AUGUST 4th 2009
Latest JANUARY 31st 2012
DEFINE SUCCESS. 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.
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
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
production and shipping of money can take place at the speed of light,
we are faced with an uncomfortable truth. A variation of
famous dictum that applies could be: "International Finance
Pursued by Other Means". The most highly skilled traders are a
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
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,
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
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
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.
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.
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.
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."
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.
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.
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
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.
given new rules on bonuses
New rules on how financial institutions should determine pay
bonuses for staff have been set out by the Financial Services Authority
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
Many believe that big bonuses led to excessive risk-taking at
The new code is designed specifically to discourage short-term
risk-taking, which many argue was an important factor in triggering the
“ 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.
Hector Sants, head of the FSA, said the regulator was "determined
banks' remuneration policies should be consistent with, and promote,
effective risk management".
The FSA said there were two main objectives behind the code of
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
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
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
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."
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
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.