Sunday, 4 October 2009

The Epicurean Dealmaker opines

This is an excellent post on how investment banking took a wrong turn and nearly blew up the world. It's just about the only explanation I've come across that convinces me. Perhaps it's because it's written by an insider, the soi disant Epicurean Dealmaker ("TED").

This chap's persona is a delicious Platonic representation of the senior investment banker: arrogant to the point of obnoxious and beyond, but also rather irritatingly intelligent and witty. You can't help liking him even if he is a total bastard. Whether naturally occurring or an artful confection, it is a real piece of work. I used to toil in the industry and came across a number of big swingers whose voices I could comfortably hear enunciating TED's posts.

TED convinces that the deep-seated structural issues of contemporary investment banking are not amenable to resolution by the salary-cap circus currently being performed by our global politicians. It seems to me that the only way to address investment banking's excessive risk-taking is to diminish its profitability to such an extent that it doesn't really happen very much. Apply swingeing capital requirements on proprietary trading activity. Lots more capital = no profit, no risk, no problem. What's more, bonuses would soon start vanishing altogether.

However, this is just not likely to happen at all. For a start, it turns out that there's a lot of truth in the (previously dismissed as paranoid and cranky) theory that politics has been captured by finance in the Anglo-American world: turkeys don't get their proxies to vote for Christmas.

But more fundamentally, perhaps we all secretly wouldn't want it to happen. Why? More capital = no profit, no risk, no problem, and also NO TAXES. This would mean either more taxes from us or lower spending when we're already screwed. Who would want that? Best to double-up, keep rolling the dice and hope it doesn't happen again... At least that's what our pols seem to have concluded.

3 comments:

Sean said...

Hope you are getting better btw.

Ive a problem with all this, lets say you are a corgi registered plumber, you pay your sub, do the courses and go to work. You do the work to the regulations and one day a serious problem emerges, some of the work you were doing was dangerous, to the book, but none the less dangerous. You cannot really blame the plumber can you?

So too the bankers, blaming them for being greedy is a bit like jumping of the local tower block and blaming the death on gravity. Thats what they do, in a market economy the bankers are the ones who are supposed to find the most efficient places for the money to be created.

I did not hear Brownstuff complain when the tax money was rolling in, or asking where the money was coming from? now he is upset by "greed"

If the central banks and the pols had done their job correctly and worked out the source of the money, the danger in the deficits, this might have not been so bad?

the oxygen would have been thinner, the bankers starved of cash, and used what they had more responsibly.

Bush got it right, when he said "wall st got drunk" what he did not say was who supplied and shipped the booze. The answer to that is simple, China shipped the booze, Washington delivered it.

I don't buy the regulation argument, to set up a small pubic banking service you have to wade though around 12k pages of regulation.

Also regulation, makes folks lazy, it gives a false sense of security, they think someone better than them has covered all the angles, too much and folks just work out how to get around it with its inherent contradictions from its complexity.

I am not a greed is good type of person, honestly I am not sure what greed is, i suspect its good and bad. the desire to have more than we need is what drives us to construct great buildings, paint great works of art, we humans are about more than we need otherwise we would be living in caves.

Remember with Michelangelo it was cash on the nose.

worm said...

I'm totally unsure where I stand on the whole thing- as a 'crunchy conservative' type, Im all for responsible, sustainable banking and everyone making do and not getting too flashy and carried away with ourselves.

On the other hand I bought rather a lot of shares in a major UK bank when it hit the buffers in January, so Im rather hoping that they go back to being rapacious money overlords.

So in effect Im sort of a slightly more masculine Polly Toynbee

Gaw said...

I agree with you Sean, that the problem was one that began with the politicians and regulators. They are the ones who are supposed to take away the punch bowl when the party gets going. But those taxes just seemed too enticing I think.

Re regulation, it doesn't necessarily have to be complex - in fact it's generally more effective when it isn't. Imposition of capital ratios needs a lot of conceptualisation, but once set up shouldn't be too meddlesome. Whereas this banker bonus cap thing just look potentially highly complicated and open to manifold abuses.

Worm: you appear to be channelling the motivations of a lot of people running our financial system: it would be good if banking was done more cautiously...but we can't really afford it right now.

A more masculine PT (can't bear to write her name)? Where to begin?