If I was a rich man

Professor Andrew Lo’s review of 21 books about the financial crisis is a lovely thing in principle; he read them so you don’t have to. Professor Lo also abstracts from the various interpretations kicking around to make some interesting points, or at least tries to in a here’s MY review, oh yes, MY review of things kind of style.

The one that got me because it’s so topical was his footnote 'n’ quote driven dissing of the following notion that he says has “become part of the folk wisdom of the crisis - Wall Street compensation contracts were too focused on short-term trading profits rather than longer-term incentives. Also, there was excessive risk-taking because these CEOs were betting with other people’s money, not their own.”

Instead, Professor Lo responds with “in a recent study of the executive compensation contracts at 95 banks, Fahlenbrach and Stulz (2011) conclude that CEOs’ aggregate stock and option holdings were more than eight times the value of their annual compensation, and the amount of their personal wealth at risk prior to the financial crisis makes it improbable that a rational CEO knew in advance of an impending financial crash, or knowingly engaged in excessively risky behavior (excessive from the shareholders’ perspective, that is). For example, Bank of America CEO Ken Lewis was holding $190 million worth of company stock and options at the end of 2006, which declined in value to $48 million by the end of 2008,5 and Bear Stearns CEO Jimmy Cayne sold his ownership interest in his company—estimated at over $1 billion in 2007—for $61 million in 2008.6 However, in the case of Bear Stearns and Lehman Brothers, Bebchuk, Cohen, and Spamann (2010) have argued that their CEOs cashed out hundreds of millions of dollars of company stock from 2000 to 2008, hence the remaining amount of equity they owned in their respective companies toward the end may not have been sufficiently large to have had an impact on their behavior. Nevertheless, in an extensive empirical study of major banks and broker-dealers before, during, and after the financial crisis, Murphy (2011) concludes that the Wall Street culture of low base salaries and outsized bonuses of cash, stock, and options actually reduces risk-taking incentives”.

Phew. Except, hmmm. No. Actually this is what you call knowing the price of everything and the value of nothing. If I were inclined to do the math(s) or even the arithmetic, I’d note how Ken Lewis’s wodge of stock fell over 74% in value. Ouch. I mean crikey the credit crunch cost him at least $142m. Ouchy, ouch. Over here where executive pay hasn’t yet reached American levels you could do the same kind of thing for the those who ran the subsequently bailed out banks into the credit crunch or at least you could in percentage terms, but absolutes? Nah, they lost millions not tens or hundreds of millions.

The thing is though even after all these terribly important people lost all this dosh (well actually they didn’t cos it was shares they’d have had to sell to get their hands on the moolah), they were and are all still very rich. 1% rich even i.e. the “penalty” for (some of) the people who caused the credit crunch is that they’ve tumbled all the way from fuck me they’re rich to fucking rich or to quote the handy dandy Institute for Fiscal studies online questionnaire about where you are in the distribution of income in the UK - if you were on Mr Goodwin’s pension right now you'd discover “Your income is so high that you lie beyond the far right hand side of the chart”.

Hence, references to “risk-taking incentives” are beside the point; these people simply weren't taking any meaningful economic risks or at least not ones even remotely comparable to say I don’t know the printers currently being asked to vote on a 10 to 20% pay cut. So whereas yer average punter isn't taking the kids on holiday this year and is having to watch the weekly shop like a hawk, for a Ken Lewis all this means is buying 2 rather than 10 new Bentleys.

Instead, rather than an economics of pay, at these levels an open and honest sociology makes far more sense. Some of the obvious stuff this would have to draw attention to would be as follows; every year the charismatic, experienced and successful people (no seriously) that make up the board of yer typical PLC take their CEO aside and tell him that he’s so insightful, strategic and lovely, so best in class and thought leadery that he as a person is worth millions and millions of pounds. Not just one, or two, but millions and millions. And see that corporate jet you wanted? It’s over there. A chauffer? He’ll be round tomorrow morning. And apologies for not asking before, but do you like your grapes peeled or unpeeled?

Now, the notion that such institutionalised, positive-reinforcement didn’t, doesn’t, couldn’t or can’t turn an executive or a trader's or anyone's head is ridiculous. Rather, the way Professor Lo presents Wall Street contracts as a folk-loric contributory factor is a convenient straw man. Sure sure those in charge lost big arithmetically, and? A crucial and key driver of the credit crunch was an arrogant hubris that reached monumentally destructive levels. And this hubris WAS fed by Wall Street contracts (along with those signed in the City of London and elsewhere) that awarded fortunes every year and were primarily set in relation to how rival egos were being similarly massaged.

Personally, I think Sarah Beaney’s Property Ladder telly programme still illustrates this better than however many books on the financial crisis; every episode some dicks bought a house to develop then spent so long fucking it up the rising market meant they still made a profit. Except they actually believed this was due to their great acumen and risk taking endeavours as opposed to fortunate circumstance. So was executive and banker pay a factor? You totally betcha! And no, not because of the absolute amounts at stake, rather it was the relative numbers presented each year on paper and the impact that and the associated rituals had on the egos of key individuals.

Like Ken Lewis, I'm sure, thought he was the dogs and why shouldn't he? Every year he was handed a multi-million pay package and as we all (used to) know people awarded that amount of dosh don't make catastrophic decisions. So sure he had a lot to lose, but does anyone think that when Ken made decisions he seriously took into account the possibility of him actually losing well anything really? Like really?

The other thing are the challenges now being made to it all. Like we’ve been told for however long that the rich need to be rich because then we’re all better off, except no we’re not actually. Or, as is the case here, we get references to “an extensive empirical study of major banks and broker-dealers before, during, and after the financial crisis, Murphy (2011) concludes that the Wall Street culture of low base salaries and outsized bonuses of cash, stock, and options actually reduces risk-taking incentives”. Except no they didn’t i.e. dull stuff like reality makes utterly fucking clear the current system didn’t and doesn’t work as a means of risk management let alone wealth creation for society as a whole.

Rather, Gramsci’s theory of hegemony and how the ruling class defines the common sense of an age is what's increasingly relevant because the "common sense" we've been fed is thankfully and increasingly being questioned in ways that expose it as a pile of self-serving shit.

They call me Mr Goodwin

Nah, that's no really fair to Mr Salmond cos the following letter the former RBS "economist" wrote to Mr Shred in May 2007 suggests he actually quite likes the pariah:

"I wanted you to know that I am watching events closely on the ABN front. It is in Scottish interests for RBS to be successful, and I would like to offer any assistance my office can provide. Good luck with the bid. Yours for Scotland, Alex"

Another more serious point of course is now that the seal's been broke can we expect to see other "Sirs" getting had up, like whaddabout Sir Callum McCarthy, the chair of the FSA when shit went tits up.

Petty political points aside, I'm far more interested in what the catering staff Mr Goodwin threatened with disciplinary action over serving the wrong type of biscuit have to say about it all. You know those real people who were subjected to his "management style" and unlike the direct reports subject to "Monday beatings", were earning fuck all as compensation.

P.S. (Feb 5th) a fabulous person pointed out the irony of Mr Goodwin's punishment - reducing a former member of the ruling class to the same status as the rest of us. The aforementioned fabulous person also opined it was a shame to take Mr Pariah's knighthood away because leaving him with it would have been on ongoing reminder as to how fucked up the ruling class he was a part of actually is. Ahhh, so that's why they took it off him.

Al Capone, Fred the Shred and structural socio-economic inequalities

The thing about the Sir Fred of Shred super injunction that seems to be in the process of getting forgotten is the way the peer that raised it in the Lords neatly justified his actions by highlighting how the former RBS employee's employer had a conflict of interest policy for its employees.

Put simply, fuck all the super injunction freedom of the press some tart blackmailing a footballer shite, rather did one of the key archi-cunts of the credit crunch that is fucking the lives of hundreds of thousands of people across Britain breach his own company policies while an RBS employee and if so should he have been dismissed for misconduct rather than early retired on a multi-million package? This is the straightforward thing that needs investigated now.


The issue is NOT whether Sir Fred of Shred having a bit of illicit luvin' influenced his decision-making in ways that fucked the bank because that's (a) a facile idea and (b) impossible to prove. Rather, its did he breach a basic term of his employment and if so can we (a) revisit his package in an actually you can fuck off with no cash ya cunt type style and can we (b) have the heads of all those cunts who may have turned a blind eye on a stick as well please?

As an immediate P.S. its no exactly a new idea right enough given this or more famously Al Capone getting done for tax evasion. But, stickin' em with the technicalities delivers results and scares the willies out of all current company directors who know damn fine well they‘ve been a bit economical with the actualite in the past when it comes to their expenses claims. Oh shit, that last bit means it'll probably get buried/smothered by a different story. In the meantime eeeuuurrrgghh, imagine Sir Fred of Shred looming down on you sexy style with his cum face. Euuurrrgghhh.

A May 23rd PS - Is it Nelson in the Simpsons that points and says "ha ha, ha ha"? Regardless, the additional details now coming out about the Sir Fred of Shred's "romance" are brilliant. So according to this not only did he have an affair with a colleague he "oversaw" her getting her second promotion while elsewhere unnamed senior sources are letting it be known that neither of the chairman Sir Fred served under were aware of the conflict of interest; now you could fuck this up by trying to do some bigger picture shit like how this illustrates how he ran the bank as a personal fiefdom, but so fecking what, that's what all CEOs do.

Rather, the real issue is straightforward and remains getting Al Capone on his ass i.e. get 'em on the technicalities over TWO questions/potential breaches of company policy:

(a) Did Sir Fred follow his employers conflicts of interest policy as he was presumably contractually obliged to
(b) If not was he involved in any decisions where there was a clear conflict of interest he was contractually obliged to flag up (i.e. overseeing the promotion)

And lets be clear(a)applies to potential situations and is simply a point of principle that means the relationship should be flagged up regardless, whereas (b)could be an actual and therefore an additional issue and potentially a muthafuckin' smoking gun.

And lets also be fucking clear about the context here; terribly senior bods get terribly big pay packets both because they are clearly worth it, but also because they are regularly assessed on the extent to which they explicitly lead by example i.e. did Sir Fred deliberately withold information that might have adversely affected annual assessments of his performance (oopsy - if such behaviour wouldn't have affected it, then that would indicate there's one rule for the senior and another for everyone else, which is not a good thing to make public knowledge in HR terms)? Now this last part is the kind of wanky bullshit that gets explicitly included in annual performance reviews for very senior bods i.e. they get a bigger bonus the more of an example they set to us plebs. So what kind of example did Sir Fred set I wonder? Plus, the FSA is presumably mindful of the fact that the appointment of a senior bod at a systemically important financial institution was potentially tarnished by unmanaged and unstated conflicts of interest i.e. this shit actually matters big time in principle.

In fact fingers crossed the public interest now being taken in this might prompt the FSA to try and claim a real scalp. They might even engage some HR consultants and start going after the other cunts that fucked the UK economy by investigating their adherence to company HR policies (nah, I doubt it).