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Sunday, 10 March, 2013, 2:52am
Don't blame the fat cats. Trail of cream leads back to you
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HSBC chief Stuart Gulliver. Photo: Bloomberg
Sickened by years of financial crises and reports of huge salaries and bonuses for the executives and bankers they say plunged the global economy into chaos, governments and voters around the world are moving to put the fat cats on a pay diet.
SCMP, March 8
Let's put some perspective on this howl of outrage. HSBC chief executive Stuart Gulliver, for instance, got total compensation last year of US$14.1 million or 0.068 per cent of the bank's pre-tax earnings of US$20.6 billion.
Count me among those people who wonder if he was actually worth it. I think executives of institutionalised corporations long past the entrepreneurial stage generally overrate their own importance. Entrenched interests and long-standing corporate practices have much more to do with how such big beasts are run.
But I challenge anyone to count in hard cash just how much his or her notion of the excess made a difference to living standards of HSBC depositors or shareholders.
HSBC is an institutionally held stock with hundreds of millions of end beneficiaries. If institutional investors really thought their funds affected, they would club together to force pay cuts or sell the stock.
I have seen some of them take umbrage with the bank. The last time the message was that HSBC should focus more on core businesses and less on being the biggest bank in the world. The share price tumbled, too. I have never seen it happen because of executive pay.
My message here is simple. If you are the sort of voter who wants to "put the fat cats on a pay diet" then buy some shares and vote. Small as your voice will be, it will still be louder than in any presidential election.
I think the biggest objection many people have to the levels of executive pay is a moral rather than a practical one. They are not personally interested. They are just offended that others are given the means to live so high.
I am not so sure, however, of the high living. Most senior executives don't have the time for it. They work long hours, are constantly rushing somewhere, and on vacations they rarely have enough time to wind down before it's time to wind up again.
Big home in a quiet leafy district? Yes. Beautiful seashore holiday house? Yes. Fancy car, fancy boat, fancy club, all of these, too. But, add them all up and the largest bulk of the pay is still salted away as investment, where it helps provide the capital for goods and services from which all of society benefits. Few senior executives live as high as they earn.
The moral complaint has another angle, however. It is that "executives and bankers ... plunged the global economy into chaos". This is a big charge and assumes a wide definition of chaos. Does it hold true?
If so, and if culprits there must be, I have alternative ones. Try the European Union for devising a currency without a proper backing of monetary discipline, or the US Federal Reserve Board for attempting to stave off a recession that the US economy actually wants to enter. You might also indict US politicians for stimulating mortgage financing past any level of prudence.
More than this, blame the general government practice these days of bailing out financial institutions. True, it means that you don't have to worry whether you'll get your money back if your bank goes bust. You will indeed get it back.
It also means you don't have to worry where you put your cash. Any implicitly guaranteed institution will do, even ones that pay above-average returns by taking wild risks thanks to unscrupulous executives who know the tricks. Is it really surprising that such people give themselves big pay awards? They are probably worth it in a financial system that tries to guarantee risk away.
And if you want to know who is most to blame for these side effects of government intervention, look in the mirror.
This article first appeared in the South China Morning Post print edition on Mar 10, 2013 as Don't blame the fat cats. Trail of cream leads back to you
After reading this article, people also read
joyalsofi Mar 10th 2013
11:56am
11:56am
"If so, and if culprits there must be, I have alternative ones. Try the European Union for devising a currency without a proper backing of monetary discipline, or the US Federal Reserve Board..." By all means let's set up a false dichotomy, either it's them, the fat cats or these other two, as if it couldn't be both groups and as if there couldn't be additional culprits, including the bought and paid for politicians in both the EU and the USA.
whymak Mar 10th 2013
1:09pm
1:09pm
If you take off your blinders, the ultimate culprit is the popular vote. Someone has to frame the issues du jour for an election. Who are the elites so charged? They are James Lai Chee Ying, Rupert Murdoch with the largest media assets and readerships and the rich folks who foot the advertising bills.
These media tycoons are very smart people. They will caress and pander to your dark racist and ideological passions while feeding you fabricated information to further their own political agenda.
Since there are always at least several major issues that conflict with one another, how does a voter decide on which candidate? Indeed, 90% of voters never understand the give and take in an optimization. So the candidate they pick is likely no better than the flip of a coin.
Are Italians intelligent? Of course. Then why do they vote for Sylvio Berlusconi election after election?
Are there intelligent Italians better than a cruise ship crooner and a comedian running for office? I am still looking. Democracy is all about scum floating to the top.
Unless you're willing to get past this Democracy dogma -- populist election as the only legitimate way to choose leaders -- and that it no longer possesses the same powers and legitimacy of Virgin Birth or Blessed Trinity, dysfunctional governments are here to stay.
Let you in on a secret. The majority of the world's population have dual faith: God of Abraham and Democracy.
These media tycoons are very smart people. They will caress and pander to your dark racist and ideological passions while feeding you fabricated information to further their own political agenda.
Since there are always at least several major issues that conflict with one another, how does a voter decide on which candidate? Indeed, 90% of voters never understand the give and take in an optimization. So the candidate they pick is likely no better than the flip of a coin.
Are Italians intelligent? Of course. Then why do they vote for Sylvio Berlusconi election after election?
Are there intelligent Italians better than a cruise ship crooner and a comedian running for office? I am still looking. Democracy is all about scum floating to the top.
Unless you're willing to get past this Democracy dogma -- populist election as the only legitimate way to choose leaders -- and that it no longer possesses the same powers and legitimacy of Virgin Birth or Blessed Trinity, dysfunctional governments are here to stay.
Let you in on a secret. The majority of the world's population have dual faith: God of Abraham and Democracy.
honkiepanky Mar 10th 2013
10:41am
10:41am
Jake, you have been crying wolf over the Fed's monetary policies for years now, yet U.S. inflation is low and the economy recovering. What will it take to make you admit you were wrong?
whymak Mar 10th 2013
12:14pm
12:14pm
Jake may be wrong about the Fed. But your statement, "yet U.S. inflation is low and the economy recovering," is even more wrong.
Inflation is low. But to say the economy has recovered is premature. A full recovery, best to be interpreted as the economy operating at full potential, usually occurs at 1 1/2 to 2 1/2 years after the end of a recession.
The proxy for potential GDP is full employment, or natural rate of unemployment (NAIRU). For the 2 decades before 2008 meltdown, many economists thought this number should be under 5%. Now the Fed is predicting it may not see 6% until 2016.
Jake is irate because the Fed is doing a reverse Robin Hood gig. The first order of business after the implosion is to restore the US banking system and the primacy of the dollar in global financial architecture. The purpose of forcing down not just the Fed funds rate but the entire yield curve is twofold. First, they have to rob the savers to repair the banking system's balance sheet. By trashing debt capital, Bernanke hopes to raise the expected return on equity capital and stabilize housing prices. This will in turn create a wealth effect that encourages consumers to spend and businesses to invest.
So far this effort is partially successful. But the full recovery of the economy is still nowhere in sight.
Inflation is low. But to say the economy has recovered is premature. A full recovery, best to be interpreted as the economy operating at full potential, usually occurs at 1 1/2 to 2 1/2 years after the end of a recession.
The proxy for potential GDP is full employment, or natural rate of unemployment (NAIRU). For the 2 decades before 2008 meltdown, many economists thought this number should be under 5%. Now the Fed is predicting it may not see 6% until 2016.
Jake is irate because the Fed is doing a reverse Robin Hood gig. The first order of business after the implosion is to restore the US banking system and the primacy of the dollar in global financial architecture. The purpose of forcing down not just the Fed funds rate but the entire yield curve is twofold. First, they have to rob the savers to repair the banking system's balance sheet. By trashing debt capital, Bernanke hopes to raise the expected return on equity capital and stabilize housing prices. This will in turn create a wealth effect that encourages consumers to spend and businesses to invest.
So far this effort is partially successful. But the full recovery of the economy is still nowhere in sight.
rpasea Mar 10th 2013
8:39am
8:39am
"And if you want to know who is most to blame for these side effects of government intervention, look in the mirror."
This statement could have validity if democracy really worked. The reality in the US is govt is owned by the corporations due to their lax control of election financing. The fat cats buy the elected officials in an open quid pro quo. Conservative think tanks write the legislation that the fat cats want and their legislators pass these into law. The average voter has little influence in what policies that are enacted into law.
This statement could have validity if democracy really worked. The reality in the US is govt is owned by the corporations due to their lax control of election financing. The fat cats buy the elected officials in an open quid pro quo. Conservative think tanks write the legislation that the fat cats want and their legislators pass these into law. The average voter has little influence in what policies that are enacted into law.
whymak Mar 10th 2013
11:31am
11:31am
Money talks anywhere. Airheads have a tough time facing up to facts. Winning is the only thing. For that you need boatloads of money and doctrinaire ideologues to stir up hatred for your political opponents.
How can you spin lies about your political adversaries if you can't afford to buy media time? How can you perpetrate racist slander without the protection of free speech by nincompoop judges with their own hidden political agendas?
You need advertizing airtime to tell dumb voters that you're going to give them all kinds of freebies. That's right. Both promises of entitlements and privileges to interests groups -- bribes to the electorate -- and having the fat cats backing your message are key strategies to every democracy.
In a meritocracy, George W. Bush the semi-literate couldn't even get into a decent private school, let alone Andover, Yale, Harvard B School and then elected to be the House representative, Governor of Texas and 2 terms of presidency.
Both Whigs and Tories are lapdogs of Rupert Murdoch, in case you are still unaware.
How can you spin lies about your political adversaries if you can't afford to buy media time? How can you perpetrate racist slander without the protection of free speech by nincompoop judges with their own hidden political agendas?
You need advertizing airtime to tell dumb voters that you're going to give them all kinds of freebies. That's right. Both promises of entitlements and privileges to interests groups -- bribes to the electorate -- and having the fat cats backing your message are key strategies to every democracy.
In a meritocracy, George W. Bush the semi-literate couldn't even get into a decent private school, let alone Andover, Yale, Harvard B School and then elected to be the House representative, Governor of Texas and 2 terms of presidency.
Both Whigs and Tories are lapdogs of Rupert Murdoch, in case you are still unaware.
aplucky1 Mar 10th 2013
5:17pm
5:17pm
you forgot bush was a fighter pilot
could you do it smart a s s ?
dont think so, you wish you were that semi-literate
could you do it smart a s s ?
dont think so, you wish you were that semi-literate
whymak Mar 11th 2013
3:12pm
3:12pm
You forgot that Bush never completed his training at the Air Force National Guards. Records about his AWOL are now nowhere to be found. One would think US Armed Services keep impeccable records. Poor Dan Rather never knew when he walked into a trap set by Bush loyalists.
National Guards was then the favorite refuge to dodge combat duty for draftees with rich and powerful parents. Someone pulled strings for the young constantly inebriated Bush. Like all parents, Bush Sr. and Barbara didn’t want to see their craven child to be shot at in the jungles of Vietnam.
Bush was not the high achieving Air Force cadet like you think.
Your reverence for elite American service academies is quite misplaced. The average SAT score of their incoming freshmen was between 1100 and 1200, as compared to first-rate universities average in the high 1400s. Children of my Chinese friends often score in the 1500s, frequently with perfect 800 in math.
I empathize with your position. Birds of feather flock together, so do dim wits, illiterates with foul mouths.
Perhaps you may be right after all. John McCain ranked 894 out of 899 in his Annapolis graduating class. He made naval fighter pilot. It goes to show the high level of intelligence required in this profession.
If it weren’t for the 2008 meltdown, we might have seen 8 more years of GOP presidency. Democracy is indeed a cultural wonder of mankind.
National Guards was then the favorite refuge to dodge combat duty for draftees with rich and powerful parents. Someone pulled strings for the young constantly inebriated Bush. Like all parents, Bush Sr. and Barbara didn’t want to see their craven child to be shot at in the jungles of Vietnam.
Bush was not the high achieving Air Force cadet like you think.
Your reverence for elite American service academies is quite misplaced. The average SAT score of their incoming freshmen was between 1100 and 1200, as compared to first-rate universities average in the high 1400s. Children of my Chinese friends often score in the 1500s, frequently with perfect 800 in math.
I empathize with your position. Birds of feather flock together, so do dim wits, illiterates with foul mouths.
Perhaps you may be right after all. John McCain ranked 894 out of 899 in his Annapolis graduating class. He made naval fighter pilot. It goes to show the high level of intelligence required in this profession.
If it weren’t for the 2008 meltdown, we might have seen 8 more years of GOP presidency. Democracy is indeed a cultural wonder of mankind.
caractacus Mar 10th 2013
4:14am
4:14am
Jake, your recent articles lead me to ask if you are in the pocket of some big bank of, more probably, if you are blind, deaf, dumb and stupid. The economic changes in the last 30 odd years have taken economic power away from the majority and put it in the hands of the elite. The disastrous post 2008 saga is only a symptom of a new, unrestrained Capitalism, a.k.a. globalisation. The modern political acolites of Friedrich Hayek, beginning with Margaret Thatcher, the supremely ignorant Ronald Reagan and his then young, neo conservative acolites perverted Hayek's theories and allowed capital to flow from their own and friendly, allied countries to China, whose ambitions are inimical to the West - all for short term profit without regard to long term economic security. The strength and, at the same time, strategic weakness of capitalism is that the first duty of a Board of directors is to its shareholders. In the case of China, Western corporations have invested capital, technology and know-how which has empowered a nation whose psyche is essentially racist and hostile to foreigners. Lenin said "One day the Capitalists will sell us the rope which we shall use to hang them."
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