Show the bonus Bankers with our feet/money

NFH

stutakesphotos wrote: »

Also, if these traders are so good, why did they get into such trouble to begin with?

There are traders for a variety of asset classes - FX, equities, fixed income, interest rate derivatives etc. Most asset classes did not play a part in the sub-prime problem. You can't tell an FX trader for example that he shouldn't get a bonus just because some other people with a similar job description trading a completely different asset class made some big mistakes.

ERICS_MUM

gt94sss2 wrote: »

This is a old line repeated by politicians and others who should know better... as what they are effectively arguing could be applied to any industry.

Also, some banks (such as HSBC) don't borrow from other banks - they lend money.. and I believe HSBC is on record as saying it would have been better if some of the banks in trouble had been allowed to go bust..

Regards
Sunil

It's not just about who borrows and who lends at the end of each day, but the liquidity needed in the system during the day to allow inter-bank settlement for CHAPs payments.

NFH

I_luv_cats wrote: »

What are these bankers doing to make £10m profit??

They are quoting to customers a bid/offer spread in financial instruments in a variety of asset classes. The bank buys on the bid and sells on the offer, and the difference is the spread. The trader has to keep the spread competitively tight, otherwise customers will trade with another bank. At the same time he has to manage his position against movements in the market. He may also deliberately take positions. With hundreds of trades per day by each trader and trade sizes typically ranging from around 1 to 500 million of GBP, EUR or USD, the scope for a good trader to make a large profit is high.

ERICS_MUM

I_luv_cats wrote: »

What are these bankers doing to make £10m profit??

It's possible (and expected) to make £10 million profit when your principal amount is in the billions. Traders work mega deals with minute margins.

kaych

why can't we just cut off all commercial banks and borrow from the Bank of England? It does seem kind of ridiculous that we have to bail out the banks and then 'borrow' money from them at a higher interest rate.. I hope they paid a higher rate for the bail out money than we have to on our mortgage...

beside i don't think bankers should be rewarded. they use our/investor's money to make money... there is actually no real contribution to the society...

http://news.bbc.co.uk/1/hi/8410489.stm

It claims bankers are a drain on the country because of the damage they caused to the global economy.
They reportedly destroy £7 of value for every £1 they earn. Meanwhile, senior advertising executives are said to "create stress".

boomish

NFH wrote: »

I disagree with all of you who are objecting to bankers' bonuses. My following points relate specifically to those who work in the wholesale financial markets divisions of banks (e.g. traders), which is whom the bulk of City bonuses go to.
It annoys me when so many people complain about the headline figure of bonuses without understanding the economics of why they're paid or understanding anything about investment banking. It's just jealousy. Although I work in investment banking myself, I'm an independent consultant so I don't receive bonuses. However, those that do earn bonuses thoroughly deserve every penny.

It also annoys me when Morons like you try to defend what is obviously a catastrophe in financial terms and yet bankers enjoy the fruits no matter if they make a loss or a profit, what other normal !!!!!!!g business does this.
Don't be such an !!!!! oh they pay tax on their huge bones, oh woopee we should be so thankful, oh they might leave for another job abroad, well let them bloody leave they didn't do a great blooming job in the first place did they!!!
I can't believe such a weak and self manipulating attitude, oh I'm jealous of someone getting a bonus, you don't know what I do for a living do you, I do understand fully why some people in banking get bonuses you obviously don't!! besides what about doctors, nurses and teachers they are the blooming heroes that should get a bonus not some fat cat moron like you that predicts a rate might rise the next day.
MSE should start up their own bank , I'd sign up tomm!

pqrdef

Before we got diverted by the greed thing, the point made was that bonuses for profits without penalties for losses lead to excessive risk-taking.

In any case, traders don't create wealth. Their profits are made at the expense of investors.

NFH

boomish wrote: »

It also annoys me when Morons like you try to defend what is obviously a catastrophe in financial terms and yet bankers enjoy the fruits no matter if they make a loss or a profit, what other normal !!!!!!!g business does this.
Don't be such an !!!!! oh they pay tax on their huge bones, oh woopee we should be so thankful, oh they might leave for another job abroad, well let them bloody leave they didn't do a great blooming job in the first place did they!!!
I can't believe such a weak and self manipulating attitude, oh I'm jealous of someone getting a bonus, you don't know what I do for a living do you, I do understand fully why some people in banking get bonuses you obviously don't!! besides what about doctors, nurses and teachers they are the blooming heroes that should get a bonus not some fat cat moron like you that predicts a rate might rise the next day.

If you made a rational argument and made some well presented and well thought out points, people might respect your opinion. A post like that will only cause people to laugh at your ignorance. Like the vast majority of the anti-banking-bonus people in this country, your rant shows a lack of understanding of who and what caused the financial crisis.

Do you know which asset classes contributed to the financial crisis? Why should traders in all asset classes that were not involved be penalised as a result? It's like saying that a market stall trader should have his profits curtailed because some other people with "trader" in their job description made some big mistakes.

NFH

pqrdef wrote: »

Before we got diverted by the greed thing, the point made was that bonuses for profits without penalties for losses lead to excessive risk-taking.

You're right and wrong at the same time. The bad bonuses were paid on profit that had no open market risk but had open credit risk. Take the following over-simplified example:

John works as a trader for Great British Bank. He borrows USD 1 billion from Aussie Bank at 0.5% and lends it to Big American Mortgage Corporation at 3%. The high interest rate paid by Big American Mortgage Corporation reflects the fact that they're a high credit risk and might default. His profit is 2.5% on USD 1 billion, which is USD 25 million. John's trading book is flat in that he has no open position, i.e. no market risk. Great British Bank therefore pays him a bonus of GBP 1 million. John then leaves Great British Bank and is hired by another bank because of his track record of making large profits. However, there is still credit risk for Great British Bank on the loan trade because Big American Mortgage Corporation subsequently defaults on repaying it. This causes Great British Bank to collapse, which has a knock-on effect on Aussie Bank. This is an over-simplified scenario because the financial crisis was caused more complex instruments such as credit derivatives, but it demonstrates the problem. The lesson learnt by the banks is that bonuses should not be paid on unrealised profits where the price of the underlying instruments reflected significant open credit risk, otherwise excessive risk-taking is encouraged.

And another point - please don't blame the traders who don't trade credit-related instruments. They played no part in the financial crisis. This includes for example traders of FX, equities, money markets and derivatives of those asset classes.

Cmdr_Bond

NFH wrote: »

You're right and wrong at the same time. The bad bonuses were paid on profit that had no open market risk but had open credit risk. Take the following over-simplified example:

John works as a trader for Great British Bank. He borrows USD 1 billion from Aussie Bank at 0.5% and lends it to Big American Mortgage Corporation at 3%. The high interest rate paid by Big American Mortgage Corporation reflects the fact that they're a high credit risk and might default. His profit is 2.5% on USD 1 billion, which is USD 25 million. John's trading book is flat in that he has no open position, i.e. no market risk. Great British Bank therefore pays him a bonus of GBP 1 million. John then leaves Great British Bank and is hired by another bank because of his track record of making large profits. However, there is still credit risk for Great British Bank on the loan trade because Big American Mortgage Corporation subsequently defaults on repaying it. This causes Great British Bank to collapse, which has a knock-on effect on Aussie Bank. This is an over-simplified scenario because the financial crisis was caused more complex instruments such as credit derivatives, but it demonstrates the problem. The lesson learnt by the banks is that bonuses should not be paid on unrealised profits where the price of the underlying instruments reflected significant open credit risk, otherwise excessive risk-taking is encouraged.

And another point - please don't blame the traders who don't trade credit-related instruments. They played no part in the financial crisis. This includes for example traders of FX, equities, money markets, fixed income and derivatives of those asset classes.

Thank you for that explanation - it does make things a bit clearer for me at least.