Bankers Boners

The second word is American, and in the vernacular it means ‘erections.’ Pronounced the English way, it makes a nice pun—and it’s the whole bonus business, for it is a business, that I’d like to talk about.

But before we start, a brief quest for current wisdom on boners of the erection type reveals there are fourteen varieties—I clicked the link with trepidation, but I ended up laughing, and laughter and tears are both things we need to share. Ladies, enjoy.

Another thing we should share is wisdom—which is hard to define, but one way to do it might be in a comparative manner.

My attempt at placing wisdom in the context of time and place.

My attempt at placing wisdom in the context of time and place.

One of the most interesting parts of our lives has to do with ideas, which begs the question: where do ideas come from? So to end the foreplay and get everything nicely lubricated for what’s to come, I want to share with you an essay written by Isaac Asimov in 1959 on that subject.

Here’s a brief quote to whet your appetite.

A person willing to fly in the face of reason, authority, and common sense must be a person of considerable self-assurance. Since he occurs only rarely, he must seem eccentric (in at least that respect) to the rest of us. A person eccentric in one respect is often eccentric in others.

Consequently, the person who is most likely to get new ideas is a person of good background in the field of interest and one who is unconventional in his habits. (To be a crackpot is not, however, enough in itself.)

Earlier in the week, the UK government decided to contest the European Banking authority’s decision on bonus payments. The meat, if you excuse the pun, of the EBA decision is to cap banker’s bonuses to the value of one year of salary.

Osborne, the UK chancellor of the exchequer (a fancy name for minister of finance), wisely withdrew contest a couple of days ago, anticipating public outcry. 2015 is election year in the UK.

Three factors are at play here: first, banking has become synonymous with self-serving individuals, both greedy and vapid—the notion that they perform a service to society is gone. The various exercises in digital money printing in the US, EU, UK, Japan, and China, with arcane names such as QE and LTRO, have only served to enrich banks—which mostly used the cheap money to speculate in faraway places, causing boom and bust effects in countries like Brazil—the core thought that the policy would stimulate credit to small businesses, and therefore growth and employment, is a lame duck.

Second, the concept of a bonus is by definition linked to performance—but finance is a zero-sum game, so what’s good for the bank is not necessarily good for society. Markets typically applaud when corporations ‘restructure,’ which is a euphemism for firing staff—the negative externalities that result from increased unemployment are not felt by the firm but by society. Those burdens, which are both financial and social, impoverish us all.

Finally, not only is banking not performing (there’s that boner problem again) the core services that it should, but bankers act with impunity to pervert the basis of trust that should anchor the system. After all, the two big ideas that made banks attractive to society were that they provided a safe place to keep your money, and extended credit to allow society to flourish. When the system is rocked by the triple iniquities of sub-prime loans, LIBOR fixing, and FOREX rigging, all within less than a decade, it’s amazing that anyone has the tomates (that’s Portuguese for cojones) to even discuss bonuses. At the very least it’s a serious case of banker’s autism.

In both Southern Europe and Ireland, austerity cut a bloody trail through society. It hasn’t yet become as bloody as it might, but the game is by no means over. Five years ago, at the height of the crisis, the perception in countries like Germany was that workers in the south were overpaid, and one indicator was the two extra monthly salaries most people received, one in summer and one at Christmas time.

Minimum wage by country in 2016 dollars. Scandinavian countries are missing from the list.

Minimum wage by country in 2016 dollars. Germany is missing from the list, but the approved minimum wage in 2015 is $11.60, about the same as the Netherlands.

When austerity bit, these two were the first to go. What the decision-makers either failed to appreciate or cynically ignored, was that in countries like Spain or Portugal, those two payments worked as a kind of compulsory savings—it was the only way families could have a little extra spending money for a brief holiday or a decent Christmas meal.

In Ireland, the public sector had a thirty percent pay cut. In Portugal, it was forty percent across the board. Small businesses sank without a trace. Banks disappeared. People left in their thousands, many of them skilled workers, the very segment that the countries had trained over the prior decades.

And so we’re back to the boners. In the city of London, the ratio between variable and fixed pay for the top echelon of banking was 370% in 2012. That’s the equivalent of almost four times your monthly salary paid as a bonus—not for summer and Christmas, but every month of the year.

To put that in perspective, a U.S. worker at the low end of the spectrum, earning ten bucks an hour, two thousand hours per year, would gross twenty thousand dollars annually. On a bonus scheme such as the EBA now proposes, he or she could receive another twenty thousand dollars as a Christmas bonus—they’d be pretty happy. If the 2012 UK average was applied, the bonus would be seventy-four thousand bucks.

As you’d expect, the banks are busy gaming the system. A bit more banker’s autism.

The bonus debate, and many other signs including QE, systemic recessions, jobless recoveries, and recoverless jobs, are indicators of the collapse of the empire—the global financial edifice, which is nothing more than a house of cards.

Thermodynamics is catching up with economics, and we’re sittin’ here—floundering in data, misinterpreting information, blindsided by knowledge, and as far from wisdom as we’ve ever been.

Atmos Fear and The India Road. Quick links for smartphones.

Atmos Fear and The India Road. Quick links for smartphones.

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