Saturday, January 31, 2009

Zeroes for Zeroes

There's a lot of hostility in society to the largesse that some banks continue to show their staff, despite the complete disaster they've created. The banks argue that they need to pay big bonuses to keep the brightest staff. There is one counter argument and one assumption here.

The counter argument is to ask the question of where the bankers would go if the banks didn't pay big bonuses. The assumption however is that the brightest work in the financial community in the first place.

When I was at Cambridge, the brightest went into research or built their own companies or pursued more noble goals. Those that I know who headed into the city were not the brightest but they were certainly the most self seeking.

So, exactly where do these super bright individuals who created a house of cards beyond their understanding and squandered trillions gambling with money they didn't have, come from? Also, if they were that bright, why was it that back between 2002-2005 when huge numbers of people were warning of impending collapse through debt, the city was completely silent on the subject?

Some even have the gall to say that no-one saw it coming during a time where many have personally profited whilst creating a toxic dump. Of course, they're hardly likely to say otherwise or accusations of false representation, failing to disclose information and abuse of position would be levelled against them, followed by swift prosecution.

Whilst it's difficult to feel charity towards those who committed such excesses, maybe charity is the root of the problem.

At Harvard, those with sports scholarships or others who lacked talents of the grey matter kind could undertake a simplified classical history course, nicknamed heroes for zeroes. Has this generous & charitable spirit found a new home in the financial community? Are we paying huge bonuses for the least able? The evidence would suggest that lots of Zeroes for Zeroes is rife.


Anonymous said...

Well said. I watched 2 of the 3 Evan Davies programmes on the crisis. The first of these talked about CDOs. What struck me was the stupidity of both regulators and institutions in readily endorsing / purchasing vehicles that included subprime mortgage deals. Brightest and best? I think not. I'm not super bright, but I was able to do the maths in my physics degree. Am I to believe that the maths in these vehicles is more complex than that which I did in my studies? What I saw on the telly tells me not. So, if I can do it, why the big sums?

swardley said...

The issue with these securities would appear to be the lack of transparency and an inability to determine risk. This however is just a symptom of a culture which rewards recklessness.

A long time ago I was offered a role with "Spear, Leeds & Kellogg" to work on LIFFE. I spent a short amount of time there and quickly decided I wasn't interested despite the generous salary. I told them so, they doubled the salary. I said no, they added more.

I had already decided to work elsewhere, so this wasn't going to change my decision.

The reason why I wasn't interested in futures trading was quite simple. Whilst there are moments of excitement, on the whole I found it dull and meaningless. To do such a job you've got to eat, shit and breathe money - i.e. making money has to be your passion and everything else has to be secondary.

There is one absolute in the city. More money is good.

People kid themselves that they're going to do it for a few years and then take on a new role with the money they've made. However it's a soul sapping life and most of those that I know who have "played the game" are pretty wrecked.

You've got to bright enough to do the job and foolish enough not to realise what you're doing.

As for the big pay cheques. No-one does the job because it has some benefit to society or because it is interesting. People only do the job because of cash. It's a culture of greed based on making money - of course there will be disproportionate big pay cheques.

You don't have to be that bright to make it in the city but you do have to eat, shit and breathe money and sod anything else.

Anonymous said...

Great minds. In light of your post you might enjoy Gary Hamel's pursuit of a banker's creed: [blogs_wsj_com]

swardley said...

For someone reason I missed your comment Jenny, sorry about that. I'll go check out Gary's post.