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Money meritocracy will rise to the top

Rats leaving the sinking ship

Rats leaving the sinking ship

Regulators and governments alike have got their fingers crossed that reforms on executive pay will stop bankers going bonkers again. He theory runs that new layers of red tape on pay, bonuses and other incentives will avoid any repeats of banks dragging the entire global economy close to its knees in the way Lehman Bros et al did, but it’s a fool’s hope.

Part of the attraction of a career in high flying finance, and what scares most reasonable people away, is that it is as close to a meritocracy as exists. It’s dog eat dog, sink or swim, there’s little middle ground. Traders trade and, assuming it comes off, hero status is assured, albeit temporarily. Lasso in clients, you’re a winner.

The flip side, of course, is what makes the Square Mile and Wall Street so dangerous. You lose money more than once and you’re out of a job. Just like that. Gone. There is no tenure, no job security. Ten and 20-year careers end in a flash. That’s one reason why so many are paid so well. It’s a bit like combat pay. Survive and prosper, or get out, and if you’re going the firm hopes it happens before you lose it any money. It’s not the post office. It’s trial by fire.

You would think that would make the entire workforce afraid to do anything for fear of being tossed out on their can, back into the cruel, cruel averagely paid world. But a meritocracy works in the opposite way. You have very smart people trying to prove to each other that they are smarter than everyone else. Unlike acing a chemistry exam or even nailing your A-levels, the score is kept with real money – how much of the bonus pool you command for your do-or-die heroics.

home moneyLehman Brothers was a classic Wall Street meritocracy. They wanted to one up Goldman Sachs to win the meritocracy game and get paid in spades. Let’s leverage this sucker up with mortgages. A trillion dollar balance sheet. Hey, if not us, who? When that trade went south, Lehman went bust. You lose money, you’re out. Goodbye. Unless of course the government bails you out.

To prevent the next blow up, the G20 is trying to limit pay and banish risk. But no matter what bureaucrats do, the financial world’s meritocracy of getting paid will live on. They’re going to figure out a way around any new rules. The game might move to hedge funds or some other dark corner of the financial market, but no amount of reform is going to kill this animal instinct.

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Eastern promise lures HSBC boss abroad

HSBC boss Hong Kong bound

HSBC boss Hong Kong bound

Shunting the operating base of HSBC chief executive Michael Geoghegan from London to Hong Kong tells us two things. Firstly, it represents another signal of the increasing shift in economic power from the west to the east. Where a traditional G7 power base of US and European interests once held sway, now it is rapidly being overtaken by a wider group of nations in the G20, reflecting the expansion in emerging markets such as China and India. Banking markets are less mature in Asia than they are here and thus the opportunities to grow and increase profits are greatest.

But there is a second and more reassuring point. It demonstrates that western banks are returning to their stuffy savings and loans knitting, a pattern that once produced solid streams of profits that allowed large chunks of cash to be handed back to shareholders on a bi-annual basis through dividends.

In their desperate dash for growth far too many banks have developed a devil may care attitude in regards to growth, expanding into all sorts of highly leveraged, high risk products and markets. That shift has led us to the events of the past few years and the near collapse of the western banking system, so a return of grey suits and reassuringly dullness is a welcome breakthrough.

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Banking goes bonkers – a year on: figures from the financial fallout

The bank's building boom became a busted flush

The bank's building boom became a busted flush

Exactly one year ago, at 5:38 am London time, the world’s biggest ever bankruptcy was confirmed. The $646 billion collapse of Wall Street banking giant Lehman Brothers – roughly 10-times bigger than the failure of US energy group Enron – followed a frantic weekend of last gasp talks between the bank, the US Federal Reserve and British bank Barclays, yet those last desperate hours of talks failed.

Stock markets around the world were thrown into a panic not seen since the Great Depression of 1929 and the reverberations have been felt in every corner of the global economy since.

The bailout cash, in facts and figures:

212.5 one-day slump of FTSE 100 after Lehman collapse unveiled

£30,000 spent for every man, woman and child bailing out Britain’s banks, or

94% of UK GDP

10 years worth of banking sector profits wiped out by asset write-offs

2.3% of projected decline of world economy this year, or

$1 trillion in monetary value

133% predicted rise in UK government debt over next five years from roughly $600 billion to $1.4 trillion

£815bn lost in national UK wealth between end of 2007 and 2008

15% estimated drop in the value of people’s homes between end 2007 and 2008

361 points fall of FTSE 100 since Lehman collapse to date

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