Pennies and Dimes and the 99%

It was this time last year that I fell out of love with London.  I was staying in a three story walk-up flat, in Kensington.  Close to shops, tube, and some great pubs.  And walking distance to the Chelsea Flower Show and Q&A amongst other museums.  From my bower window I could sit in the afternoon spring sun and watch the pedestrians far below, hithering and thithering.

Kensington was dirty, and the people grasping.  The young women wore stiletto heals that were reminiscent of the foot binding days of the Chinese.  All the shops had sales, although I am not a shopper, it was noticeable that along the strip the retailers were doing it tough.  Clear signals of a weak economy. 

The fact that it rained most of the week could have also contributed to my gloom.  In one day alone we had boiling heat, torrential and flooding thunderstorm, hail, and a wind storm.  

Across the street from my flat, and a floor lower was a gorgeous apartment.  Decorated and furnished in the old English style it was immaculate, with real old world charm.  The curtains were always open as though the owner was inviting people to glance in and admire.  

The owner himself was of old world charm style, an English gentleman.  Maybe ex military, because he stood tall and ramrod straight despite his clearly many years, and groomed to within an inch.  

As I sat in the evening, it was the only time I saw him, despite having a clear view the entire length of his apartment.  At that time, he would sit beside the window and read the paper, on occasion leaning into the window as the light faded, holding up the paper.  

Maybe I am slow, but it took a few days to realise that he was using daylight to read by rather than turn on an overhead light.  And further, that I at no time when glancing out the window saw lights – either overhead or from a flickering TV – in the evening.  In the kitchen, I only ever saw tin cans on the bench, despite the inviting décor.  It took me a little time to understand that all over London some, like this elderly gentleman living in a million pound apartment, and others less fortunate, were not turning on the lights nor cooking, because they couldn’t afford it from their income.  I wasn’t just the poorer demographic.  The seemingly wealthy were suffering also.  

And maybe like this gentleman, they lived a proud existence, and told nobody for the shame.

I have written about inflation and ivory towers, in which I suggested that the governments would soon (and again) be adjusting how they measure inflation to grab back money on say, pensions.  Inflation is a number on which the whole world spins, whether measuring real investment returns, pensions adjustments, or planning for future expenditure.  

And that the western economies are experiencing stagflation, whereby the cost of essentials – food, water, energy, healthcare – are rising faster than the income on which we rely to meet these essentials.  And I don’t see how it is going to be any better for decades.  (I took my own advice and bought a farm.)

Then a month ago there was this extraordinary article, as if to prove me completely correct.  So that I am sure you have the benefit of reading it (and the following comments) here is the link in full.

http://www.bloomberg.com/news/2012-04-25/chained-cpi-switch-is-a-slam-dunk-even-in-election-year.html

I learnt various things from this article.  First, that Bloomberg now had its own editors publishing editorials.  When did that happen?  Second, that they also posted comments about an editorial.  Again, since when?  Third that Bloomberg is still getting its facts wrong.  Evan when written by the “editors” themselves, whose primary role is, after all, to edit the facts.  

Here is the opening line:  “Sadly, Congress and the White House seem incapable of agreeing on substantive measures to tackle the $10.4 trillion mountain of U.S. debt.”

Now the interesting thing about that line, is that the US debt is in fact US$15 trillion, because I looked it up on Bloomberg.  

The article then goes on (the “slam dunk” in the heading is a tip to its quality) to say that the government should switch to a Chained Inflation measure rather than the standard measure used today.  

Chained inflation is a measure, that reputedly tracks changes in consumer purchasing behaviour.  The example they use is that when the price of a granny smith apple rises, the consumer switches to the lower cost red delicious apple.  

Now, for sure you are getting the drift.  As inflation on food essentials (as an example) keeps rising, people will continuously switch to lower and lower cost products.  Cat food comes to mind, as it did to the many commentators who overwhelmingly mocked this article.  Dog bones anybody?  What inflation?

The “editors” suggested that this would save the government US$300 billion over ten years.  No suggestion how this was going to pay down the debt.  And at 0.2% it isn’t even enough to pay the interest on the debt. 

And you guessed it, the savings came from:  social security and cost of living adjustments;  pensions; and probably food stamp recipients.  The 99%. 

And again this turns to a continuing theme in this blog – penny and diming the 99% whilst the 1% carry on.  As pointed out in prior blogs, taxing the OTC derivative market, US$700 trillion and counting, just 0.1%, would raise US$700 billion.  And if the duration of the OTC market is 3 months, that would be US$2.8 trillion per year, or enough to pay off the USA debt in total plus a huge surplus using Bloomberg’s 10 year measure.  

Of course the USA is not the home to all the global derivatives, but probably a lot of them.  There would be quite a material amount in other financial centres such as London.  

And you guessed it, the Telegraph reports that that government is about to pennie and dime its citizens by adjusting how the RPI is measured.  That's the retail price index.

It reports “A reduction in RPI would save the Government up to £3bn a year on the interest payments it makes on index-linked gilts, but would also slash income for pensioners and those whose pay packages are linked to the measure.”

Like the pension for that charming elderly gentleman living in Kensington.  Or should I say, surviving, just! 

All wrong on JP Morgan

In our Pennies and Dimes blog in April, we identified that JP Morgan had US$70 trillion of derivative exposure at the end of 2011, of a total market of ~US$707 trillion.  So it had 10% of the market. 

We argued that if governments wacked these OTC derivatives onto an exchange and then taxed the market at 0.1% turnover then it would generate US$700 billion in tax revenue and is easily the slam dunk for the global debt problems (see tomorrow’s blog).  Taking it further, if the average life of each derivative was 4 months (qtr – but the total global portfolio of derivatives may well be a bit longer) then total tax revenue would be four times US$700 billion per annum = US$2.8 trillion.  Enough to bail out Italy I believe, and certainly enough to pay off some of USA government debts. 

Continuing this theme, we then blogged on the massive US$1.5 trillion in excess reserves held with the Fed by the US banks.  We raised the question “Why hoard expensive capital, with the toll on profits given there is little place to invest it with much return, unless you are (i) scared out of your wits about another mighty downturn and massive liquidity crunch or (ii) there is a lot of short term risk (OTC derivatives?) they may have but we do not know, against which they are holding this capital (and not required by prudential standards).”

And followed on with the distrust on counter parties being a rationale for this excess capital – and as it turned out for good reason.

Then of course we learnt of the rating agencies demands that (To Big To Fail) banks must hold much greater capital relative to that required for “prudential” guidelines to ensure that they have their derivative exposure covered in the event of loss.  Or indeed any margin call on their leveraged books.  Remember you and I bailed them out last time so this is a good thing.  Again, this is all about counter party risk and who gets shafted if one makes a blunder.  So we were correct on both fronts with respect to the excess capital: derivative cover and counter party risk. 

And as an aside, making the prudential guidelines for capital meaningless as clearly the market is dictating the terms of capital guidelines.

So, thennnnn………JPMorgan blows up US$2 billion.  As I said this story theme just keeps giving.  And of course it is now reported to be close to US$3 billion (in Bloomies) as the market vampires sink their teeth into the unwinding artery and suck.  Heh heh heh!!

There are several points here, again that I have not seen written about.  But first, if I had picked up this theme in April – and I am not in the market these days – then the market knew about JPM at least as early as April, and this has since been reported as correct.  

The second thing is that JPM was reputedly trying to hedge long tail risk in its book – or total portfolio.  And people have been jumping up and down about this being a hedging exercise rather than a portfolio (b/s) risk management exercise (and hence the Volker Rule in the USA must be passed).  Frankly I disagree with all of it.  There is nothing wrong with hedging your whole portfolio.  Fund managers do it by asset allocating (if they are long only) and insurance companies do it by laying off risk, either in tranches of value or tranches of time.  Perfectly acceptable.

But what possibly was happening at JPM which is unforgiveable was that it was only participating in a meme – an imitation of what is a very trendy risk management tool in investment banks at the moment: hedging out your long tail risk.  So, sadly, they were actually just doing it for trendy reasons rather than for strategic risk management.  Or maybe I am wrong and should give them more credit (no pun intended) for independent thinking.

The problem with all this is that long tail risk is meant to be covered by / with (i) today’s profits stored in reserves until the risk expires (ii) the pricing mechanism when the lending business (which in aggregate makes up the whole portfolio) is actually written, or struck.  That is, the margin above the risk free rate which is composed of credit risk, liquidity risk, etc.

So, to want to hedge your long tail risk, you should be reserving profits today AND pricing your risk (especially on long term business) correctly.  

So one of these two things at JPM must have changed if we are to give them credit for making sound rationale for hedging their long tail risk (and not just imitating the meme).   Either they are reserving insufficient capital for long tail risk, or they have miss – priced their book when the business was written.

OR we are completely wrong in all of this and they were just prop trading.  A big no no. 

But back to giving them some credit.  The (now) US$3 billion they have lost is just 0.004% of their reported derivatives exposure.  (Which leads my blood pressure to rise:  what if they had lost more?)  I mean, really, it is hardly risk taking is it?  That is, if you measure it against their total derivative exposure of US$70 trillion. And as a loss to book is concerned, it is still only 12 basis points or 0.12%.  Loose change.

Where the first problem comes in:  why do you need US$70 trillion of derivatives to protect a ~US$2.5 trillion book?  That is 28 times.  And if it is intended to be a hedge of their book rather than a punt, then it should in theory always be net neutral so it is highly unlikely – even black swan events – to be losing money.  (But you could argue that a .004% loss on US$70 trillion is virtually net neutral).

So why is everybody jumping up and down.  Frankly, I do not believe they have thought it through.  Just doing back of the envelope numbers; capital on the US$2.5 billion book would be US$250 billion assuming 10%.   So they have lost a little over 1% of capital. 

Which leads to the second: what if they lose 1% of their derivative book?  That would be US$700 billion, or nearly three times capital reserves.  So in theory, JPM would need to increase their capital base 3X to maintain an AAA counter party rating, if a 1% margin call was the criteria. 

When you are 10% of the total market – you are at multiplies of greater risk for it to move against you - whether punting or hedging.  This is the position JPM finds itself, and frankly should have been smart enough to price this illiquidity when hedging its book.  And there are other practical issues, such as the market turning for other unrelated reasons when you are in the process of placing your “net neutral” position.  I mean, their loss is so small on a relative basis, this is probably what happened, together with the market dominance risk above.

No, I think everybody is looking in the wrong direction.  Banks and other risk takers are meant to take and manage / mitigate their risk to optimise profits.  

The real problem is the scale of the derivative market.  JPM exposure (and every other bank) should have a limit on it (think of the concentration in AIG in 2008).  THAT would make them think how to use it more judiciously.  I mean US$70 trillion for US$2.5 trillion?  That’s the problem.  

Right Not to Trust (the Fed)

So we have been writing about the massive excessive reserves of the USA banks held with the Fed Reserve.  At an official rate of 0.25% (in the "prudential market" lets call it) versus more than 3% in the capital market.   The opportunity cost seemed large, let alone the US$18 trillion lost lending.  Hmmmm!!!


Excess reserves of course, is capital reserves in excess of reserves required under prudential guidelines.

We concluded that this US$1.5 trillion hoard of excess reserves was as a consequence of a loss of trust between bank counter parties and / or (ii) there is a lot of short term risk (OTCderivatives?) they [banks] may have but we do not know, against which they are holding this capital (and not required by prudential standards).

And via zerohedge we have the answer…..and it turns out we were correct.   The banks do not trust each other and the banks require substantial extra capital in the event of the credit downgrade.   A credit downgrade would trigger derivative margin calls, and those margin calls would need to be capitalised.  

For example, Morgan Stanley has just filed its 10-Q with the SEC, and shows that it requires another US$10 billion.  About another third of its current capital base.   So that in the event that it is downgraded three levels by a rating agency, it has sufficient capital to cover its margin calls.  

Let's also recall that the derivative market is reputedly US$700 trillion.  And further that Morgan Stanley, our example, is one of those Too Big Too Fail designated banks, that in the event of a failure are backed by the government.  So we know in advance that it will be bailed out.

So why call it "excess capital" Fed?  It is not excess.  It is in fact the level of capital required to maintain its  credit rating.  You could call it the amount that the banks require so that you (Fed) do not have to spend my money bailing them out.  If their shareholders are earning the revenue on these derivatives, they should carry the cost of offloading the risk as well.  [In a previous blog we also referred to reading a Federal Reserve piece on the excess reserves that frankly was a crock of.   Serious shortcomings there.]

It should be required capital to have the capacity to cover your derivative margin calls.  Looks to me like the rating agencies are doing the Fed’s job for them.  For a change, I should add.

Failed policies keep repeating

There are three policies that are decidedly proven as failures.  Failure is measured in terms of making the financial / economic / social circumstances worse than they already were when the policy was applied.  Creating gross and widespread inequalities in wealth, education and income is a social example.  

The first is a trickle down policy.  That is, cutting the tax for the rich in the hope that they will spend more and give a boost to the economy.  The USA is the master at this so can provide decades of experience on which to test the policies success or failure.  

The second is austerity policies in times of economic contraction.  Well, there are more examples than you can poke a stick at:  Greece, Ireland, Latvia, Spain, England.  The outcomes are criminal in the effect this policy has on the population’s standard of living, the possibility for economic recovery, and long term decline in social cohesion.

And the third is self regulation.  A good example of this is the financial system.  Oh, you think it is regulated do you?  Nah!!  There are boundaries, such as Basle II (and soon (III)) and “rules”, but really it is then left up to the banks to monitor their own performance to these rules.  And then we have the global financial crisis in 2007 as a consequence.  So another example of proven failure with heavy costs to the communities continuing today around the world.  The grief in Ireland, Greece, Latvia, Spain etc etc would not be occurring if not for the monumental failure of self regulation in the financial system.

Now would you believe, even though these policies have proven to fail, in the last week I have come across new policies of each being implemented?  

Let’s deal with the last one first.  In Australia, the central government regulatory body – Australian Securities Investment Commission – chairman Greg Medcraft has done an interview that suggests that they are not really a regulator, but rather a co-regulator with the financial system.  He has a ''philosophical view that industry is generally best to self-regulate and, where possible, regulators can help to co-regulate''.  And gobsmackingly further “I've taken 'protection' out of our language because I think it's better to under-promise and over-deliver.  I think just saying you protect sends the wrong message; it's up to people to take responsibility for themselves, and we will certainly help to assist them in becoming confident and informed,''

Get it?  It is all your fault if you get spived. 

But we could have guessed that this would be his “philosophy” as he was Chairman of the American Securitisation Forum for the four years as they self regulated themselves into the GFC in 2007.  That’s right, the peak body overseeing the self regulation of the USA securitisation industry that blew up the financial world.  

We can deal with the first and second policy failures together.  Because, you guessed it, in the UK they are introducing both at the same time.  Both austerity AND trickle down tax cuts.  That is robbing the general population twice at the same time.

And as for robbing the poor to pay the rich, here it is – The Telegraph reports that GBP3 billion was taken from 5 million pensioners to pay (in part) for a 5p fall in income tax for high earners.  This despite a poll which showed that 2/3 of voters wanted to keep the top tax rate according to The Guardian.  

I have written before about the trickle down effect, how it creates massive disparity in wealth and income distribution as it gives to the rich, squeezes the middle class (downwards not upwards) in Trickle Up Trickle Down and Squeeze.  .  Further how it eventually leads to trickle up austerity, where Trickle up austerity is what you get when you unrestrainedly crush the middle class with trickle down policies and fail to restrain the rich with trickle up policies (taxing the rich and giving to the poor who will spend it and therefore expand the economy).  

And as for austerity policies in the middle of an economic contraction – the evidence this is wrong is wide spread.  And of course it flies in the face of the massive liquidity injections into the financial system that are intended to make its way into the economy but which are not.  Britain can expect its living standards to contract for another five years at least.  Especially as I have written that stagflation appears to have taken hold.  Rising costs of living against falling revenue / GDP. 

But it may be best written about in The Guardian with its six year scenario.  

This is what trickle down policies will achieve for the UK.  We know because it has already occurred in the USA.  Recent data from there is analysed in www.my.budget360.com – always an interesting read.  In 2010, the top .01% income was up 37% (or an average US$4.2m); the the remaining top 1% up 56% (US$105,637) and the bottom 99% up 7% (US$80).  And that was a good year.

Failed policies keep repeating themselves, and we let them.  Why?

Deluded on Wall Street

Yesterday's blog on Mr Smith goes to Wall Street, was very much about delusion.  How long can I overlook the bad stuff;  how long can I kid myself that I didn't hear or see that,  how long can I hang in so that I am financially secure before I decide to save myself?

Some people are not deluded about what is occurring around them on Wall Street and almost any other industry you wish to name.   They just keep going either perversely or intentionally as it suits their purposes.

Today Bloomberg has published from the blogs of two of Goldman's Sach's ex employees.  Both women.  And both having a view about Mr Smith. And as noted, both ex Goldman Sach. 

One :  "who worked at Goldman Sachs for 14 years, wrote that she’s heard from “many people” in the past few years that the firm is emphasizing profits over character."  In the old days that used to be called trasactional banking.  That is focus on the transaction and the profit.  The converse in management terms is relationship banking;  whereby the relationship with the client [up to a point] is paramount relative to gouging profits from the transaction.  Transactional banking has been around for decades.

The second:  "“By tossing a verbal hand grenade on his way out the door, he sullied the reputations of the vast majority of the people at the firm who work and live by the highest possible professional standards every single day,”  and “delighted” to become a Goldman Sachs client when she started an asset-management firm, XXXXXX Capital, in 1995."

Now I wish to return to delusion.  I have been writing about that quite a bit on this blog site.  Indeed, its by-line is "Looking through the noise to the real issues".   Subjects such as how we always believe governments when they say they will honour their debt; legislating for privacy then building vast banks of data about our lives in such intrinsic depth it is impossible to be your own person;  about carbon and climate change legislation - how much they care yet license companies to explore for more oil etc when we are already past peak carbon; and the peak food and water.  Actually, please just read through my list of blogs.  It is all there.

No, what I would like to point out that in the week that Bloomberg publishes the above piece by two women from Wall Street,  it also published research that illustrates that women on Wall Street have the largest pay gap to males of any industry anywhere (in 2010, but it would be consistent over time).   It reports "The six jobs with the largest gender gap in pay and at least 10,000 men and 10,000 women were in the Wall Street-heavy financial sector. "  As low as 55c in the $1 paid to men.

Now lets return to the topic of delusion.....whoops we are still there. 

I mean this behaviour, and all the other aspects of gross conduct on Wall Street has been around for a long time.  We are all born in the megalomanic belief that the world only existed from the moment we were born, like a psycho bubble fantasy.  But we are meant to grow out of that as our eyes adjust to longer vision (bonding with more than the people exactly 12 inches from our noses) at a few weeks old, and we eventually live long enough to go to school and uni, where the whole universe and its history becomes available. 

Were you tempted to pick up the book City Boy: Beer and Loathing in the Square Mile?  About the UK Wall Street equivalent?   How about Liars Poker?  That's three decades for you.

I do not have to write my experience of investment banking, it has already been written, albeit a slight step above the standards reflected therein:  Lord of the Flies   by Nobel winner, William Golding. 

Let's not delude ourselves.  It really is like that. 

All wrong about Goldman all wrong

Well this op ed piece of the young Mr Greg Smith and his resignation from Goldman Sachs published in the New York Times.  I hope someone paid him a lot of money to do it so publicly.  Maybe a competitor?  It has been all over the media, whether the edgy blogs or mainstream.  From reputational experts, the markets, to equity analysts, or just commentators on those big nasty banks.

And you know what?  Not a single commentator got it right.  Including Mr Smith.  Which is of course a perfect name for anybody wishing to go public with grievances.

Goldman is everything he said.  Mr Smith is absolutely correct in what he says, based on my experience in international investment banking.  No, where he is wrong, is he assumes it was different or that “something” has changed.  The behaviour of Goldman has been going on for centuries in various different fields:  think of the financial institutions leading up the great crash and depression in the 1920s, from the early oil fields of Texas, to the gold rushes of Australia, to the railway scams of early last century.  To slave labour, or child labour – over the centuries until this very day.  Property developers, lawyers, accountants, across the finance industry (just read this treatise on Bank of America and its systemic corruption and admitted fraud).

It is no different to what was happening decades ago.  Back then I recall bankers calling their clients stuffees:  a party into whom you stuffed as many rotten financial products as you could.  There is much more.

Commentators have said it will hurt Goldman’s rep; it won’t hurt Goldman’s rep; they will lose clients; they will gain more clients.  You know what?  Nothing.  A big fat nothing.  Until they trip up in the money making stakes, absolutely nothing will happen to Goldman.  Okay, it lost $3b in market cap – but that is just pretend.  It will come back.  I mean, if the greatest financial crisis since the great depression, caused by Wall Street, causes a slap on the wrist, some young 33 year old hasn’t a chance.  

What this story is about is the arch of personal and professional maturity.  It is reported that Mr Smith is 33 years, but it is not clear when he finally came to this conclusion before resigning.  He may have concluded this three years ago and has been planning his resignation some years out when he was financially stable.  It seems highly unlikely that he concluded Goldman was a pile of manure (which it is) on Wednesday and resigned the next day.  No this has been planned for a while, and he has waited until he is in a position to do so.  

This apparent revelation is something that happens with every employee in the highly paid finance / legal / accounting worlds.  It usually occurs about late 20’s early 30’s depending on socialisation, intellectual maturity, and emotional intelligence.  If Mr Smith only came to it at 33, then he is weak in all three of these measures.

We start out all bright and shiny and hopeful.  Our ideologies are wanting to change the world, to contribute, make truck loads of money [which does not usually come until your thirties anyway unless you are a ‘star’].  We believe the employee codes of conduct, dutifully sign them, and conduct ourselves appropriately and work like Trojan horses.  Well most ambitious young people do – statistics suggest only about 10% at this level are corporate psychopaths, although that percentage rises the higher up the food chain you go.

We watched cowboy movies where the sherrif rode into town and ran out the bad guys.  Or Star Wars and the wise Jedi.  We believed them.   We were altruistic.

As we rise up the ladder [if we are lucky] we start to notice that the pats on the head do not come as quickly, if at all.  That it is increasingly not about merit but politics – who you know, who’s your patron, your connections.  By the time we hit our 30’s, merit as a measure of success is eroding and politics takes over.  And soon it is overwhelming.  And, as the above article on Bank of America refers:  it is about measuring penises.

Certainly by then you would have recognised that if you wish to stay you have to play.  If you want to be in the game you have to be on the field.  If you want to be on the field you have to abide by those rules and the ref. We start adjusting our personalities, overlooking things we do not agree with or push out the ethical boat until we become inured to it.  Or it is lost over the horizon.  We conform, conform conform. 

And in the end it depends on our threshold of success.  Mr Smith reached his threshold of financial success.  Some people need more money so play the game longer, and some play it to the end.  But the latter are very very few.  Maybe 2%?  I am guessing.

I think all we can conclude is that Mr Smith maybe just finally grew up, looked around, and opted out.  He was in any event on a losing team:  selling derivatives to Europe in 2011?  Please.  I mean it is not just the financial institutions Mr Smith, have a look at what someone once referred to as the murder belt.  Life is tough.  The sherrif isn't coming, and Jedi was make believe.  There is nothing new here.  I just hope you saved your pennies.  

PS Mr Smith.  Companies in America can sue for defamation.  So I hope you have your pennies in a tax haven where Goldman's has no influence.  Good luck with that. .  

Now they are eating their young

Having successfully picked the pockets of every man woman and child around the world (the 99%ers),  Bloomberg reports that Wall Street firms are considering whether to freeze pay increases for its young bankers.  

Your blogger was parachuted into investment banking at the grand old age of 30 so did not have to suffer the early years of slog and grog.  However the work habits and pressures were observed;  it was not unusual for junior analysts and capital markets guys to sleep under the desk during company reporting seasons or big IPO’s rather than take the long commute home.  Indeed, they were and are worked like mules. 

It was also an intense period as young bankers were being moulded into the culture of whichever firm for which they worked.  Regular culling hung like the Sword of Damocles over their heads as well.  Typically not always related to individual performance and often the result of economic shifts or the whims of a new boss shutting down whole divisions.  Throwing the baby out with the bath water, was literally correct.

Apparently the amounts of the pay increases were always transparent.  Bloomberg reports that pay increases have traditionally been automatic because “there are traditionally very long hours in terms of the amount of work and this is another way to try to boost their morale and signify that they’re a strong part of the firm and that they’re appreciated,”.

How do you feel appreciated if your pay increase is both transparent - so that one can observe it is the same as everybody else’s - and also automatic?  Taking this further, when even the dill down the hall (the son of a friend of an executive director, who can barely read or write) got the same pay rise as you?  

And how does that compensate for the health damage being done.  One young investment banker I knew one year took more than 100 cross border flights in the pursuit of business for his bank.  I am not sure what the limits are on pilots and stewards air kilometres, but it would seem to be a lot less than that.  

Profits at investment banks, before compensation, are typically split 50/50 with shareholders as a rule of thumb.  Bloomberg reports that around 75% of staff at an investment bank are junior bankers – let’s call them the drones – and salaries are around US$200,000 in the USA.  Which seems a lot until you consider their working and living conditions.

Looking at the big one, Goldman Sachs, Bloomberg reports that profit margins were negative for the 3Q of 2011.  It has approximately 30k staff internationally. And mid 2011, banks everywhere were rolling their staff.  Always the juniors, not the seniors, who are well seasoned.  

Bloomberg also reports for Tiffany, the eponymous trinket destination, “Sales in November and December increased about 7 percent to $952 million worldwide. That was slower than the 11 percent gain Tiffany recorded in the same period a year earlier.”

Of course it would be fairer if all staff took a pay freeze, or even a 10% cut across the board would be fairer on shareholders and staff alike.  But then they wouldn’t be investment bankers would they?  Times are tough when the elite start eating from the hands of their own youth.