Err, Willy laddie?

If there were any last doubts they were dispelled by the record $1.5bn fine paid by the Swiss bank UBS for \”pervasive\” and \”epic\” efforts to manipulate the benchmark rate of interest – Libor – at which the world\’s great banks lend to each other.

By deinfition the manipulation meant that Libor wasn\’t the rate at which the world\’s great banks were lending to each other. Without manipulation it would have been.

What makes your head reel is the size of this global market. World GDP is around $70tn. The market in interest rate derivatives is worth $310tn. The idea that this has grown to such a scale because of the demands of the real economy better to manage risk is absurd.

You stupid, stupid, man. That\’s outstanding nominal, not net.

The centre-left thinktank IPPR reports that people with identical skills earn on average 20% more in financial services than in other industries, with the premium rising the higher the seniority. That wage premium does not come from virtuous hard work or enterprise. It comes from how finance is structured to deliver excessive profit.

Erm, actually, we tend to think that people earn higher wages in businesses and fields with higher productivity….

10 comments on “Err, Willy laddie?

  1. Aye to Neil. Whenever I’ve worked in the booze industry, free booze has been a constant factor. The money industry is not dissimilar.

    However, the City is more productive than Wall Street, because Wall Street is a direct rent-seeking tax on the US economy, whereas most City business taxes the non-UK economy (Russian miners, African bond issuers, and so on) in order to pay for staff, premises, professional services and occasionally government tax in the UK.

  2. It seems to me that the City is beneficial to the UK economy, in its direct effects at least. But I doubt very much that banking globally adds anything like the amount of value it manages to extract.

    In my experience the premium is a lot more than 20%. Banks are competing with each other for the best staff, not with widget manufacturers.

  3. Some people can’t see a near-cartel with high barriers to entry either as business or employee when it jumps up and bites them in the face.

  4. Agreed, James V. But I’d guess it’s barriers to entry (set by the government) for banks rather than people. Not many on the Northern Rock board (including chairman and chief executive) had any banking or even accounting qualifications.

  5. Rather have a large barrier to entry for banks in order for certain standards to be met.
    If I pay some money into an account I want to know there’s a good chance I’ll still have money there tomorrow.

    With some hundreds of banks and building societies I can choose from, including internet ones, its hardly a lack of choice.

  6. “That wage premium does not come from virtuous hard work or enterprise.”

    Coming from a overpaid failed tabloid journo is irony itself, I wonder how much he got paid for those 1,100 words of uniformed twaddle, in addition to the excessive salary he gets from part time post in the Work Foundation.

  7. …..That wage premium does not come from virtuous hard work or enterprise…….

    Those that I know who work in the city spend more hours slogging at the desk than Willie ever has.

  8. Martin Dawes, there is no need to worry about the bank surviving. The government scheme covers up to £80k of saving which should cover 90% of people. For those with more, they are usually better off investing it in something than having it sitting in an account earning interest.

    When the barrier to entry for banks is having millions, satisfying a 4″ thick bundle of useless paperwork, and knowing the right people, then it’s quite high. A small local bank is unlikely to handle millions in savings, needs more in handle customer service than less in regulations and red tape.

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