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Bankers Bonus Cap.

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Original post by scrotgrot
Incidentally, is "add value" just Newspeak for "make profits"? I've heard this phrase a lot lately among spivvy types and haven't quite been able to pin it down

Profits are profits. Adding value is actually something quite different.
Original post by crayz
By having a government that gives them money... how is that in anyway associated with banks?


Because the government issues bonds (debt securities) to raise finance on financial markets to pay for the NHS which is done through investment banks as it is the cheapest method of financing.

This can also include issuing debt securities at low interest to build new hospitals/schools etc.

The government would never be able to raise the billions required at low cost easily without the use of an IB, it just would be incredibly difficult.

As you know, our government finances a lot through debt (nowhere near enough tax receipts) but either way the debt is so cheap they might as well.

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(edited 9 years ago)
Reply 42
Original post by will2348
Because the government issues bonds (debt securities) to raise finance on financial markets to pay for the NHS which is done through investment banks as it is the cheapest method of financing.

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The UK can quite easily hold enough capital to pay for stuff without borrowing it.
Original post by Abdul-Karim
The first part of this post didn't even make sense, what were you trying to say?

That's the governments / BoE problem with Quantitative easing. After the collapse, banks were bogged down with all these regulatory controls and the threat of economic uncertainty. It's no wonder they chose to invest in government bonds, that doesn't make them bad and evil.


QE stops bank failure. Because we have integrated the banks so deeply into our basic economic activity, to the point where we pay for things in meatspace by tapping a bank card on a terminal, bank failure would be much more catastrophic than before as it would entail not honouring obligations to small creditors such as delivering account holders' balances in coin of the realm.

We have given them power and the government is as powerless as we are, QE is not government economic incompetence, it's tribute.

First part of my post referred to how we cannot help but prop up the banks' balance sheets in a world where our deposits, at least nominally, allow them to lend (though maybe not when you consider the laughable required fractional reserve these days). Everyone has succumbed, try finding a job of any note where the employer will pay you in cash, try financing the purchase of a house without recourse to a mortgage, try even renting a place without providing account details to the landlord.

This was not the case in my grandparents' day when the majority or a significant part of basic economic activity could be conducted in cash entirely outside the purview of the banks.

The problem with you finance types is you have no wider social-historical awareness to conceive of a world where the banks do not rule us.
Original post by will2348
Further to above, I disagree with the government on this 200% cap.

I don't think it is fair for the following reasons...

People seem to generalise and think if the bank performs badly then no one should get a 200% bonus without realising there are literally hundreds of divisions.

If Banker A in one division makes £10,000,000 for the firm but Banker B in another division loses double that amount - then surely Banker A should still get a bonus for his performance despite Banker B destroying the overall performance of the bank.

It is this thinking that because some bankers brought down the performance of the bank that even the really good performers of the bank should not be rewarded which will cause RBS' recovery to take even longer.

Even if the 200% bonuses were paid to the top performers, the total compensation package is still 33% behind other banks and now that is even more.

It's not acceptable that the government can dictate the pay of even the top performers at the bank (those driving the recovery), as we've already seen, they will jump to other banks. And it's no wonder they have a recruitment issue with even junior bankers when they get slated like this.

Also some divisions carry more risk than others. It's not right that bankers working in relatively risk free divisions who make money should get slated with the guys who work in riskier divisions and lose money.

It's a decision that is purely political and has no grounding in any economic sense or reality at all.

In my opinion, other companies should adopt the incentive models of banks - where the employees get a share of the profits they generate. Even at top banks, cleaners have part of their compensation allocated to overall performance of the institution.

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I was going to make exactly this point.

Banking - markets, to be specific - is very much siloed into many different small business units. If those small business units don't get paid what they 'deserve', by which I mean that another company is willing to give them a higher share of the profits they generate, then they obviously look to move to a more remunerative employer. It's also much easier than any other industry to point to your number at the end of the year and say 'this is exactly how much I specifically made' (less some consideration of base franchise value which is not that hard to estimate based on competition and historical revenue).

So the whole concept of a bonus cap is seriously and fundamentally flawed. Besides, I think it's much better to have humongous performance-driven bonuses (ensuring 'performance' equates to 'long-term bank health') than a humongous base salary, which is what the industry is moving towards to deal with all this political frippery.
Original post by hslt
The government bailed out several banks, the only one they chose to vote for a cap on bonuses was RBS. The reason for this is that RBS is still undergoing restructuring, and hasn't fully recovered, and they deemed that the risk was too great to allow 200% bonuses this year.

It is not some 'unfair' gesture, or some government initiative, it's a sensible business move that has only been instigated in one of the several banks that the government would have had the power to instigate this in.

Finally, while I'm sure many people would be upset at the collapse of a football team because of excessive wages, very few people would have their livelihoods ripped to shreds, and have all of their life savings chucked down the drain. However, if a bank collapsed this would be the case. There is, therefore, a much bigger moral and societal imperative in ensuring the financial sector is regulating its risk than there is in ensuring that a football club doesn't go bust. Your argument is void - although I suspect you knew this already and are just trying for an argument.

You're either trolling, or haven't bothered to read to the end of the news story.



Unfortunately for the bankers at RBS, the tax payer is a more than 80% stake holder in their business and effectively owns their asses, just like doctors.


But do you not think the bankers at RBS which are performing well (and driving the recovery) should be given these bonuses (of which most is in long-term incentives) to ensure they have a vested interest in the future of the bank (and don't jump somewhere else)?

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Original post by will2348
Add value can mean a lot of things including making profits.

But it can also mean building relationships, solving an issue for a client, executing a successful deal, bringing in new clients, showing them new ways of doing things, structuring innovative finance deals etc.

Basically anything that makes the bank money (or will make it money in future) but also helps the client do something they wouldn't have been able to do otherwise (like float on the stock exchange through an IPO for example).

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Thanks, so it is similar to the concept of "stakeholder". I hope that this developing benevolence within the emerging corporate order means we will get some crumbs back at their discretion, like in the days of oligopolistic monarchy.

You know that building client relationships is costed with the expectation of nothing more or less than future profits. It is a strategic and political decision. It is problematic because it fuels cosy corporate cronyism, but at least there is some long-term/sustainable-system-type thinking going on in people's minds.
this a sickening idea - the whole point of capitalism is that you get as much as your labour is worth economically, not have it determined by a government. capping a person's bonus on the basis that they earn "too much" and "it's not fair" just shows how much of a pitifully weak and jealous society we have become where inspirational success is a social taboo.
Original post by crayz
The UK can quite easily hold enough capital to pay for stuff without borrowing it.


From where? The UK has a deficit and long-term debt. The only way to finance something like a new hospital is by raising billions of pounds through the financial markets at low interest.

Then once it is built and the economy grows they can pay the principal and interest back on maturity.

It's way more efficient than trying to 'save' the money to build a new hospital.

Also, banks manage capital for institutions in the most efficient way so they ensure there is minimum cash flow on hand at any one time with the rest being invested.

Some corporations even invest cash flow (to make a return) and issue commercial paper (super short-term debt securities at super low interest) to pay for wages which in turn allows the company to profit by paying wages (as return on cash flow being invested exceeds interest being paid on debt to pay wages).

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Original post by ClickItBack
I was going to make exactly this point.

Banking - markets, to be specific - is very much siloed into many different small business units. If those small business units don't get paid what they 'deserve', by which I mean that another company is willing to give them a higher share of the profits they generate, then they obviously look to move to a more remunerative employer. It's also much easier than any other industry to point to your number at the end of the year and say 'this is exactly how much I specifically made' (less some consideration of base franchise value which is not that hard to estimate based on competition and historical revenue).

So the whole concept of a bonus cap is seriously and fundamentally flawed. Besides, I think it's much better to have humongous performance-driven bonuses (ensuring 'performance' equates to 'long-term bank health') than a humongous base salary, which is what the industry is moving towards to deal with all this political frippery.


Absolutely agree especially with the last paragraph. Bonus caps cause banks to pay more in fixed salaries meaning they have no flexibility making them inherently riskier institutions. In turn this increases systemic risk.

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Original post by Sunny_Smiles
this a sickening idea - the whole point of capitalism is that you get as much as your labour is worth economically, not have it determined by a government. capping a person's bonus on the basis that they earn "too much" and "it's not fair" just shows how much of a pitifully weak and jealous society we have become where inspirational success is a social taboo.


But what about when the government limits the market in a manner which forces wages up? Accountants, lawyers, doctors (admittedly then tempered by the NHS), architects I think, actuaries etc. all benefit from a state enforced monopoly which artifically drives up wages.
Original post by scrotgrot
Thanks, so it is similar to the concept of "stakeholder". I hope that this developing benevolence within the emerging corporate order means we will get some crumbs back at their discretion, like in the days of oligopolistic monarchy.

You know that building client relationships is costed with the expectation of nothing more or less than future profits. It is a strategic and political decision. It is problematic because it fuels cosy corporate cronyism, but at least there is some long-term/sustainable-system-type thinking going on in people's minds.


Most banks have a huge focus on client relationships long-term (even if they make no money) because they want the CEO of that company to jump into their arms when they need something - and pay millions in fees.

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Original post by scrotgrot
QE stops bank failure. Because we have integrated the banks so deeply into our basic economic activity, to the point where we pay for things in meatspace by tapping a bank card on a terminal, bank failure would be much more catastrophic than before as it would entail not honouring obligations to small creditors such as delivering account holders' balances in coin of the realm.


QE didn't stop bank failure. It was an initiative devised to stimulate macroeconomic activity. It pulled down yields for government bonds so banks would start lending / investing into the economy again, due to the economic uncertanties.

Original post by scrotgrot
We have given them power and the government is as powerless as we are, QE is not government economic incompetence, it's tribute.


I never claimed it to be an economic incompetence. The principle behind its implementation I believe was justified given our economic situation.

Original post by scrotgrot
First part of my post referred to how we cannot help but prop up the banks' balance sheets in a world where our deposits, at least nominally, allow them to lend (though maybe not when you consider the laughable required fractional reserve these days). Everyone has succumbed, try finding a job of any note where the employer will pay you in cash, try financing the purchase of a house without recourse to a mortgage, try even renting a place without providing account details to the landlord.

This was not the case in my grandparents' day when the majority or a significant part of basic economic activity could be conducted in cash entirely outside the purview of the banks.


Advancements happen. We live in the world where transactions are carried out online and via machines. The banking industry is the centre of our economy and correct, the banks have power, although that has nothing to do with the argument in question.

Original post by scrotgrot
The problem with you finance types is you have no wider social-historical awareness to conceive of a world where the banks do not rule us.


Again, you seem to think the banks are some sort of evil entity?
Reply 53
Original post by will2348
From where? The UK has a deficit and long-term debt. The only way to finance something like a new hospital is by raising billions of pounds through the financial markets at low interest.

Then once it is built and the economy grows they can pay the principal and interest back on maturity.

It's way more efficient than trying to 'save' the money to build a new hospital.

Also, banks manage capital for institutions in the most efficient way so they ensure there is minimum cash flow on hand at any one time with the rest being invested.

Some corporations even invest cash flow (to make a return) and issue commercial paper (super short-term debt securities at super low interest) to pay for wages which in turn allows the company to profit by paying wages (as return on cash flow being invested exceeds interest being paid on debt to pay wages).

Posted from TSR Mobile


If the UK printed itself say 600 billion and kept it in reserve it could pay for things without borrowing. Plus as the money is not actually being released in the economy it is just paying for stuff that was already getting paid for no inflation will occur.
Original post by Sunny_Smiles
this a sickening idea - the whole point of capitalism is that you get as much as your labour is worth economically, not have it determined by a government. capping a person's bonus on the basis that they earn "too much" and "it's not fair" just shows how much of a pitifully weak and jealous society we have become where inspirational success is a social taboo.


So you think our financial system has been a success in recent years? Maybe if RBS hadn't failed as a capitalist business the government wouldn't own 80% of it and be able to cap bonuses?
Original post by will2348
But today in the modern era it is true, how do you think the NHS finances itself and restructures debt? How do you think it manages capital/cash flow in an effective way etc...

Oh yeah, investment banks do that.

However, what IBs can't do is save the NHS from the truly atrocious management.

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Yes but without the financial industry it probably wouldn't even have debt to restructure. Because things like the cost of land and medicines are manipulated through the financial system for profit.

Atrocious or self-serving management is a problem in both private and public sector and it's where the interests of shareholders and other stakeholders like customers converge. The sins of self-serving management do not however exonerate those in the financial system.
Original post by Le Nombre
But what about when the government limits the market in a manner which forces wages up? Accountants, lawyers, doctors (admittedly then tempered by the NHS), architects I think, actuaries etc. all benefit from a state enforced monopoly which artifically drives up wages.


limiting the market = limiting the freedom of the individual
the government shouldn't have its nose in the private matters/circumstances surrounding the market - the market isn't a public thing, the government should be thinking only towards public matters
Reply 57
Original post by Abdul-Karim
You chose to work in the public sector. The public sector don't give a flying **** about the free-market allocation of wage rates. Welcome to the real world, the banking industry is the private sector and works purely on incentive functions be-it wage-rates & actually making money of these risky trades.

I was referring to banks in general being pressured & forced to cap bonus pay.


RBS is public sector.

PM's and IA's bonuses are still rising, if they do well.
Original post by will2348
Most banks have a huge focus on client relationships long-term (even if they make no money) because they want the CEO of that company to jump into their arms when they need something - and pay millions in fees.

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Well, quite. I think everyone can agree that mega-corporations promote cronyism and are bad - no different to big government, and very frequently the exact same figures, turning from pig to man and man to pig before our eyes. We are returning to the early 20th century debate represented by Liberal and Tory parties: free trade (regulation of monopolies) vs. laissez-faire (heads in the trough)
Reply 59
Original post by crayz
If the UK printed itself say 600 billion and kept it in reserve it could pay for things without borrowing. Plus as the money is not actually being released in the economy it is just paying for stuff that was already getting paid for no inflation will occur.


You're kidding right?

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