tim's experiment

The back page of the Post’s Business section is now the only part of the paper still publishing thoughtful and controversial material, so it seems churlish to complain about any of it.  I have managed to restrain myself in the face of the little campaign being waged against 7-11, which is apparently unpopular in Lan Kwai Fong. Barflies realize that the local bars retail for $60 a drink which you can buy in a supermarket or a convenience store for five bucks. So the more frugal ones are in the habit of tanking up with a few carry-outs on the pavement outside a 7-11 before they hit the hang-outs for big spenders. This is no doubt very upsetting for Fong bar-owners, but as a reason for changing the law on alcohol licensing which affects the whole territory it seems a bit thin, not to say parochial.

More provocative, though, was a long piece this morning by one Peter Guy, who is described as a former international banker. In it he laments that American banks are being subjected to regulation designed to limit risk taking and over-generous salaries. “Arbitrarily limiting bank pay,” he says, “will drive away the smartest and most innovative people away (sic) from finance.” To which I think the shortest answer is: thank goodness. We have seen what the smartest and most innovative people can do and it produced a global financial catastrophe. Bring on the mediocrities. They can hardly be worse.

A somewhat longer answer would be that arbitrarily limiting – or indeed limiting in any other way – bank pay will not drive away the smartest and most innovative. It will drive away the people whose main motivation is greed. There are plenty of smart and innovative people in the world who are not bankers. I realize that people in the business itself need to convince themselves that their extraordinary pay levels reflect some magical quality of which they are the sole owners. But this is nonsense. People choose their careers for a variety of reasons. Perhaps if banks were not besieged by applicants who want to retire as millionaires in their 40s they could recruit some people with more idealistic aims in mind.

And this brings us to the matter of regulation generally, which in Mr Guy’s view is turning banking into a boring dead-end job. There is no mystery about this. Bankers used to be trusted. Mr Guy notes that the public now “respects lawyers more than bankers,” an alarming thought. Your banker used to be someone like your doctor or lawyer, who are bound by a code of professional ethics to put their clients’ interests before their own. Your lawyer’s recommendations should not be influenced by the prospect of fat fees and your doctor is not allowed to prolong your illness to increase his income. Bankers used to be the same. Times have changed. If you read the works of Michael Lewis, Greg Smith or Neil Barofsky it is clear that at least in American investment banks – the ones Mr Guy is worried about – the client is no longer the recipient of faithful service. He is a sheep to be fleeced. Bankers will happily sell you an instrument which is not only not in your interest; it has specifically been designed to fail so that they can make money by betting against it. Caveat emptor, as swindling TST camera shops used to say. Bankers are now regulated for the same reason that the members of other disreputable professions are regulated – because if left to themselves they get up to mischief. This is perhaps not the sort of thing that local bankers wish to read. Other denizens of the Business section might find it quite entertaining, though.