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Topic Title: ET Magazine - Debate - Bankers' bonuses
Topic Summary: This house believes that, for a stable engineering sector, bankers shouldn't receive huge bonuses during a credit crisis
Created On: 16 February 2011 11:14 AM
Status: Read Only
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 16 February 2011 11:14 AM
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slove

Posts: 19
Joined: 30 August 2005

For:
Banks leave the wrong person to pick up the pieces.

Against:
Bankers deal with money and expect to earn lots of it.

-------------------------
Stewart Love
Manager, Digital Services
The Institution of Engineering and Technology

Edited: 17 February 2011 at 01:56 PM by slove
 16 February 2011 12:33 PM
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kasese

Posts: 183
Joined: 31 March 2006

Think it is time Engineers got paid bigger bonuses - few thousand would do - We are not appreciated enough

Regards,
Tim Guy
MSc MBA HND(Engineering) IEng MIET
 16 February 2011 08:16 PM
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mjmccann

Posts: 15
Joined: 25 October 2001

The issues are Asymmetric risk and Zero sum games.

If I gamble with my own money, I take the consequences, good or bad: Symmetric risk. Anyone in the investment banking world who uses his/her own wealth to operate is entitled to the rewards, provided, of course, that no one is being cheated.

Employee bankers gambling with other's money are not taking risk themselves. They get bonuses for apparently profitable activities even before the profitability is proven. The recent debacle is proof enough. If things go bad they don't have to make up the difference. That's the socially divisive to say the least and it's Asymmetric risk.

The banks ease money flow and help organize capital which is a contribution to the common good. They do not create anything, neither do they grow things, so there is no product, but a service. The amount of money is a constant; one person's winnings are another's losses : a Zero sum game. So any bonuses they extract are really someone else's property, taken in a 'sticky fingers' operation as it passes though their hands. The fact that what they process is fungible does not justify taking it any more than a factory worker is justified in taking his/her employer's product. Like the factory worker, surgeon, engineer or soccer player they can reasonably expect rewards for their service. The hourly rate can be set by the relevant market.

-------------------------
mjmccann
 17 February 2011 09:25 AM
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brianklord

Posts: 1
Joined: 08 May 2002

From my perspective, the current problems were initiated by sub prime lending which, in turn, was driven by the greed of some of the banking fraternity. The initial point at which I was concerned was when the then Midland Bank introduced Access which "takes the waiting out of wanting". Years ago, my children were offered loans when they had no chance whatsoever of repaying them.
More responsibility is required of those to whom more resources are delegated, yet those who are at the source of this problem seem to be paying for it with the interest off funds owned by their clients.
Bob Garratt's article makes a lot of sense.
 17 February 2011 08:54 PM
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Ipayyoursalary

Posts: 265
Joined: 21 November 2009

They do not create anything, neither do they grow things, so there is no product, but a service. The amount of money is a constant; one person's winnings are another's losses : a Zero sum game. So any bonuses they extract are really someone else's property, taken in a 'sticky fingers' operation as it passes though their hands.

You have fundamentally misunderstood the benefits of trade and the division of labour. The division of labour allows individuals or companies to specialize in their respective fields. When they trade both parties benefit from the other's expertise - saving both parties time. They can then spend that time profitably growing their business.

Eg. consider a farmer trading with a banker.
The farmer's specialty is growing crops for food.
The banker's expertise is in raising finance for people like the farmer.
By trading the farmer saves the time he would otherwise have to spend raising his own finance from various lenders. Similarly the banker saves the time he would otherwise have to spend growing his own food.

Adam Smith's "An Inquiry into the Wealth of Nations" is a great book to read on this subject. You can download it for free on Kindle.
 18 February 2011 06:52 AM
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normcall

Posts: 8130
Joined: 15 January 2005

Come on guys.
The banks live in a world of their own and protected from failure whereas mere mortals have to play the game their way or not play.
For example, you cannot get paid in cash, you cannot get all your own money back from any bank you gave it to for safe keeping, you cannot give a bank your money without an inquest into your standing in the world (try asking the bank similar questions!).

Was it really that long ago that someone could give you a cheque (promise to pay said sum), you could endorse it on the back and give to someone else? Even the Bank of England is in on the act. The gold to back up our reserves was sold off cheaply and then to crown it all, started to print more of the stuff.

And they get paid how much to live in this world?

When I was a school, a mate decided that the only job he wanted to do was banking - because that's where the money is. Last heard of in the Bahamas as manager of a rather large bank.

-------------------------
Norman
 18 February 2011 09:05 AM
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westonpa

Posts: 1771
Joined: 10 October 2007

I see no problem at all with the banks because their primary purpose is to run their business for a profit albiet in compliance with the laws. The government make the laws and allowed the banks to operate as they did and we the people voted for the government. The Labour government allowed an unsustainable environment to evolve, remember the "I have abolished boom and bust" speech. I did not see too many people protesting or complaining when Labour were coming out with all that rubbish.

If you do not like the bonuses your bank pay out then put your money in another bank or somewhere else. I do not see too many customers pulling their money out of RBS for example.

Regards,
 18 February 2011 11:35 AM
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jencam

Posts: 608
Joined: 06 May 2007

This whole bankers' bonus fiasco is really a coverup for a more serious issue of how financial institutions are allowed to operate. By diverting attention away from the root of the problem - and that is banks and financial institutions have a stranglehold on the economy - towards a more populist issue enables deeply corrupt institutions to get away with their crimes and wrongdoings. Even if the banker's themselves decided not to take any bonuses then that doesn't have an ounce of impact on the behaviour of the financial institutions themselves. They will continue down the same 'scorched earth' path in the name of profit like they have been doing for centuries. Only once governments have the courage to put an end to the financial swindle of the City and Wall Street will positive changes start to take place.

Originally posted by: mjmccann
They do not create anything, neither do they grow things, so there is no product, but a service.


I have been saying for years that the City is just one big casino that creates no wealth for the nation but acts as a parasite on those who do create real wealth.

The amount of money is a constant; one person's winnings are another's losses : a Zero sum game.


No it isn't. Believe me, private banks create money out of thin air. Anybody who thinks that the amount of money in circulation is fixed or controlled by governments knows very little about economics and banking.


Originally posted by: normcall

Come on guys.

The banks live in a world of their own and protected from failure whereas mere mortals have to play the game their way or not play.


Exactly. Under EU law the British government cannot bail out companies (MG Rover being the classic example) but they are allowed to bail out banks.
 19 February 2011 04:41 PM
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quantium

Posts: 10
Joined: 26 October 2002

Originally posted by: mjmccann

The issues are Asymmetric risk and Zero sum games.

They do not create anything, neither do they grow things, so there is no product, but a service. The amount of money is a constant; one person's winnings are another's losses : a Zero sum game. So any bonuses they extract are really someone else's property, taken in a 'sticky fingers' operation as it passes though their hands.


Bankers' remuneration is drawn from many people, shareholders and customers. Much more serious, in my view, is various other administrators' fee income, which is targeted on often unwilling victims in the manner of Exocet missiles. I refer to lawyers (solicitors, barristers, accountants, etc). It is hardly surprising, for example, that only half the population make wills. A solicitor will demand a statement of assets and identity information which is enough for the unscrupulous to embezzle the assets. He will then charge a percentage "for care and attention" (usually on proving the will). As someone else wrote about banks, what would happen if the proposed client demanded similar information from the solicitor? But if someone is a litigation victim, then there is little choice (apart from going outside the law) but to engage a solicitor and barrister.

Because there is no governing feedback on their fees, office procedures tend to be highly inefficient, as the clients are paying. For example, they'll happily sit on the telephone listening to music rather than send emails where the message, not the people, can be queued.

But all this is one half of the coin. The other half is that fact that it is so lucrative being one of these people that the brightest of minds gravitate to these professions at the expense of others such as engineering or medicine.

The difficulty seems to be that whereas the capitalist system has been excellent in helping the manufacturing industry produce goods that nearly all can afford, it is hopeless in helping most caring services. Despite their public image, lawyers are supposed to be caring people. Capitalism has made these professions maximise their monetary income regardless of the consequences.

Another problem is that the science of economics has failed to quantify wealth. Is a legal report on say a proposed house purchase really worth what is charged for it as compared to what the money can buy in terms of a physical object from a manufacturer?

Does a bridge or road represent similar wealth to a long court hearing where the sum total of the fees received by those debating come to a similar amount?

Bankers and financial advisors have been responsible for substantial inflation in property prices. By granting larger and larger mortgages, people have been encouraged to compete for property not just by their earning capacity but by what mortgage they can negotiate, with little apparent regard to their ability to repay it. At one time it was on a 3 years earnings basis. At the time of the crash it had risen to 7 or 8 times.

I don't think that this message will make a hap'orth of difference, but I do think that there will be a revolution against lawyers and other fee earning administrators some time in the future just as there has been against bankers.
 22 February 2011 07:23 PM
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Ipayyoursalary

Posts: 265
Joined: 21 November 2009

I'm not in favour of tax-payer funded banker bonuses. Nor am I in favour of licence-fee payers having to stump up £834,000 for BBC chief Mark Thompson's salary, £600,000 for lefty journolist Andrew Marr, nor £18 million for Jonathan Ross' 'talent'.

However, if a company is privately owned, like Apple, Microsoft, Barclays Bank or Manchester United FC - it's none of my business what they pay their staff.

While we're on the subject, according to the IET annual report, two members of IET staff got paid more than £380,000 in 2008. And in 2009 four members of staff earned more than the UK Prime-Minster. Money well spent I'm sure.

Edited: 22 February 2011 at 07:30 PM by Ipayyoursalary
 01 March 2011 01:51 PM
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afwilson

Posts: 793
Joined: 28 January 2002

The anonymous poster has misread the IET annual report and therefore miscalculated the figures quoted.

Originally posted by: Ipayyoursalary

While we're on the subject, according to the IET annual report


-------------------------
Andrew F Wilson
IET Governance & Legal Affairs
 06 March 2011 01:37 AM
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Ipayyoursalary

Posts: 265
Joined: 21 November 2009

Members can check for themselves on page 23 of the IET annual report here.

For reference the Prime Minister was paid about £130K in 2008.

Please could you clarify the distinction between the 'Group' and 'Charity' columns. Do they refer to different sets of people and different sums of money - or is it the same people getting paid twice?

Thanks
 07 March 2011 11:58 AM
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afwilson

Posts: 793
Joined: 28 January 2002

The numbers in the Group column include the numbers in the Charity Column.

Originally posted by: Ipayyoursalary

Please could you clarify the distinction between the 'Group' and 'Charity' columns.


-------------------------
Andrew F Wilson
IET Governance & Legal Affairs
 31 January 2012 01:37 PM
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dingaling

Posts: 1
Joined: 31 January 2012

I was looking for some sensible views on bankers bonuses, and I found them here. Even more impressive you were debating it nearly a year ago, not just for the current witch hunting season.

Have views changed or solidified? Would removing bonuses simply push the compensation into other forms anyway? Bonuses promote the old boys club, because you can claim that if targets are not hit, then heads roll, but mates don't sack mates and so they all rally together and hide the facts and the true situation. When you are on the gravy train, noone wants to rock it. Just look out of the windows at the 'little people'.
 31 January 2012 07:03 PM
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rossall

Posts: 1048
Joined: 06 August 2001

Thanks for the comment. Just to highlight the related article from E&T Magazine, which is linked at the top of the thread, above the first message and the poll.

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David Rossall
The Institution of Engineering and Technology
Statistics

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