Business News: Editorial: The Nonsense of “Reining in Bankers’ Pay” and Why Central Planning Never Works
As I mentioned in my last article about the attempt at instituting a bunch global rules on the banking industry not being workable, as the issue is a systemic one, and not one of being underregulated. As long as fractional reserve banking is the way banks do business, and central banks around the world prop it up, things will never change, no matter how much window dressing and rules are made up to cope with.
To show you another part of the folly of ‘fixing’ the problem, look at the G-20 comments and ideas on just one aspect of what they think needs to be fixed, and see how nonsensical it is to imply they can even do it, or that it would even be a fix; I’m talking about the idea of reining in bankers’ pay.
This is something the mainstream, socialist leaning media drools over to hear, as it confirms their latent beliefs that capitalism was the problem, and it gives them something they can understand and get behind and support. This is why it’s also brought up and implied as being a problem, as it takes the attention off of the inherent problems of the system itself and the Federal Reserve and other central banks, which make them worse from their practices and policies.
Now as far as the G-20 countries tackling reining bankers’ pay, it’s a joke, and those responding to that idea show why it’s so ignorant and stupid to even attempt to do.
The very first concern about it is the fear that talented banking executives would simply go to another type of financial institution if that attempt is made, and so deplete the quality of executives in the banking ranks.
Some of the types of financial sectors they could go to would be private equity and hedge funds, among others.
Another concern was over the interference of governments into the reward process of negotiations with workers, and that the idea of the government setting those parameters would take away their freedom in that regard. This of course is why governments should never be involved in bailing out failing industries, as these types of problems emerge, making things even more complicated and impossible to work out. This is why banks should have thought of this before accepting bailout money, as the individual bank may have failed, but the deposits would have simply been transferred to another bank, keeping the deposits in the banking system the same, even though under someone else’s management.
In another unworkable idea, the financial leaders want a global pay code to include forcing banks to “claw back” already awarded cash to employees, if the earnings aren’t up to standard. Could you imagine that idea in any other business industry. Sorry buddy, but we want $500 back this month because things didn’t go as good as we wanted them to. It’s bizarre to even think like that, and yet the central planners have no loss of idea capital that is truly as weak as the long-term U.S. dollar.
Think of it. Executives and traders would have had their money for some time and used it for a number of private circumstances, and then would be asked to give it back. That’s so incredibly ignorant it’s almost beyond imagination.
Or let’s look at what Stuart Fraser, the group policy chief for the City of London Corporation, which represents financial companies in the U.K. had to say about it:
“Sufficient flexibility is being given for individual governments to decide what’s most appropriate for them,” Fraser said. “They don’t want to constrict bank lending in the shorter term. Any targets to be set will be done over a number of years so as not to create any indigestion in capital markets.”
Robert Talbut, chief investment officer at Royal London Asset Management Ltd., also said, “The more stringent you want the restrictions to be, the less easy it will be to get unanimity, and without unanimity it’s incredibly difficult to see things changing significantly. No one region will want to put its banks at a competitive disadvantage.”
What these guys are saying is it’s basically impossible to do this – period! When the term “sufficient flexibility” is used by Fraser above, that’s another way of saying every country will try to get an advantage over the others. Or when Talbut follows up saying “No one region will want to put its banks at a competitive disadvantage,” he’s saying the same thing.
Look at it from the point of view of OPEC countries getting together and saying they’re going to cap production. It’s never done. Almost all of them agree to it and go home and do what is best for their own countries. That’s how it would work for capping bankers’ pay by governments too. It’s simply unworkable, and we haven’t even gotten into laws and practices of individual countries.
Again, most of this is coming from the European Union which after bailing out their banks were greeted with pressure from its citizens to rein in the banking pay, even though most of them really don’t understand what they’re asking.
Ok, I’m going to say it again: this is why government shouldn’t use taxpayers’ money to bail out any industry, including banking. These types of things will always come up after government intervention, creating pressure which can’t be relieved without bringing up the issues we’re talking about here. And this is just one small and easy to understand part of the overall banking mess.
This is why central planning and socialism have never worked. You simply can’t even take one or two small parts of an overall picture and get it to work through the imposition of rules from a centralized committee, no matter how smart and bright the planners are. Some of the top minds from the top schools in the world are in the financial and banking industries, and they completely failed. (I show the reason why in the last article.)
There is no way to oversee billions of individual decisions and voluntary transactions on a day-to-day basis. People research on their own and make a decision based upon the best information they have at the time. There’s no way that can be controlled or managed, and yet the elitist central planners won’t start trying, even after history time and time again shows it’s not workable. But like in the case of attempting to rein in bankers’ wages, they just won’t stop trying.
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Great post but complicated to understand since I am from Faroe islands ;-) 
What would be your top three tips for anyone new to this topic?
Boy, you missed a few points along the way.
1) The banks and bankers hold the majority responsibility for causing the credit crisis in the first place.
2) The bankers made outrageous amounts of money while supplying easy financing to irresponsible or undereducated people. Much like the cocaine supplier keeps offering coke to his addicts, and lowers the price when they can't come up with the cash, just to keep the profit coming and keep them on the line. The bankers could have – and should have – turned off the supply by due diligence in underwriting. They willingly chose not to follow ethical and responsible banking practices.
3) The bankers have offered no remorse for their actions, and as an industry have not offered to re-pay any of their ill-gotten gains. Goldman Sachs CEO made a $67.9 million BONUS (that does not include his regular salary or perks like a $45,000 health insurance policy) in 2007 alone. Would it have hurt him to give penny back? Talk about inglorious basterds!
4) The US taxpayer had to bailout the Savings and Loan group in the late '80s and early 90's, and now we have had to bail out the bigger banks. Do we really trust them a third time? They have proven incapable of running their business in a way that does not lead to the brink of bankruptcy. In fact, you allow that under a strictly capitalistic system they SHOULD have gone bankrupt. The bankers would certainly have less money and fewer perks if that had been the case, and I'm forced to agree that all the banks that received TARP funds should have been left to their own ends, bankruptcy and collapse included. But since they were saved form that more abrupt failure, they can certainly expect to be held accountable, and that should include taking back some of the money they racked up while they were mis-guiding their companies to ruin.
5) The bankers and their apologists make one recall Marie Antoinette and her answer to what the poor people could do when they had nothing, not even bread, to eat – “Let them eat cake”. The people that make a $67 million annual bonuses should be aware how arrogant and haughty they appear when people are losing their jobs and homes. Marie didn't like the reaction to her arrogance, either.
6) Capitalism has proven itself over socialism, and the above comments do not mean that I prefer socialism over capitalism. But capitalism does not mean the raping and pillaging of society for monetary gain, which is what has occurred. The banks and bankers have shown no self-control, and so control must now be imposed upon them.
Boy, you missed a few points along the way.
1) The banks and bankers hold the majority responsibility for causing the credit crisis in the first place.
2) The bankers made outrageous amounts of money while supplying easy financing to irresponsible or undereducated people. Much like the cocaine supplier keeps offering coke to his addicts, and lowers the price when they can't come up with the cash, just to keep the profit coming and keep them on the line, the bankers could have – and should have – turned off the supply by due diligence in underwriting. They willingly chose not to follow ethical and responsible banking practices.
3) The bankers have offered no remorse for their actions, and as an industry have not offered to re-pay any of their ill-gotten gains. Goldman Sachs CEO made a $67.9 million BONUS (that does not include his regular salary or perks like a $45,000 health insurance policy) in 2007 alone. Would it have hurt him to give penny back? Talk about inglorious basterds!
4) The US taxpayer had to bailout the Savings and Loan group in the late '80s and early 90's, and now we have had to bail out the bigger banks. Do we really trust them a third time? They have proven incapable of running their business in a way that does not lead to the brink of bankruptcy. In fact, you allow that under a strictly capitalistic system they SHOULD have gone bankrupt. The bankers would certainly have less money and fewer perks if that had been the case, and I'm forced to agree that all the banks that received TARP funds should have been left to their own ends, bankruptcy and collapse included. But since they were saved form that more abrupt failure, they can certainly expect to be held accountable, and that should include taking back some of the money they racked up while they were mis-guiding their companies to ruin.
5) The bankers and their apologists make one recall Marie Antoinette and her answer to what the poor people could do when they had nothing, not even bread, to eat – “Let them eat cake”. The people that make $67 million annual bonuses should be aware how arrogant and haughty they appear when people are losing their jobs and homes. Marie didn't like the reaction to her arrogance, either.
6) Capitalism has proven itself over socialism, and the above comments do not mean that I prefer socialism over capitalism. But capitalism does not mean the raping and pillaging of society for monetary gain, which is what has occurred. The banks and bankers have shown no self-control, and so control must now be imposed upon them.
Boy, you missed a few points along the way.
1) The banks and bankers hold the majority responsibility for causing the credit crisis in the first place.
2) The bankers made outrageous amounts of money while supplying easy financing to irresponsible or undereducated people. Much like the cocaine supplier keeps offering coke to his addicts, and lowers the price when they can't come up with the cash, just to keep the profit coming and keep them on the line, the bankers could have – and should have – turned off the supply by due diligence in underwriting. They willingly chose not to follow ethical and responsible banking practices.
3) The bankers have offered no remorse for their actions, and as an industry have not offered to re-pay any of their ill-gotten gains. Goldman Sachs CEO made a $67.9 million BONUS (that does not include his regular salary or perks like a $45,000 health insurance policy) in 2007 alone. Would it have hurt him to give penny back? Talk about inglorious basterds!
4) The US taxpayer had to bailout the Savings and Loan group in the late '80s and early 90's, and now we have had to bail out the bigger banks. Do we really trust them a third time? They have proven incapable of running their business in a way that does not lead to the brink of bankruptcy. In fact, you allow that under a strictly capitalistic system they SHOULD have gone bankrupt. The bankers would certainly have less money and fewer perks if that had been the case, and I'm forced to agree that all the banks that received TARP funds should have been left to their own ends, bankruptcy and collapse included. But since they were saved form that more abrupt failure, they can certainly expect to be held accountable, and that should include taking back some of the money they racked up while they were mis-guiding their companies to ruin.
5) The bankers and their apologists make one recall Marie Antoinette and her answer to what the poor people could do when they had nothing, not even bread, to eat – “Let them eat cake”. The people that make $67 million annual bonuses should be aware how arrogant and haughty they appear when people are losing their jobs and homes. Marie didn't like the reaction to her arrogance, either.
6) Capitalism has proven itself over socialism, and the above comments do not mean that I prefer socialism over capitalism. But capitalism does not mean the raping and pillaging of society for monetary gain, which is what has occurred. The banks and bankers have shown no self-control, and so control must now be imposed upon them.