What a Relief

[don]

Nothing we don't know, graphically expressed. Or does this belong on the Private vs Public salaries thread ;)

[jneal3]

Re: What a Relief

Nothing we don't know, graphically expressed. Or does this belong on the Private vs Public salaries thread ;)

I'm sure the Goldman guys would say, 'hey, the revenues are up, so our pay should go up - compensation ratio hasn't changed'. That they believe they deserve a cut of the money they 'make' is at the heart of what's cracked in our economy. If they were actually deploying capital to more efficient uses instead of just churning/skimming/pumping/dumping, it might be different...

[iyamwutiam]

Re: What a Relief

Well -no wonder everyone wants to work there- what other industry is compensation equal to 50 percent of revenue. Imagine how the stampede of 'smart' guys that would trample everything in their way if tech companies and others offered such terms.

[oddlots]

Re: What a Relief

I've always wondered how cash flow works in a trading outfit. Where does the cash flow to pay out the bonuses?

Well it turns out the cash flow isn't there: that's why they went broke. Try reading this without feeling sick:

http://www.ft.com/cms/s/0/fe462a30-e...44feab49a.html

Leads off with a nice story:

The late Eddie George was very fond of a little joke that went as follows. “There are three types of bankers: those that can count, and those that can’t.”

[don]

Re: What a Relief

Well -no wonder everyone wants to work there- what other industry is compensation equal to 50 percent of revenue.

That alone indicts FIRE as a basically useless parasite. Anything else, with fixed capital costs and a competitive environment, would have to drop the zero.

[Rajiv]

Re: What a Relief

From the FT article posted by Oddlots

Observers of financial services saw unbelievable prosperity and apparently immense value added. Yet two years later the whole industry was bankrupt. A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.

What were the sources of this imaginary wealth? First, spreads on credit that took no account of default probabilities (bankers have been doing this for centuries, but not on this scale). Second, unrealised mark-to-market profits on the trading book, especially in illiquid instruments. Third, profits conjured up by taking the net present value of streams of income stretching into the future, on derivative issuance for example. In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.

The writer of this piece is chairman in Syngenta and former chief executive of Barclays