Friday 22 January 2010

Obama and the Banker quick shuffle

Let's start with the basics. Politicians spend other peoples' money freely. When it comes to looking after themselves we have the expenses scandal. Bankers' are equally wreckless with clients money, investing in risky assets and trying to make big profits but not worried about losing too much. However, with their own money, i.e. bonus's recent days have shown that no matter how bad the effect, the money will be paid to the bankers.

Morgan Stanley allocated 62% of its income to staff remuneration this week - the highest ever in the history of investment banking!

So on the surface today's huge announcement by Obama that effectively Glass-Steagall was back and that banks had to be split up to reduce risk seems like a victory for the little guy.

However, Wall Street paid for the Presidency and the senior economic advisers are always ex-bankers.

What I think today's announcement is about is protecting the income of the wealthy. Investment Banks will now get out of the TARP and regulated system, where senior management remuneration is monitored and controlled by the US Government. Instead, the prop desk guys get to go to hedge funds where the remuneration is orgasmic beyond their dreams.

The Investment bankers can become partnerships or private companies and remuneration and bonus payments will disappear from public view. The public is left looking at utility banks where earnings are not so astronomical, although high.

Look at Goldman, I bet it can't wait to not be a bank holding company anymore, it never wanted to be in the first place.

All this US action will affect the UK banks, HSBC and Barclays will have had a blow to their strategies, especially the latter which bought the US Lehman operations.

This is a great cover for bankers keeping their earnings through a populist measure. Wall Street ain't stupid after all....


Old BE said...

Banks as partnerships could be quite a good model, at least the risk-takers then share the downside.

Steven_L said...

They'll form LLP's methinks BE.

Weekend Yachtsman said...

All true Mr. Slicker, but if the end result is that retail banking is protected, while the casino bankers are playing with their own money and without State guarantees or taxpayer bailouts, I can't see any downside.

Maybe I missed something.

Anonymous said...

Re "while the casino bankers are playing with their own money": yes. As long as it is their own money that they play with,and they are not able to leverage themselves with loans provided by the banks.

Old BE said...

SL - I don't know about US company law, but in the UK LLPs still have to publish their accounts...

Elby the Beserk said...

"Assisted suicide in Scotland" - is that a PC term for Tennants Extra Strength Lager?

CityUnslicker said...

I am with you guys, this is a good outcome. The compromis is that they still get to run the economy and get rich - just not by risking us too!

Richard Elliot said...

CU I think you are spot on that everything that currently takes place will continue to do so, just in different parts of the economy e.g. private partnerships and hedge funds.

However, don't you think one of these new companies operating in a less regulated space could become too big to fail? Which sort of defeats the purpose.

I am still unsure on the detail on how banks will be affected. E.g. BarCap doesn't really have a prop desk and the private equity boys didn't make any money so could be sold off or shut down with minimal impact. The bulk of the business is client driven, which I think is allowed to stay?

OldSouth said...

Where are the shareholders, and why don't they object?

If they don't object, and demand dividends, they are idiots.

But it's a free country--shareholders get to be idiots without gov't intervention.

Or they should.

Pogo said...

"Old South"... The majority shareholders are almost always big institutions, pension funds and the like. They are run by people very similar to "the bankers" and who are on very similar terms and conditions - or to put it another way, if they rock the boat their bonuses get hit too. Mutual back-scratching guarantees that all the "top brass" get their money and it's just the "ordinary shareholders" who get shafted.

Electro-Kevin said...

I think we're trapped in a self-fulfilling prophesy.

Bankers, deep inside, have foregone any notion of patriotism believing that the West is done for. They fill their boots while they can ...

... and so the West is done for.

We have 15 years max.

The wrong president, the wrong PM, the wrong politicians.

None of them have a handle on this.

James Higham said...

There really is obscenity to that MS payout.

Joanna Cake said...

I watched a programme that investigated some of the recent scandal surrounding Fred Goodwin. So many non-executive directors who were, themselves, high ranking members of other banks.

My understanding was that the non-executive directors were there to provide balance and represent the interests of the shareholders. Clearly, I was completely naive because it was, as has been said before, all so much back scratching.

They all get their salaries and bonuses from their main employment and then additional salaries from their secondary employment saying yes so that others can get their salaries and bonuses from their main employment who then, in turn, become the first bank's non-execs.

It's quite horrible. And then you hear that bin men and nurses and people actually working in public services are all being told that there is no money for them to have a payrise at all.

These are the guys who, eventually, pay for those fat cats.


Sorry, rant over.