Food fight!For those of you Dear Readers who nodded sagely at my most recent posts on the issue of banker pay, murmuring to yourself, "But of course. No-one could disagree with that clever chap TED, could they?," I have news for you.
Apparently Martin Wolf of the FT took umbrage at my scurrilous attack on his opinion piece on the topic today, and our little disagreement has spilled over onto the pages of FT Alphaville's comment section. I am sure that left to his own devices, Mr. Wolf would never have even known about my little drive-by blogging, much less respond to it. Nevertheless, those clever geezers at Alphaville saw a chance to stir the pot and generate more page views, so they incited Mr. Wolf to comment by drawing attention to one of the least flattering things I had to say about him in my post. (Naughty naughty, Mr. Murphy.)
Faithful Readers will already know that, because I cannot be bothered to defend my own irresponsible and intemperate jeremiads in these pages and because I do supposedly have a day job which normally consumes the bulk of my waking hours (except, sadly, in times like these), I do not offer a comments section on this weblog. I think it only fair, however, to share with you here a little of the badinage Mr. Wolf and I have exchanged as of this writing, if only so you can see how I defend the interests of my fellow financial parasites in a more public, and shall we say, more exalted forum.
So herewith is a direct transcription (copy and paste, for you youngsters) of our exchange for your amusement. Should you wish to see the original Alphaville post and its entire range of comments, you can do so here.
Martin Wolf's comment on my blog entry, posted at 16:32 GMT:
I really enjoyed Epicurean Dealmaker’s “hysterical and ranting” contribution.Indeed, to be called hysterical or ranting by this person is almost an honour.
I think he makes only one point that is worthwhile: investors desired high returns. How surprising! But, of course, the institutions made next to no effort to tell them that they couldn’t have these returns without taking on substantial additional risks.
Yet the heart of his contribution contains the following logic: Wolf’s proposal is unnecessary because it already happens; Wolf’s proposal is a mistake because it will impose massive and costly intervention in these institutions.Does this make sense to anybody else?
If we could abandon regulation of the financial system, that would be wonderful. But we can’t (for compelling reasons). So surely we must focus on incentives facing decision-makers, instead.
My response, posted at 17:46:
I will address Mr. Wolf’s comments point by point.
1) I am delighted and honored to confer hono(u)r wherever and whenever it is deserved. I am afraid, however, that Mr. Wolf appears to confuse my sarcasm, humor, and frustration with his article with the hysterical ranting I accuse him of. I concede that Mr. Wolf wrote a serious opinion piece in a serious publication, rather than a sarcastic hatchet job in a little-read, self-published weblog, but for that very reason I–and I assume many others–did and should hold him to a higher standard of argument than he demonstrated in his piece.
Really, Mr. Wolf, an unbiased observer (if he or she could be found) would find it hard not to conclude from a reading of your article that its tone and language is highly intemperate and inflammatory, given the facts at hand. Had I the time, energy, and inclination, I could write a lengthy response to your original article rebutting almost every statement you make, based on the facts as I know them, if for no other reason than to disabuse the less-informed among the FT’s readers of the facile exaggerations, elisions, and half truths scattered throughout.
2) Since when in bloody hell are the intermediaries in any financial system supposed to tell investors “they couldn’t have these [high] returns without taking on substantial additional risks,” as you say? Are we supposed to assume that every institutional investor out there is completely ignorant about the absolutely primary, fundamental fact about financial markets: that risk is inextricably entwined with return? Do not forget: it was supposedly sophisticated institutional investors which piled into “AAA”-rated CDOs, ABMSs, etc. 2007 is not 2000, when arguably clueless retail investors bought dot com fantasies based entirely on the recommendation of Wall Street analysts.
If these investors were too bloody stupid, or too bloody greedy, to wonder how and why supposedly AAA securities could consistently deliver market-beating returns, then I say it serves them right. Your comment smacks far too much of the unfortunate tendency among many investors to blame anyone but themselves for their own mistakes, and I for one won’t have it.
3) Well, yes, if you actually stopped to think about what I wrote in my two posts on the subject. First, yes, most major financial institutions already have long-term compensation schemes which tie bankers’ economics to the long-term health of their organizations. Second, and therefore, why would you propose to insert the government into a system which is already in place?
Government regulators, by your own example, have historically tried to regulate the financial services industry from the rear, and in many cases have worsened perceived problems by their very intervention. You may have faith in the perspicacity and effectiveness of regulators, but I have serious doubts. I would point out that it was your otherwise excellent FSA and the BoE which helped greatly to turn Northern Rock into a shambolic mess, and I would venture that both institutions lead by miles over our own SEC and Fed.
Furthermore, if you concede the fact that long-term compensation schemes already exist in the industry, I wonder that you still think they would be a panacea for the system’s current ills. Unless you are proposing–I shudder to think–that bankers’ compensation should be tied somehow to the performance and long-term health of the financial and economic system itself. If so, you should be receiving inquiries shortly from Vladimir Putin and Wen Jiabao about new openings in their Ministries of Finance.
4) I am all for regulation, believe it or not. I am firmly of the opinion that abandoning all regulation of the financial system would be a catastrophic error, as it would be for abandoning regulation of any significant part of the global economy. I just want to see sensible regulation, done with a light hand, that responds to and guides change and innovation in the industry in a measured manner. This has less to do with my (real) mistrust of the effectiveness of regulators than with the incontrovertible fact that no-one, including the bankers at the heart of it, knows how the global financial system will continue to evolve.
For now, I say everyone should take a deep breath, identify and acknowledge the mistakes that have been made (especially by oneself), and work together in a sensible, measured manner to find our collective way out of this.
For I assure you, Sir, that the old saying coined by one of the leaders of my country’s secession from yours so many years ago rings as true now as it did then:
“We must all hang together, or assuredly we shall all hang separately.”
Stay tuned to Alphaville to see if Mr. Wolf responds.
Now, really, I do have to get back to work.
© 2008 The Epicurean Dealmaker. All rights reserved.
