Exactly.

These days a lot of people see banking as something that is inherently evil but the banking sector exists to perform a very useful and important function in society. There are always people wanting to save (for pensions, household savings etc) and always people wanting to borrow (businesses looking to start up/expand, people looking to get mortgages for houses). The most efficient way for savers to save is not to stick their wealth under their mattress but to lend it to people wanting to borrow now, the idea being that if the borrowers are getting some productive use out of the access to those funds now, they can repay the savers with interest so the savers gain. The banking sector exists to bring those two aims together, to take funds from those who want to save and make them available to those who want to borrow.

There are huge issues of imperfect information in this in that savers don't have information on the reliability or otherwise of borrowers so a good banking system provides information so that savers can make efficient decisions, eg they can offer savers a range of forms of saving, some ultra safe with low interest payments, others more risky with higher interest payments. Similarly the banks can lend to safe businesses at low rates and can make riskier loans to more uncertain businesses in exchange for higher rates.

The problem in recent years is the banking sector has taken advantage of the lack of information by deliberately misleading savers. They have aggressively marketed loans to high risk borrowers then disguised the risk by packaging the loans up into complicated packages which make it impossible for the buyer to assess the risk, and then selling the debt on to savers under the guise of AAA ratings. Whilst doing this they have warned government to stay out of their way and campaigned for small government and said that government is a drain on society. When things have gone wrong they have gone cap in hand to government to secure bail outs, but then tried to push the blame away from their own practices and said it was the high risk borrowers' fault for borrowing money they couldn't repay. Well the whole point of banking services is that they make the assessment of risk on behalf of clients so that savers seeking safe investments get safe investments, not conning the savers by selling them high risk investments under the guise of safety.

There are problems of imperfect information in all sorts of fields and those in positions of responsibility deal with them - look at healthcare for example, if there's a drug with high risk of side effects then you wouldn't expect a doctor to prescribe it to patients under the guise of it being safe, and then when things go wrong the doctor say "the patients shouldn't have taken such a high risk medicine then should they?"

It was the Conservative government that ordered the public sector to behave like the private sector – including hiring managers from the private sector to help do this, even if that meant paying 'the market rate' for the job.

This is a fact.

Which is almost exactly what Minty is saying. I don't think it's party political anymore either. The "consensus" is that the private sector knows best.

I spent many years as a public sector worker, and when I moved to the private sector found it a completely different world, where my targets are measured in sterling rather than satisfied customers and the service ethos that I had (and have tried to keep) is being battered out of me.

Sometimes my company would seem to be more interested in recommending people try things that will get us a sale, rather than telling people "no" and letting them keep their money.

It hasn't been party political for years – well, not in terms of the three main Parliamentary parties, at any rate.

As I've said more than once, Labour, in essence, bought into the entire neo-liberal thing. While in government, they might have invested more in public services – and a damned good thing that was too – debacles such as PFI etc show how much they had also fallen for the rhetoric and the ideology.

Now admittedly, more traditionally left Labour leaders and manifestos were defeated in elections.

Although, as Mugwump pointed out in another thread, the coverage of trades union and labour movement issues in the bulk of the UK media is, quite frankly, an absolute disgrace. It is an insult to anyone's intelligence. So how you counter that, I really don't know. It's just one of the reasons that I detest Murdoch and all his works.

Agreed, and the extent to which this will happen depends upon the market involved.

As an example last week I was talking to a mate who is in the property letting business who moved from a large letting agent to a smaller agent a couple of months ago, and he was much happier and saying there's a much better ethos in his new place. His argument was the difference is in the smaller agent with less properties on their books they have to make a bigger margin on each property and so have to charge more and so can't really tap into the student market, so their business model is based around targeting repeat sign-ups, ie tenants that move in somewhere and stay put at the end of their contract and re-sign so they don't have to re-let it. This means they have to offer little extras in service so that the tenants feel they are on to a good thing, and also because they don't have the resource to carry out lots of repair work they buy more expensive furnishings and equipment so that it doesn't need replacing as often.

At his old firm that was a large agent they made their money by trying to undercut rivals and target as many lets as possible, making a small margin on each one. Because their target was volume their strategy would be doing things like reducing the rent and replacing the lost income by increasing sign on fees and putting in extra fees for "credit checks" and so on, so that their low rents pushed their properties to the top of search engines but they still made the same money anyway. Also they only equipped every property with the very basics they were required to by law and a lot of the properties had long standing damage that they just masked and covered up when they were doing viewings, basically they accepted that a lot of tenants would be peed off and leave at the end of the year, but as long as they could get tenants to sign up they would have them on contract for a year and then the next year they would just target new punters.

Two business models there - the first one is reliant on keeping customers happy and securing repeat business, the second is reliant on just targeting volume and holding customers to contracts once they have signed them, and has no interest in whether they are happy or not.

Mintball wrote:Good post – so I'm not having a dig – but how do you actually do that? I think it's a much more complicated issue than most people think, and I can't say I have one simple suggestion. These have been mentioned in various forms but my suggestions would be: -> there needs to be a cap on bonuses in IB. I have no issue whatsoever with what most people would deem "excessive" bonuses of £1m pa+ because ultimately there are people working in Banks who directly generate £30/40m+ worth of profit a year. I've got no issue with being rewarded for that but we need to find a way to structure it so there is a natural limit to bonuses, such that it's not just about how much money you make. -> Banks should employ more women in management positions. It's in no way a coincidence for me that most of the women who work on my trading floor are very attractive and in PA or Sales roles. I doubt the correlation between being very attractive and very intelligent is that much different from the correlation between offensively ugly and highly intelligent. This is an issue for the private sector in general, but it could have much bigger effect in Banking due to the macho culture which although vastly exaggerated in the general press, does exist. -> just as there has been an industry wide review of the role of rating agencies, there needs to be a review of the major client surveys, eg. the Euromoney FX Survey. Regulators should repurpose these and link them to bonus payouts IMO. -> we need to find a hybrid ownership structure. It can't be a coincidence IMO that Banking culture changed from being client focused as the Partnership structure faded out to be replaced by one of public listing. The best way to implement a client focus has to be to ensure senior management are completely tied in to the future of the company. -> Banks should have to explain to any non Financial Institution client how they are making profit from any trade and give scenario analysis of what can go wrong. You can explain the structure clearly of even the most complicated instrument, but it's only when you know how a trader or structurer is making money from it that you really get what the risks are and whether it's a suitable investment. For me society needs to stop focusing so much on what bonus Bankers get paid and concentrate on what they have contributed to society to earn them. What certainly doesn't help is the various unwashed hippies, trust fund warriors and Occupy smackheads who we regularly get parading around the City, nor the wailing reporting from the press. It all distracts from meaningful debate.

Mintball wrote:Good post – so I'm not having a dig – but how do you actually do that? I think it's a much more complicated issue than most people think, and I can't say I have one simple suggestion. These have been mentioned in various forms but my suggestions would be: -> there needs to be a cap on bonuses in IB. I have no issue whatsoever with what most people would deem "excessive" bonuses of £1m pa+ because ultimately there are people working in Banks who directly generate £30/40m+ worth of profit a year. I've got no issue with being rewarded for that but we need to find a way to structure it so there is a natural limit to bonuses, such that it's not just about how much money you make. -> Banks should employ more women in management positions. It's in no way a coincidence for me that most of the women who work on my trading floor are very attractive and in PA or Sales roles. I doubt the correlation between being very attractive and very intelligent is that much different from the correlation between offensively ugly and highly intelligent. This is an issue for the private sector in general, but it could have much bigger effect in Banking due to the macho culture which although vastly exaggerated in the general press, does exist. -> just as there has been an industry wide review of the role of rating agencies, there needs to be a review of the major client surveys, eg. the Euromoney FX Survey. Regulators should repurpose these and link them to bonus payouts IMO. -> we need to find a hybrid ownership structure. It can't be a coincidence IMO that Banking culture changed from being client focused as the Partnership structure faded out to be replaced by one of public listing. The best way to implement a client focus has to be to ensure senior management are completely tied in to the future of the company. -> Banks should have to explain to any non Financial Institution client how they are making profit from any trade and give scenario analysis of what can go wrong. You can explain the structure clearly of even the most complicated instrument, but it's only when you know how a trader or structurer is making money from it that you really get what the risks are and whether it's a suitable investment. For me society needs to stop focusing so much on what bonus Bankers get paid and concentrate on what they have contributed to society to earn them. What certainly doesn't help is the various unwashed hippies, trust fund warriors and Occupy smackheads who we regularly get parading around the City, nor the wailing reporting from the press. It all distracts from meaningful debate.

I'll come back to your other points later, but neither does it "help" when a bunch of w**kers from a bank lean out of their offices and wave money at nurses marching past to demonstrate against NHS cuts, yelling at them that they're scroungers etc.

And while they were disciplined by the bank in question, it indicates a very nasty mentality at work – a mentality that frankly, when I did sales work in the City during the late 1980s, was all too evident.

They all just help the view that the City is full of rude, greedy, arrogant scum.

And, of course, the knowledge that we are not all in this together – and the banks/bankers are not even remotely paying their way for the mess they foisted on this country – doesn't help either.

How much was clawed back from them for their contribution to a near-global financial meltdown?

And please don't say we should move on, we possibly will when there is clear, tangible evidence that the bonus culture has changed

The culture of investment banking hasn't changed in the 20+ years I've been around (not in) the industry. Every investment banker I've ever dealt with was out for nothing other than their own personal income. I suspect it was that way long before I met any of them.

Spot on. The pride and pleasure of the service industry I am involved with was in finding the best solution to the customers requirements, not trying to fit a one size fits all best margin product in as an easier sale.
The increased lip service paid to customer services in terms of SLA's and slidepack reporting only masks the fact that the customers are worse served than at any time I can remember. You then get the operations support side of the business facing more and more pressure and stress to place sticking plasters over issues directly relating to the miss sale of the products in the first instance, and yet the highest earners are the "blue sky thinkers" who continue to "conseptualise" newer and better products that in reality are no better than vapourwear.