From the Independent:
Chief executives from the world’s banks discussed the plans at a secret dinner held at Claridge’s, the London hotel, last October, at which several leading British bankers are said to have suggested that the sector should take greater responsibility for its part in the crash, and do more to reduce the vast bonuses paid to staff.
But the recommendations were met by stiff opposition from the US banks JP Morgan, Morgan Stanley and Goldman Sachs, according to one source. “Some of the US bankers were furious about attempts to reduce pay throughout the industry, arguing that any such move smacked of socialism and would be fiercely resisted,” the source said on Friday. “It’s not the way the Americans like to go about their business.”
Yves here. The evidence that US capital markets firms are firmly in the hands of hopeless sociopaths continues to mount.
The fact set is undeniable: the big firms in the industry engaged in a massive campaign of looting, of running enterprises in which the employees were consistently overpaid relative to the risks and true profits of the firms. The result was that they were overleveraged. The only reason the industry survived was due to massive public subsidies, from equity injections to special lending programs to super low rates to regulatory forebearance. By any right, the firms should have failed, and the bankruptcy course should have gone full bore after the pay earned in the bubble years as fraudulent conveyance.
The British bankers seem to understand:
1. The industry is responsible for the financial crisis and the toll it has inflicted on innocent bystanders
2. The industry should be very grateful indeed for all the emergency rescue, particularly since virtually nothing has been done to prevent the industry from resuming the same sort of profitable-looking reckless behavior that nearly drove the world economy off the cliff
3. Banks’ current profits are also due in significant measure to all that lovely cheap funding on offer from central banks, in effect an unexpected reward for having caused the crisis. Reader NYT pointed out:
GS [has] gone from a privately funded balance sheet to a government funded balance sheet since the October meltdown. They paid only $6.5B interest on only $500B of debt in 2009. That’s about 1.3%. Given that some of their debt is long term debt (e.g Buffet’s 10% loan etc) issued prior to 2009, they must have replaced almost all of the $500B in debt with loans from the Fed.
Looks like the financial crisis worked out very well for GS. They are paying $25B a year less in interest than they paid in 2008 and it looks like no one is even talking about why GS should not be given this huge and ongoing government subsidy.
4. The wisest course of action is to try to resume as much of status quo ante as possible while keeping a low profile so that the public and officialdom will not decide to interfere in this juicy little racket. That means avoiding in engaging in the most press and public annoying behavior, namely, paying lavish bonuses, is not a very good idea right now
5. But the US banks are convinced of their divine right to feed at the trough
The astonishing bit is that the US banking execs have the temerity to self-restraint on pay “socialism”. They are benefitting from what most would call socialism for the rich, but is more accurately termed Mussolini-style corpocracy or good old fashioned pilfering from the public purse.
A successful investor would often say, “Little pigs get fed. Big pigs get slaughtered.” A lot of people are waiting for these big pigs to get their just deserts.