition.They have no love or loyalty to company, nation or creed. Nor to any law if they can get round it as recent cases make quite clear. We are dealing with mercenaries. The rate for the job is now, since the trend was started, open ended. It is a percentage of the profit a dealer makes for his masters. These masters in turn adjust their salaries according to the success of the dealers they manage to buy with their offer of remuneration.

I shall leave this essay hanging here for a while, as before any action is taken in the free-market liberal democracies it would be a good idea to decide if what I have written is indeed the case or not, because on the answer will depend how we deal with the request that the pay of bankers as a whole should not be allowed to escalate for ever in the same way as an arms race, with the professionals on each side conspiring with their opposing national counterparts to drain the rest of their communities of power, ownership and wealth, in the true and derived meaning of that word. Should we take their dangerous toys away? Can we? Is a FALT [Financial Arms Limitation Treaty] possible?

AUGUST 5th 2009
It appears my penultimate paragraph above is considered to be accurate. The situation is even more unstable according to Alvin Hall who presents a series which started today on BBC Radio 4 called THE MONEY GRAB. The competition is domestic as well as international, and the CEOs of banks are paid not only on results but in order to convince potential shareholders that they are worth as much as or more than competing establishments. It would would seem we need a and international FALT Treaty incorporating a domestic counterpart. Perhaps the easiest way would be not to limit the rewards but to insist on transparency and a tax rate with no loopholes that closes in a bit tighter as the rewards become astronomic. As things stand, collaboration and a cosy relationship could make dealing immensely profitable for the dealers on the same basis as wrestling attracted crowds and money as the heroic fighters alternately triumphed against their ruthless and cruel opponents - as some even believed to the end.

Any international agreement must carry the US as a big player. That could be the problem.

US banking regulators attack Obama's plans for reform

By Stephen Foley - The Independent

Wednesday, 5 August 2009

The heads of the big US banking regulators tore into Barack Obama's reform plans, in defiance of the president's Treasury Secretary, Tim Geithner, architect of the overhaul, who said their bickering was endangering the whole reform process.

Sheila Bair, who runs the Federal Deposit Insurance Corporation, which ensures the safety of customer deposits, said that reshuffling the agencies was unnecessarily disruptive, potentially counter-productive, and irrelevant to tackling the failings that contributed to the credit crisis.

The Obama plan envisages centralising power to oversee the nation's banks in the hands of fewer regulatory bodies, and to hand power to oversee the biggest firms to the Federal Reserve, which would have additional powers to monitor whether bankers' behaviour was putting the financial system at risk.

But Mr Geithner and other Obama lieutenants are stepping up the pressure for quick reforms, frustrated that the chance to act is slipping away and that Wall Street could resume the reckless behaviour that inflated – and then burst – a giant credit bubble over the course of this decade.

The administration's fury at the regulatory turf war boiled over at a meeting last week between Mr Geithner, Ms Bair and the chairman of the Federal Reserve, Ben Bernanke, along with other regulators. Mr Geithner's expletive-ridden admonishments that "enough is enough" were reported by The Wall Street Journal.

White House chief of staff Rahm Emanuel also weighed in yesterday. "The industry is already back to their pre-meltdown bonuses," he said. "We need to make sure we don't slip back to risky behaviour where the institutions have all the upside and the taxpayers have all the downside, which is why we need regulatory reform."

Mr Geithner's outburst appeared to have done little to dim the opposition of Ms Bair and others, who loudly trumpeted their independence of the administration in front of the Senate Banking Committee yesterday.

John Dugan, comptroller of the currency, whose agency is slated to merge with the Office of Thrift Supervision, said the existing plan would give the Fed the right to override the views of other regulators when it came to supervising very large banks.

Ms Bair, while supporting that merger, opposed giving too much power to the Fed, saying that bankers wishing to push the boundaries of acceptable behaviour would find it harder if there were more than one regulator to deal with.

"There is a profound risk of regulatory capture if you collapse it all into one agency," she said. "We think having multiple voices can actually strengthen regulation."

She pointed to the Financial Services Authority in the UK as a single regulator which had conspicuously failed to have any effect in stopping the credit crisis. It would be best if legislation focused not on the structure of the regulatory agencies but on making sure there were no gaps in what exactly gets regulated.

AUGUST 12th 2009
The FSA has published a new code for Bankers and their earnings. Unfortunately there is as yet no sign of any international agreement, so this watered down package will do little good and even, possibly, marginal harm. But let me just clear up some very important points. It was not taking RISKS that brought the international financial structure crashing down, with the loss of wealt to millions, no billions of ordinary people. There were risk takers, but they were not creating real wealth for society (see opening discussion here) they were making piles of money, a lot of it for themselves and others on their coat-tails. The trickledown effect gave the impression of wealth. Having made a pile by gambling the public's money (not theirs), they wanted to put their money where it was safe, not subject to the lottery they and their ilk were playing. To begin with they put it into property. Then for themselves and their clients WHO DID NOT WANT TO TAKE RISKS, they invested in instruments where they had passed all risk to millions of people taking out mortgages on property all over the world but particularly in the US and the UK. They sought not to take risks with their dubiously gotten gains, but to spread it in a property market they believed to be fundamantally always valuable, so it it was impossible to unearth and attribute it, thereby avoiding all risk. If the poor saps they had passed the risk onto could not pay individually, so what? They would be replaceable. They overlooked the math. Only a minority can ever be replacable, from a majority pool. So their failure to take risks, proper, commercial risk to bring industry through its transition, required to change our energy consumption and CO2 emission, and their flight to hide their gambling winnings, and wanting to make money for their banks without risk, is the cause of the crash. In my view, traders should be disallowed from making the smallest profit or percentage related to their activities for the same reason we should not give judges a bonus for the number of people they convict and send to gaol. They would dispute that, saying they are the equivalent not of judges but of barristers, who are equally highly paid on the basis of success. I would say I feel the same about barristers. They should all be hors-de-combat, not whores. Just well paid.

Banks given new rules on bonuses

New rules on how financial institutions should determine pay and bonuses for staff have been set out by the Financial Services Authority (FSA).

It wants to see bankers' pay deals linked far more closely with the long-term profitability of the banks.

The FSA says that bonuses should not be guaranteed for more than a year, and that senior employees should have their bonuses spread over three years.

Many believe that big bonuses led to excessive risk-taking at banks.

The new code is designed specifically to discourage short-term risk-taking, which many argue was an important factor in triggering the financial crisis.

The FSA is determined that banks' remuneration policies should be consistent with, and promote, effective risk management
Hector Sants, FSA chief executive

"The fundamental objective [of the rules] is to sustain market confidence and promote financial stability through removing the incentives for inappropriate risk taking by firms," the FSA said.

But it said that "inappropriate remuneration policies" were a "contributory, rather than a dominant factor" in the crisis.

'Right incentives'

Hector Sants, head of the FSA, said the regulator was "determined that banks' remuneration policies should be consistent with, and promote, effective risk management".

The FSA said there were two main objectives behind the code of practice.

First, to ensure that boards focus more closely on making sure that "the total amount [of pay and bonuses] distributed by a firm is consistent with good risk management and sustainability".

And second, to ensure that overall pay, including bonuses, "provides the right incentives".

To this end, a number of new principles have been added to the FSA's financial regulation handbook.

In particular, these make clear that bonuses should only be guaranteed for 12 months, and that senior employees will see two-thirds of their bonuses paid out over three years.

Mr Sants said the new rules would take effect from January 2010.

The FSA wants banks to submit their remuneration policies to it by the end of October. Firms that do not comply with the code "could face enforcement action", or be forced to hold more cash in reserve should they want to pursue risky strategies.

However, it conceded that the code "is not going to change the bonus culture overnight".

The FSA also reduced the number of banks affected by the code to 26, down from the 47 originally covered.

The Association of British Insurers described the new rules as "an important step forward."

"The new version [of the handbook] is much more likely to deliver the desired outcome without excessive compliance burdens," it added.

Nicholas Stretch at City law firm CMS Cameron McKenna said: "This is not the end of the rules for rewards for bank employees.

"There is still substantial political pressure for capping awards, greater public disclosure and naming and shaming in this sector, both in the UK and internationally, which is likely to continue for some time."

Relocation concerns

The FSA launched a consultation in February looking at measures to discourage excessive risk-taking, and published a draft version of the code in March.

Bankers expressed concerns that the proposed measures on bonuses, some of which have been included in the final code, would encourage institutions to relocate employees outside of the UK, to get round the new rules.

This could have serious implications for the City's position as the world's leading financial centre, and for the UK's tax take, bankers argue.

But professor Stefano Harney from Queen Mary, University of London, told the BBC he did not accept this view.

"The point that bonuses are necessary to retain talent in the City is a weak argument. Just where would [the bankers] go?" he said.

However, recently there have been concerns that large bonuses are returning amid a boom in profits from investment banking.

And there have been calls for stricter rules on pay from those who criticise what they see as excessive bonuses.