Well, since theres much off topic related to the election ... On the news this morning, a high up bod in RBS agreed top investment bankers pay is rather hard to justify, but he said that is the market
- a shortage of top bankers. He said the banks have to pay the high salaries else the bankers will leave. He implied that when one of these guys moves job he takes with him lots of business or clients. If that is the case, its understandable why they will pay to much - the wage gets them a banker AND lots of clients. Question:
Why do market forces not appear to work in this case to bring in lots of other "top bankers" so pay levels come down ? Are the skills really that rare ? Is there some distortion to the market, intentional or otherwise ?
If they will leave where will they go ? If US (obama is trying) and EU act together will they all go to the east ? Or just not bother to work at all ? Simon.
No the shortage principle only works for us proles it seems. I once ran a youth training centre and had trouble getting really good staff at the salary offered. 'Do you get applicants?' was the reply from government. 'Yes'. 'No problem then'. I suggested that the same principle might be applied to ministers' salaries. Null points!
The financial services industry already takes most of Britain's brightest people as they leave university. Unless you think there are a lot of extremely bright people not going to university that you could encourage to go, how would you increase the supply of top graduates with the necessary literacy, numeracy and problem-solving skills?
The other day I heard a professor of engineering at one of Britain's top universities bemoaning the fact that the majority of his engineering graduates who gain First or Upper Second Class degrees don't choose engineering careers, but go to work in the City instead. Apparently, their mix of abilities in numeracy and problem-solving is incredibly attractive to employers in the financial services industry. And the engineering graduates are apparently happy to go there to work because their starting salaries are at least double what they would get in engineering.
Unfortunately, this means that the engineering professions are denied many of the best people. If you want to know why the UK manufacturing sector has rapidly shrunk while the financial services industry has hugely expanded, look no further.
It's pretty simple really. If I put a billion on Chelsea to win the Premier League, and you put a billion on Man Utd, one of us will be hailed as a successful investor and the other will retire to the Cote d'Azur on his golden handshake.
I was told by a city slicker that "it helps to be as thick as pig shit to work in the City". Anyone of a more sensitive disposition would a) not sleep at night and b) not be able to look at himself in the mirror next morning. The financial services industry attracts the greediest, rather than the brightest, people. Lawd Sugar (or whatever he calls himself) personifies what we in this broken backwater of a country regard as "business".
Why do they not have "non-compete" contracts that do not allow them to poach former clients when they move to a new employer? They're common in many other jobs.
Not true. Whilst the city does favour good graduates from highly numerate disciplines, particularly from the Russell Group of universities, it's only a small proportion (probably around 5%) that go to the city.
And a lot don't last - I can think of several friends that have either left or want to - saying the money just isn't worth what they have to put up with.
Imperial by any chance?
Again I would dispute that very many go to the city, the culture change from engineering to banking really doesn't suit most people that choose engineering at university.
If the city has an under-supply of top talent - in spite of offering vastly greater financial rewards than other sectors - then they need to look at working conditions, their culture, how people are treated, and what they need to do in order to attract people for whom personal greed is not the biggest thing in their lives.
There's plenty of extremely bright and suitable people that choose engineering or science research in indusrty, medicine, government research centres, teaching or university lecturing - phenomenally talented, reasonably well paid in most cases, but not excessively so - and without money as the overriding motivation in their lives.
Just a guess, but presumably because they would say "I'm not signing that, I'll look for a bank with better Ts&Cs". The same must happen with Chief Exec jobs at local authorities and other so-called "public" sector jobs.
Because on the whole they're not worth the paper they're written on.
There's a basic human rights principle (not sure if it's written down, so can't quote chapter and verse) that you can't contractually prevent someone from earning a living. This principle effectively overrides many aspects of non-competition clauses. All the employee has to do is argue that (during the period of the clause) they needed the money and banking was the only skill-set they had which they could leverage to make money.
In terms of not poaching clients, all the employee has to do is tell his clients he's leaving and how to keep in touch (nothing wrong with that, could be for personal/social reasons) and the clients will choose to stay with the old bank or move with the banker to the new bank. As long as the old bank can't prove that the ex-employee induced his/her clients to move or slandered/libelled the old employer, then there's no problem.
So if the real issue is clients tranferring with the employee, presumably bankers that fail their clients should go out of the picture. But that does not seem to be happening. Simon.
I believe the problem is not that good bankers have rare skills but that the banking sector is creaming off far too much of national wealth in the first place and therefore able to pay very high salaries in competition with other banks in the same position. So the question to be asked is possibly "why don't other players move in to provide these financial services at a lower price?" or possibly "why would we expect a system called "capitalism" to behave otherwise
- the bankers are at the heart of capital, after all, they trade it". We have seen cheaper suppliers move in in airlines, why not finance? Maybe nobody outside understands it enough? After all its fairly clear that the insiders themselves do not. Look at NRSROs, whose original job was to do credit ratings in the US but now seek to control and influence even foreign governments through ratings, lets invent a fictitious one, lets call it "Standard and Piss Poor". These firms gave AAA+ rating to bundles of US sub prime mortgages which included debts of "junk" status, this error initiated the banking crisis. They now tell Spain (whose PSBR is lower than most countries in Europe) that its *sovereign* long term debt is no longer AAA+ because it has high *private* sector borrowings and high current account deficits
*this year*. Logical? I think not.
Wiki:-
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"The larger NRSROs have also been criticized for their reliance on an "issuer-pays" business model, in which the bulk of their revenue comes from the issuers of the bonds being rated. While this is recognized by regulators as a potential conflict of interest (since the bond issuer paying for the rating has an incentive to seek out the CRA most likely to give it a high rating, possibly creating a "race-to-the-bottom" in terms of rating quality), "
I'm told (knowing next to nothing about that myself), that these bundles included some junk, but some good stuff. Each bundle was rated on the best items within it. Daft or what.
Tim Streater wibbled on Friday 30 April 2010 11:34
The whole scam is like house prices and petrol prices. They are kept high. If you notice, as soon as one of the supermarkets decide to start a petrol price war, everyone drops and they don't seem to go out of business. Round here there are lots of people trying to sell houses that have been on the market for a very long time. But noone wants to drop the price. As soon a a few do, that's it - the market will shift. The law of supply and demand seems to have a 3rd variable: illusory worth. If the illusory worth is high, noone will sell anything for less even if there is plenty of demand at a lower price. Crazy.
Not really. The whole point of a CDO (Collaterialised Debt Obligation) was that it had a mixture of risks in it. A bit like a job lot at an auction - a mixture of junk and treasure. The point was that the treasure made the whole thing saleable, enabling the banks to sell the junk, which they had been encouraged to produce by politicians, especially Clinton in the US, who wanted poor people to be able to buy homes. The idea was that the premium debt would put a shine on the junk. What actually happened was that the junk poisoned the premium debt.
Of course, it all went wrong, for a number of reasons;
- The banks repeatedly resold the CDOs to one another, at steadily higher prices, steadily increasing the leverage beyond a sustainable point. Worse yet, the banks bundled CDOs into other CDOs, making them impossible to price.
- The people selling the sub-prime mortgages discovered that they didn't lose anything when (if) the mortgagee defaulted, so they shifted them out of the door as fast as they could print the mortgage agreements. And they sold them to people who genuinely couldn't afford to repay them, again because the vendors got their commission whether the mortgagee defaulted or not. And the mortgagees were dumb enough to buy them.
- Far more of the sub-prime mortgagees defaulted than was expected, partly because of the prior point and partly because the economy turned down.
- As a result of the prior points, the junk debt poisoned the premium debt and the CDOs ended up worth nothing. The Banks wittered about them being "unpriceable", but what they really meant was that they were unsaleable, meaning they were valueless.
None of this has anything to do with the National Debt, which is purely due to the Government having spent more than it collects in taxes for some 10 years. The State will almost certainly make a profit on the Bank rescues...
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