Archives of “investment bank” tag
rssThe golden rules of banking
THE crisis has taught people a lot about the banking industry and the thought processes of its leaders. These lessons can be distilled into four golden rules.
1. The laws of supply and demand do not apply. When food producers compete to supply a supermarket, the retailer has the luxury of selecting the lowest bidder. But when it comes to investment banking, wages are very high even though the number of applicants is vastly greater than the number of posts. If the same was true of, say, hospital cleaning, wages would be slashed.
An investment bank, like a supermarket, demands a certain quality standard: it will not hire just anybody. But whereas it may be easy to identify a rotten banana, it is harder to be sure which trainee will be the next Nick Leeson and which the potential George Soros. That gives executives an excuse when things go wrong.
2. Success is down to my genius; failure is caused by someone else. When banks do well, and profits soar, the bosses are responsible for it all with their strategic cunning and inspiring leadership. Huge bonuses are therefore due. (more…)
New Glossary of Finance Terms
Bonus: A form of extortion whereby employees of a company extract either shareholder or taxpayer money for their own pleasure regardless of the success or failure of said company.
Derivatives: Trading vehicles created by over-educated finance professionals for whom speculating in stocks and bonds was not quite risky or volatile enough.
Bulge Bracket Firm: A Wall Street investment bank that is literally “bulging” with off-balance sheet leverage and bloated pay packages for the architects of said leverage. They used to be referred to as “Too Big to Fail”, circa 2007-2008; they are now extinct.
Credit Ratings: These are fictitious opinions of health and financial strength that are sold to the highest bidder. The business of assigning credit ratings to bonds is similar to the business of receiving payola at a radio station for playing a particular record more often than others.
Department of the Treasury: This is a government agency in charge of rescuing companies and executives who make bad decisions or investments. Oh yeah, another minor function they serve is printing the nations currency.
Federal Reserve: An institution that ensures the inflation and subsequent bursting of asset bubbles roughly every 7 years.
Hedge Fund: A betting pool, similar to a group of employees or friends who all contribute their money to a pot and buy lottery tickets. Only in this case, a few of the participants charge everyone else involved a fee for picking which lotto numbers they will play. (more…)