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A Tale of Two Industries: Banking and Everyone Else

Updated on April 10, 2014

A Tale of Two Industries: The City and Everyone Else

The Banks are booming. At least that is how it would feel if you worked for an investment bank. As a shareholder or pensioner relying on bank dividends and share price growth you may feel otherwise. Meanwhile engineers, scientists and in fact anyone who does anything useful for a living may be feeling poorer than ever: Design engineers and research scientists are now often earning less than "back-office" admin staff in investment banks. I semi-retired from the silicon chip design industry (I am now an independent consultant) a few years ago and we too had our own boom and bust ending dramatically at the start of the century, after being very fortunate to have experienced an extreme period of change and innovation which has altered the world so much (and mostly, hopefully, for the better) Banking however has been the main beneficiary of the clever innovations we perpetrated, using our software, hardware and communications infrastructure to find ever faster and devious methods of relieving their customers of their hard-earned cash and ingenious ways of repackaging debt to disguise it's toxic components. The banking boom has also ended with a catastrophic crash, but in their case they managed to bankrupt the whole capitalist world economy and central bank and government efforts to rectify the situation, have resulted in the banks running off with even more of our money. The silicon chip industry, however, was allowed to collapse in the UK, or at least to escape to foreign, cheaper climes. This is a tale of two industries.

Related Article Published on Helium: Anger Over Banker Bonuses

Banker Bashing

Should We Stop Bashing the Bankers?

“It is time to stop bashing the bankers,” proclaimed David Cameron, the UK Prime Minister and his equally posh and privileged sidekick, George Osborne, the Chancellor of the Exchequer (i.e. UK Finance Minister) The war on Bankers and their obscene salaries and bonuses is over and they must be allowed to get on with their jobs. If I were an economist this suggestion might seem fair and sensible: Perhaps the best way out of this crisis is to allow the most profitable companies in the free market economy to make as much money as possible, thus increasing average GDP per capita faster. Except median happiness and wellbeing of the populus is not determined by mean GDP and if this were a free-market economy the banks would have all gone bankrupt when the credit crisis reared it’s ugly head (taking the rest of the economy with it) and have only been enabled to continue paying ever more enormous salaries because of external support. Making the rich even richer at the expense of everyone else may increase GDP and make 1% of the population a little happier while 99% become more miserable.

When Money Dies (recommended by Warren Buffett) - The Nightmare of the Weimar Hyper-Inflation

This classic books has been reissued after Warren Buffett recommended it. An excellent book about hyperinflation in Weimar Germany in the 1920s. A situation that could repeat itself if low interest rates and money-printing continue at current levels.

Collateralized Debt and Quantitative Easing

Collateralized Debt and Quantitative Easing

The banks collapsed, with dodgy collateralized debt on their balance sheets that, even now, hasn’t been adequately stress-tested to prove the banks really are solvent and have been propped up using taxpayers’ money and newly printed money (created with QE: Quantitative Easing), which was directly injected into the banks to keep them alive. The real value of money has been reduced, so everyone in the world, except those who work for financial institutions have been impoverished. The people who were most responsible for causing the problem have been rewarded massively and everyone else is worse off. This is not restricted to our own country. Most of the current unrest in the world was catalyzed by poverty caused by escalating food prices as the effective value of the dollar was pushed down by QE, while at the same time greedy soft-commodity traders in Chicago, London or wherever, are getting rich on the proceeds of their speculation on food price derivatives. Not everyone who works for a bank is evil or corrupt, far from it, but they have benefited massively from the credit crisis that a few of their colleagues helped to create. The sense of entitlement and denial of any responsibility is annoying, but the constant threats that if they aren’t given their bribes they will leave the country is quite intolerable.

Austerity Measures (For Everyone Else)

Austerity Measures

In the U.K. the effects of austerity measures are just beginning to be felt, just as the banks are announcing bigger than ever pay awards and annual bonuses. The cuts are being implemented by the Conservative, Liberal Democrat coalition government (The Tories being funded more than 50% by banks) and will affect millions in the form of job-losses, effective pay cuts and welfare benefit reduction. Some of these cut are necessary and even sensible and in our current situation there would be no way to spend our way out of the problem, because the UK would lose it's AAA rating and our debt would become unaffordable. But allowing the financial services to pay their staff so much more (e.g. 50% or even 100% more since the crisis began in many cases) is completely intolerable, especially when banks are offsetting the pre credit-crunch losses against the recent QE and tax-payer assisted profits to reduce their corporation tax-bill and refusing the pay dividends to their shareholders (many of whom are pensioners) One of the arguments for letting the banks get on with their work unimpeded was that this would generate additional tax revenue and boost the economy, but if they are refusing to pay tax and stealing from pensioners, I don't see how that will work. The constant threat that the bankers will leave London if taxation is increased hangs over the heads of the government, because other industries (such as my own) have not been nurtured and have mostly been allowed to migrate to India, China and Taiwan etc. leaving the UK dependent on a small number of massively overpaid people in The City.

Useful Members of Society

Useful Members of Society

"We're All In It Together" (Unless you work for a bank)

It was bad enough when the people who changed the way we live by designing and developing fast broadband, mobile internet, smartphones, big screen TVs and made it all affordable, were earning less than the people who charged excessive fees to manage your money (and still under-perform the market) but now, after the Credit Crunch, even the "back office" staff, who do the bankers' admin can earn more. Many of my ex-colleagues have moved abroad or are contemplating IT jobs in The City because they will earn far more. Many scientists, engineers and generally clever people I know in the U.K. are losing their jobs, having their funding cut or just not getting pay rises, as are nurses, teachers, police, soldiers and lots of other useful members of society. This really is a tale of two industries: Financial services and everyone else.

Related Article Published on Helium: Anger Over Banker Bonuses

Is It Payback Time?

Are You On The Side of The Bankers Or The Rest of Society

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    • profile image

      dannystaple 5 years ago

      The banks have seemed to have (with a few spectacular falls) done even better from the downfall. I am not a fan of tarring a whole sector with the same brush, but there has been a feeling of banks flaunting their power while peoples own livelyhoods and wellbeing have gone up in smoke. As a software engineer, I am all too aware that I could probably make a larger wage doing the same thing for a bank, although I have the (possibly wrong) impression that it would be far less enjoyable than other development jobs. In terms of dealing with financial sector irresponsibility, I like the SIMPOL idea - where many of the developed countries politicians accept a universal policy on the situation, such that no country is disadvantaged and bankers cannot threaten to leave.

    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      March For the Alternative: Jobs, Growth, Justice. Today in central London (26 March 2011) The TUC have arranged a march against the austerity measures and cuts which directly impact the poor and let the rich (especially the bankers and financial services industry who are culpable) off the hook. A lot of people are very angry about the terrible injustices that occurred in this country (and of course in most of the rest of the world) and there could be a very large turn-out. Let's just hope the protest remains peaceful and that the government takes notice of the huge majority who are upset. There may be no alternative to cuts now, but the wrong people are being punished and the few people who benefitted from the credit crunch are making more money than ever.

    • Andy-Po profile image
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      Andy 6 years ago from London, England

      It's Budget Day and there was a little help for the people impoverished by the bankers in the form of reduced tax on petrol (although the earlier VAT increase was larger than the cancellation of further rises in tax on fuel, so this is a bit of a con) and absolutely nothing done to punish the banks for their latest unfair transfer of wealth from their shareholders - many of whom are pensioners hoping for a dividend income (and tax payers, particularly in the case of state owned banks) to their employees, despite promises to the contrary from the Conservative Liberal Coalition government.

    • Andy-Po profile image
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      Andy 6 years ago from London, England

      RBS (Royal Bank of Scotland), one of the banks bailed-out by British taxpayers, today had to reveal that 300 of their staff had an average remuneration above £1 million (Someone on average (median) salary e.g. a nurse or junior teacher may earn little more than £20,000) so rescuing each of those 300 people's job could have resulted in the loss of 50 or more nursing or teaching jobs! Or 15,000+ jobs lost in total. How can potentially plunging 15,000 families into poverty be justified to save the jobs of 300 already extremely wealthy people?

    • KimGiancaterino profile image

      KimGiancaterino 6 years ago

      I'll have to keep an eye on this lens as inflation creeps up.

    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      @debnet: Thanks very much. I'm very sorry to hear that your working hours and pay have been hit. That is so unfair.

    • debnet profile image

      Debbie 6 years ago from England

      Another great lens Andy about a very volatile and current subject. Well done for raising this subject.

    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      Steven Hester the CEO and various other senior executives at RBS (Royal Bank of Scotland), the state owned bank today find themselves millions of pounds better off, in bonuses and other incentives, despite the bank they work for making a loss, being rescued and now owned by us the U.K. taxpayer and despite the investment banking industry bringing the whole world economy to its knees and effectively having to be bailed-out by everyone else in the world (via Quantitive Easing, currency devaluation and increasing food and oil prices)

      Last week there was similar news of multi-million pound payout for Bob Diamond, CEO of Barclays Bank. This is disgusting and immoral behaviour that is bound to incite protest, but this is actually part of a problem with the enormous payments demanded by senior executives in many Blue Chip companies. What is not being reported is the outrageous pay for everyone in the banks: back office workers with no specific qualifications or experience who do general non-banking specific office work, who could earn more than doctors, experienced senior engineers and several times as much as useful members of society such as nurses, teachers and police (Pay and job cuts were also announced for the police yesterday just to rub salt in their wounds)

    • MargoPArrowsmith profile image

      MargoPArrowsmith 6 years ago

      lensrolled to "MoveYourMoney.Info"

      I doubt you get the Daily Show, but go on line for it. Wednesday night (I think) Jon Stewart did a but showing TeaCons, Fox people etc talking about how the teachers and janitors in Wisconsin had to make sacrifices "like everyone else", then he shows the same people talking about how the CEO's, the same ones who ran their companies into the ground, deserve to get paid more.

      Like everything Stewart does, isn't funny and maddening at the same time.

    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      @jolou: Yes. Central banks and governments may pretend that they are fighting inflation, but with this much debt it may be the only way out and that punishes the prudent amongst us and rewards those who got us into trouble in the first place. Hyperinflation could be the end result.

    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      @MargoPArrowsmith: We do get the Daily Show here, but I must have missed that one. I shall try to find it online. Yes, Jon Stewart certainly does some excellent satire.

    • jolou profile image

      jolou 6 years ago

      I'm certainly not optimistic about the economy and what is ahead. The economic crisis in Greece and other countries is likely to spread, since almost all countries now have astronomical debt.