Sunday, May 13, 2012

The Bankers Play Their Billion Dollar Games

By Klaus Staeck on 10 May 2012    Original ( German )

Translated By Ron Argentati

While I tend to devour books, I can't digest everything. That's why, when I find a lack of material in my own files, I turn to those newspaper sections dealing with finance, financial markets or just plain money. The articles I find are occasionally quite compelling. In order to ensure they aren't overlooked, they sometimes merit headlines similar to one I saw recently in a conservative daily newspaper, which bore the luridly seductive banner, “Billions in Blessings for Hedge Fund Managers.”
It dealt with that sector of the financial world in the United States that Franz Münterfering, Germany's former Federal Minister of Labor and Social Affairs, compared to the voracity of a plague of locusts. That description appeared in the professional journal Absolute Return, which, along with Forbes magazine, regularly reports on the blessings of the market, going even so far as to publish the names and incomes of those most blessed. That's how I discovered that a certain Ray Dalio, working for the hedge fund firm Bridgewater Associates, earned $3.9 billion in 2011 alone. Instinctively, you read such a statement twice just to make sure you didn't misread it; then you begin to wonder just what they mean when they say “earned.”
Just what sort of superman with such sublime capabilities can claim to have “earned” such an annual sum in the literal sense? And who had to be bled dry for him to do so? Who were the losers? In any case, the report informs us that hedge fund managers claim that their sole duty is to make a profit regardless of market conditions.
Boundless Greed
Of course, not every fund manager did as well as Dalio that year. That was made apparent when they ranked the top 25 managers and their total compensation sank from $22 billion down to $14.4 billion. Among the losers: the scandal-ridden John Paulson, uncrowned king of risk takers like himself. While he may have profited from betting on a price collapse in the housing market and a rise in the value of bank stocks, he suffered bitter losses when the Chinese forestry giant Sino Forest collapsed.
Developments in the banking sector are equally interesting. Bankers around the world are raking in the money as never before. It's exactly as if their unbridled greed had never plunged the world into one of the worst-ever financial crises and the ever-patient taxpayers hadn't rescued many of the banks in their clique from going broke. Just a reminder: In Europe alone, taxpaying citizens ponied up €1.6 billion (around $2.1 billion) without their governments ever asking them if they approved of the bailout.
After a brief cooling-off period, the speculation has now resumed, and the most reckless wagers are again being thoughtlessly made. There's absolutely no sign that the men (as well as a few women) are concerned with the immorality of it all, despite all the pretty words they're dredging up out of the suitcase of values they all carry. No sign whatsoever that unbridled risk-taking poses any threat to the entire national economy, something that has already been resoundingly proven. Because the fact remains that short-term success for the banks determines how much they pay their managers. That's why it must be the duty of the politicians to ensure that pay for performance — also called bonuses — will only be granted when it can be determined that the risks taken are acceptable relative to the outcome. It is totally unacceptable that there is an industry in which success is wildly rewarded, but the public is on the hook for its failures.
The forbearance of even the most patient of taxpayers has to come to an end sooner or later.