Until about 1.5 years back, Investment banker was one of the hottest and wealthiest job anyone could ever have. It was the ‘Angelina Jolie’ of all campus placements. But today, if there is one profession you want to bash and kick at and get an applaud – just lash out at any top executive employed with one of the global financial institutes or banks.
And of course our hope president Obama is not going to fall back. So he has lashed out at the bonuses declared by the banking institutions and asked them to pay up first before throwing away all the bonuses and has declared a $ 117Bn levy recovery plan over the next 10 years. In what I think is one of the most logical decisions made by the government, he has rightly decided to bash the big guys with more than 50bn worth and that too as a tax on all ‘wholesale finance’ and not the retail deposits and equity capital. So banks dependent on retail public deposits are relatively better off, but bad news for the likes of Goldman Sachs.
But what puzzles me is, is all this really required? Was the bailout money just thrown away at these people while they were out with the begging bowl without a fixed plan to recover every penny of the taxpayers money back? Or more importantly, are the top financial institutions still so greedy and shameless that they have absolute no moral responsibility of taking things easy for about 2 years until they have paid back what they owe to the world(World because when these guys decide to go down, they don’t go down alone. They take the entire world with them). It is like your house catches a fire, you don’t have money to rebuild it and the local sheriff convinces the neighboring community to help you out. You rebuild the house and in 6 months buy a new porche before paying your neighbors back.
So instead of saying – ok, we messed up, thank you taxpayers for bailing us out & we will not take a bonus and get things back on track, you take a big perk and flaunt it shamelessly. Banking institutions seem to be moving towards a role of milking the economy rather than serving the economy. Does this not expose the cultural degrade due to hard core capitalism.
India has a relatively closed banking and financial system that kept it that much insulated from the global crisis. But the big question is, I don’t know if it will happen, but if we are talking about India becoming a developed super power – do we become an easternized- eastern super power or a westernized eastern super power. So will we be able to keep the advantages that our culture has ingrained in us- for e.g. the attitude of saving, or will we adopt the mistakes of the west as well while moving ahead. Imagine a bank employee from India and I am sure for most who have visited the bank at times, the image would be an honest and sincere middle aged employee who counts the notes for you and hands them over with a smile. I am not aiming at keeping things primitive, but the important point here is – ‘honest and sincere’, not over smart and sly. I hope we retain that always.
A closed banking system will give rise to more number of alternative finance institutions which would then pressurize the government into securitizing their mortgage products. And though it may seem far off, we know what can happen with our government policy decisions. And a completely open will inflate the bubble again. Hopefully, we can hang on to that golden mid way somewhere.
Lets hope when its our turn to dictate the world, we become a socially, morally and culturally responsible capitalist giant. Fearlessly smart and aggressively good !
Updated : 17/01/10
In conclusion, the entire deregulation in US has enabled the bankers in US to do as they please and left the tax payers to suffer. The US went through one of their worst crisis after the great depression, millions of lives were damaged through cutbacks, job loses and washing away of all savings and all this pain, I feel, was self inflicted. The financial system went to being unstable due to adoption of reckless deregulation right from the financial reforms US congress enacted from 1970.
The “Financial Crisis Inquiry Commission” is drilling top bankers to decipher the cause of the crisis. Do follow the day to day coverage if you wish to know what the bankers are having to say after everything. A glimpse :
Mr Dimon of JP Morgan said that the “happens every five to seven years. We shouldn’t be surprised.”
And Mr. Blankfein of Goldman Sachs -“We should resist a response … that is solely designed around protecting us from the 100-year storm.” – So basically intending that its cool, it had to happen, don’t over react.
Lots of other interesting metaphors to go through out here. No one can summarize things better than Paul Krugman : “It tells us that as Congress and the administration try to reform the financial system, they should ignore advice coming from the supposed wise men of Wall Street, who have no wisdom to offer.”
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I simply do not get the sense in this post. What was it written for? very naive and without any hint of analysis, not to forget too late for its time – in a world where things change by the second (I am speaking about the world of finance and trading, where 1 second is “long term”), there has been 100 good days when this was the topic too discuss
There are at least 4 good pieces written on this same topic in strat.in itself. You should have read them before writing this one
I remember one about TARP repayment, and several ones about recession.
Without drawing any stupid and vague analogy involving comic book superheroes and their bete-noires (and then orgasming thinking about all those “brilliant out-of-the-box analogies”), I can tell at least 5 areas where you could have made the post different
1. But today, if there is one profession you want to bash and kick at and get an applaud – just lash out at any top executive employed with one of the global financial institutes or banks.
This is not a major issue now, not even in the US. The world has moved on. The banks are coming out with results, and they are fall all to see.
2. Was the bailout money just thrown away at these people while they were out with the begging bowl without a fixed plan to recover every penny of the taxpayers money back
The post on TARP here at strat.in itself has explained in detail this aspect, and of course, it was a more mature read.
3. But the big question is, I don’t know if it will happen, but if we are talking about India becoming a developed super power – do we become an easternized- eastern super power or a westernized eastern super power
What exactly are you trying to say? You could have done a bit of explaining here about what is an easternized- eastern super power or a westernized eastern super power, and how they have developed their models, what has been their basis, and how they are looking ahead
4. Imagine a bank employee from India and I am sure for most who have visited the bank at times, the image would be an honest and sincere middle aged employee who counts the notes for you and hands them over with a smile.
Ah well, this statement is mostly wrong in India, at least the honest and the smiling guy part, but that is not the point here( But then again, I would not put too mush stress on the efficiency part, because, some idiot would come forth to defend their constitutional democratic right to be lazy, and any effort to make them work harder would be Hitler-ish and “right-wing tactics” to be “puked upon”)
The point is you have failed to differentiate between investment-banks and retail-banks or commercial-banks. Even is US at Citi-bank retail arm or in UK, in the Barclays-retail arm, you would find honest smiling employees
5. A closed banking system will give rise to more number of alternative finance institutions which would then pressurize the government into securitizing their mortgage products.
Here again you could have done with a bit of explaining. What exactly are you hinting at? Please quote examples.
Finally, this is not a bad effort, but it lacked soul. And heart
Hi Kaushik,
wow.. thanks – trying to explain :
1. actually post refers to this news piece on the 15th of jan 2010 : http://news.bbc.co.uk/2/hi/business/8458689.stm
2. the bashing and tax is a way to recoup for TARP losses : http://www.washingtonpost.com/wp-dyn/content/story/2010/01/14/ST2010011403530.html
A forced “Financial Crisis Responsibility Fee” after the banks started declaring “Obscene bonuses”(Quoting Obama) makes it appear that the institutions used the money as some sort of a ‘free catastrophe insurance’ and the government has woken up to the $117bn estimated loss in to $700Bn bailout and had no rule to ensure that the repayments are cleared out before institutions start thinking about bonuses.
3. Difference between US/Europe and India during world crisis :
In India : we did not have sub prime crisis, no toxic derivatives, no bank credit crunch and no mistrust between the banks. – all these i feel are a reflection of our principles, values and standards that we follow in our culture, political and economic values and foreign policies. easternized-eastern.
And if we are to offer leadership to the 21st century world, will we bypass the filthy stuff, say – the Iraq invasion, Guantanamo, Abu Ghraib, torture, rendition, Blackwater’s killings of Iraqi civilians – in case of US to show their power. westernized eastern.
4.”some idiot would come forth to defend their constitutional democratic right to be lazy, and any effort to make them work harder would be Hitler-ish and “right-wing tactics” to be “puked upon”” – well i was just talking about attitude, if you bring in efficiency, have to agree with you.But i guess we do have some partial change post 1991. Pre liberation – what you said would be true to almost everyone in India.
agreed on the mix up between retail banker and investment banker – but the point was basically to stress on retaining the values and culture mentioned in point 3.
5. Basically I think a closed system where it is difficult to interact with the bank, leads individuals to move towards other sources. The current NBFCs and HFCs are certainly controlled by the RBI, but just considering the possibility of them blowing up into a big influential lobby, coming up with their own ‘high risk’ products and start selling asset backed securities.
the midway mentioned is managing financial stability while slowly opening up current account, encouraging equity flows, and liberalizing capital outflows. Basically active dynamic financial regulation intact throughout the way up to opening up. Sorta comes back to culture again – an environment where policies are driven by prudent thoughts and not greed and irrational exuberance .
Do let me know your views. And ya, have to thank you for a detailed take on the article.
Rahul. thanks for the reply. Now the post seems much better
, no I am serious about it.
BTW, I have been reading your posts for the last few days – the down under post, the open source post are really good, and so were the comments on MEA post – so this post was a bit of a let-down. Also, congrats for being part of such a good time – at a time where posts have become premium, it’s good that you have taken the role of a workhorse, and delivering !!
But despite this, there are some points which you can ponder upon
1. “we did not have sub prime crisis, no toxic derivatives, no bank credit crunch and no mistrust between the banks”
You are slightly mistaken here. Our Investment banks do have had these. The saving grace was not our grace, honesty, ethos and work culture, but the fact that our markets are not mature enough to have more of complicated derivative structures. I can speak from experience, have been in the sales team of equity, currency and interest rate futures derivatives.
As far as being ethical etc is concerned, our insurance agents and stock brokers are no less dishonest in trying to sell products which are not best for the customer, but earns themselves higher commissions. Again, I speak from experience, as I have been almost reduced to tears by one such smooth-talking agent.
2. “And if we are to offer leadership to the 21st century world, will we bypass the filthy stuff, say – the Iraq invasion, Guantanamo, Abu Ghraib, torture, rendition, Blackwater’s killings of Iraqi civilians – in case of US to show their power. westernized eastern.”
You have confused issues here. Anyway, I would not comment on this (as I did not comment on the MEA post) because of my political leanings, but one thing must be said that there has been no 9/11 post 9/11, and here we have a cartoon on whom we spend Rs. 50 crores and who is playing games with our legal system, with our money, after having killed our relatives. Anyways, these have nothing to do with the post, so I would let them pass.
3. “the midway mentioned is managing financial stability while slowly opening up current account, encouraging equity flows, and liberalizing capital outflows. Basically active dynamic financial regulation intact throughout the way up to opening up. Sorta comes back to culture again – an environment where policies are driven by prudent thoughts and not greed and irrational exuberance ”
Current account has its issues, equity flows are there and liberalizing capital outflows – the systems are in place. So, you are right on the target in this count. But I refuse to believe that our markets operate on “no greed and irrational exuberance” – as I said earlier, our markets are not mature enough to be greedy enough. And not to forget that our Domestic retail investors would still rather keep the money in their pillows than go out and invest, so our markets do not become big enough
Kaushik :
I now wish you had taken apart all my articles. I learn a lot more that ways i guess
.
1.Completely agree about insurance agents. I just want to mention about a macro level at which as we are ‘maturing’ the things that dd keep us insulated during the crisis, stay intact. But ya, may be you can post one on how our markets should look forward to ‘mature’.
2. May be i wanted to convey from a point assuming that we are a super power – we wont assume the – ‘ we can screw you when we want ‘ attitude towards others – financially and overall.
about kasab : http://arerelax.blogspot.com/2009/10/koffee-with-kasab.html
these are my views about it.
do lemme know what you think.
3. Actually said in US they are operated based solely on greed and irrational exuberance, so as you mentioned – not right now, but if and when we mature – we should not be solely operated by these.