In defense of bankers | Hacker News Reader

In defense of bankers

newsweek.com

8 pointsfizx8 comments

I used to work in a bank (via a consulting company). My girlfriend works in a bank (she's a salesperson in commodities - she sells future contracts to producers and consumers of metals who want to hedge their production). I have many friends who have worked or are still working in banks.

There's not a single one of them that's even indirectly responsible for the economic meltdown. They all work very hard at jobs they don't always enjoy, and provide an extremely valuable and difficult service to their customers. Taking my girlfriend as an example, she often has to juggle multiple phone calls, while checking prices and taking orders, dealing with often irate traders (who would rather swear at the customer than deal with them), all the while being absolutely certain that none of the numbers she writes down are wrong - a small error can result in hundreds of thousands of pounds of losses, and you don't last long in that job if you make errors - any errors.

Taking my girlfriend again as an example, she often hates her job, but she does it and does it well for a variety of reason, one of which being that it pays very well. Part of that pay is the bonus. Now, despite the downturn, she's met her budget. She's created millions of pounds of turnover for the bank, because she's good at building strong relationships with her customers over time so they like to trade with her. Does she deserve her bonus? Absolutely.

I personally am deeply disturbed by the wave of populist anti-banker sentiment that has captured much of the world. It is wrong, it is base, it is misdirected. There are many people who are responsible for the problems we're having, but your average banker is not one of them. Here's who you should go after:

1) Stupid "homeowners" (I prefer the term "homeloaners", as I don't see that they own anything) who took up loans way beyond their means

2) Shark-like loaners (those who chased and made those loans)

3) Bond structurers who issued all these CDOs that caused us trouble (as the article points out, less than 1% of bankers)

5) Regulatory authorities who didn't do a good enough job of chasing up irregularities and smacking them down

4) Dumb lawmakers who passed laws that encouraged the above behaviour by either over-regulating (by forcing banks to lend to bad prospects) or under-regulating (by removing or dulling financial services legislation)

The average banker is no more responsible for the mess we're in than the average programmer was responsible for the dot com bust.

You've chosen to defend a group you're familiar with (bankers) only to unfairly demonize other groups you haven't thought enough about. Let's see:

1) Stupid "homeowners"

How many of these people were really stupid? Many of these new home buyers had no assets to begin with. Banks were willing to let them live in a nice house for a few years. In the worst case, they'll probably end up back where they started. This clearly isn't the best way to manage one's personal finances, but it wasn't totally irrational.

2) Shark-like loaners

People were pouring in to mortgage brokers and asking for loans. If mortgage broker A decided to stop processing paperwork for people asking for a loan, home buyers would have just gone across the street to mortgage broker B (and A would go out of business).

Mortgage brokers just process paperwork - the clients decide they want a loan, the banks make the lending decisions. Demonizing them makes absolutely no sense.

3) Bond structurers

This was a profitable business for years. Professional investors wanted these securities. If you were in this business, who are you to argue with your customers? Besides, many of the buyers were of the highest caliber, Freddie, Fannie, and government pension funds.

5) Regulatory authorities

Regulatory agencies are designed to preserve the status quo, not challenge it. The rational interests of the regulators (such as not challenging the politically powerful) are almost always in conflict with the highest social welfare. Saying regulatory agencies failed is so predictable that it's nearly a tautology.

4) Dumb lawmakers

OK, we can agree on one :)

The finer point, though, is to see how bad laws caused all the other market actors to make rational decisions that worked against the overall social welfare.

For example, if money is free (as it was to banks, because the interest rate was held below the rate of inflation), then how much money should you borrow? Clearly the answer is as much as possible, as long as you can achieve any positive real return. Is it any surprise then that we ended up over-leveraged?

Oh, I didn't mean to imply that those were solely responsible. I think if you look at it holistically, a majority of the population is responsible for this mess - which is why the idea of punishing a specific part of it for it is silly... we're all responsible in some way.

Even the lawmakers have excuses - largely, they were probably doing something they believed was right (such as enabling poor people to own a home), rather than plotting the demise of the economy.

However, most of the scorn these days seems to be directed at bankers, who imho are less responsible, in aggregate, than any of the groups I named above.

Perhaps. I don't blame the bankers in general. However, these banks received government money because they had liquidity problems, then promptly handed out that same government money to its employees in the form of bonuses in numbers that stagger the average American.

Then, statements such as it being difficult to live on less than a half million dollars are said in editorials, and these same bankers complain.

The rest of America sees this as rewarding failure, regardless of the individuals making profitable decisions for the company.

Well, for the record, none of the people I know who work in banking earn half a million dollars (not even including bonuses). And that's the case of 99% of "bankers".

AIG spending half a million dollars for an "unrelated" business is unreasonable. It shows that according to AIG, the culture of eat-what-you-hunt is still okay - despite the enormous negative externalities that were caused by isolated groups taking on unprecendented risk in hopes of personal reward.

If you placed your life savings in a car and the car blew up, would you be angry with the car?

No hang on, that's not being rational, you can't blame the whole car, you must blame the faulty component that triggered the blast. Hell you'd better not be angry with it at all if you want any chance of making that money back again.

One thing is being angry with the whole car, another is spitting the owner of the bodyshop down on main street in the face for taking his family to Florida.

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