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EDN.COMMENT: Brightest and best?

Leafing through a London newspaper recently I came across an article submitted by one of the now-notorious bankers. In the public imagination, at least here in the UK, banking has become the profession that everyone else loves to hate. Some of the hostility is due to the perception that unwise banking practices were a major contributory factor in sending us all into recession. Some can be attributed to anger as that profession continues to earn substantial bonus payments; and some—let us be honest—is simply envy that they are receiving big pay-outs, and we are not. The article-writer set out the argument that his profession is essential to the functioning of our western society, that we should not be so critical, and that in handing out six- or even seven-figure pay cheques the banks are only paying the accepted rate for the job.

I have some sympathy for that point of view. Some, but not much. If the same guy was selling capacitors, or integrated circuits, he might reasonably expect to receive a commission of a few percent on the sales he generated. Therefore, the banker might argue, “I’m handling transactions of many millions: why should I not also expect a few percent in commission?” There is no logical reason—to put it in engineering terms—why the function of commission payment should scale linearly as deal-value rises: but aside from that argument, it is worth considering the proposition that all of that multi-layered financial activity is part of wealth creation in our economies.

One of the few ways to genuinely create wealth is to do what most readers of EDN Europe do every day; conceive products that someone else might want; design them; build them; and sell them in the market. And the banking sector certainly is part of that process, especially in our industry, where venture-capital funding for start-up companies is a key function. However, that sort of ground-level provision of working capital to wealth-creating companies appears to now be relegated to a tiny proportion of the banks’ activities, most of which seem to be concerned with trading obscure financial derivative products. However clever the bankers are, they cannot create money out of thin air—that’s a job for governments—so their profits and their bonuses, were you to trace them through layers and layers of financial engineering, must ultimately come from those same wealthcreating activities, in which real companies manufacture and sell real products. Viewed in this light, the gains —personal and corporate—of the investment bankers are in effect a hidden tax on the real wealth creators.

What really depressed me about the newspaper article, however, was the paragraph in which the author described the—mostly young—personnel who carry out the financial engineering as “the brightest and best” of their generation. If true, how sad that the brightest and best should be found doing nothing better than playing games of chance in what amounts to a global-scale casino. How much better might our economies perform if those people were running technologybased start-up ventures, managing established companies or—even better— replacing some of our lamentably inadequate political class?