Lehman Brothers - unhappy anniversary

It's exactly one year since the media gleefully informed us that one of those big, naughty banks had got its just desserts and 'been allowed' to collapse.

Yes, as of 15/9/2008, Lehman Brothers no longer existed.

There was panic in the streets, and even more on the BBC; the end of the world?!?? What about our money?!!?

Pull yourself together, public: Lehman didn't have any of 'our' money. They weren't 'in' retail banking. They didn't have the bit where you stand impatiently behind some old dear, paying in the weeks takings from her sweet shop in coppers. They didn't offer garish plastic piggy banks to tempt young savers or overdrafts to keep students in beer for three years.

So, there were no poor old ladies and impoverished single parents who lost out due to the 'greed' of those gambling bankers, with their 'obscene' bonuses.

No, the losers were those greedy, greedy bankers. Well, some of 'em.

The only employees who came out of the collapse relatively unscathed were, ironically, those tearful evictees who appeared on television, clutching cardboard boxes of all their worldly goods (actually, mostly stolen stationary and branded souvenirs).

They were, almost without exception, junior staff, graduates and trainees. They'll all have found something else pretty pronto, with their 2.1's in Economics, and they'll have learnt that, at that stage in your career in Investment Banking, you're really just cannon fodder. Better to have lost your job through a minor historical event than as collateral damage in some budget turf war between two 'Managing Directors'.

And what of those Managing Directors? They fucking coined it, yeah? They lost all the .. er .. not-our-money .. and walked away, their expensive trousers bulging with cash, right?

Yes, they'd been awarded bonuses, and yes, some bonuses were valued at a substantial amount. On paper. In reality, the bonuses were largely in stock: shares in Lehman Brothers, 'locked-in' for years - five or ten years in most cases.

Unlike most industries, your salary doesn't go up much as you climb the greasy pole - your bonus does. Even top investment bankers don't have a salary much higher than a cabinet minister, or a senior manager in the public sector. They're in it for the end-of-year bonanza.

So, your boss tells you your bonus. So as not to upset any of the more delicate readers, let's say you earn 120 pounds a year, 10 pounds a month, and you've had a pretty bloody spectacular year, so your bonus is exactly 100 pounds.

Lovely! 100 pounds! Nearly your years' salary, all in one lump! Champagne!

Well no, actually. Look at the paperwork a bit more carefully. Of that 100 pounds, only 10 pounds is coming to you in real cash, in your next pay packet. The other 90, dear boy, has been used to buy something you didn't even know you wanted: Lehman Brothers shares.

And guess what? If you carry on in this job for another 5 years, they'll be yours to keep. Isn't that great?

So now, you can tell everybody at home that you got a huge bonus: 100 pounds! Wow! Don't forget though, that the amount dropping into your bank account is, after various deductions to Messrs Brown and Darling, just over a fiver. About the same as you bring home every month. Better than a kick in the teeth, but not quite as good as the Euromillions lottery winning levels the media like to describe.

And next year, if you're good, we'll do the same again. In fact, if you're promoted, you might get a bigger bonus: 150 pounds, even. You'll still only actually get about a fiver to spend, but your imaginary pot, up there in the sky, will be even fuller.

Most Investment Banks do this: it's a way of tying staff in, making sure they work there for ever. But what if there is no forever? What if the bank, and its shares, vanish?

And what if, because you only really got a 5 pound bonus every year and weren't very patient, you'd gone to another bank, shown them your paperwork and borrowed, oh, lets say 200 pounds, using your future shares as security? After all, you've got more than that coming to you in a few years' time, haven't you?

Well, no. As of that morning a year ago, according to Robert Peston and John Humphreys, you haven't. Not any more.

When Lehman collapsed, all that imaginary money disappeared. The bulk of all the bonuses 'paid' over the preceding five years never was. The millions the bankers were accused of taking never will be.

No need to shed any tears for the Lehman bankers, folks, but don't believe the media and the Left hype either: they didn't get their hands on 'our' money either.



Anonymous said...

Thanks for that, CF. It's good to have a bit of perspective now and then.

Rob said...

Yep, good post.

And you should be happy thay you now have the 93rd most popular political blog in the UK, but burning with righteous indignation that a prick like Tom Watson is 23 places ahead of you!

RantinRab said...

Top 100 then!



SteveShark said...

Excellent post, which more people - particularly of a leftish bent - ought to read.
So clearly and concisely explained.

No wonder you made the HOT 100.


Anonymous said...

I always wondered what the fuck was in those cardboard boxes, and why did these cunts who clearly made a bob or two in their time didnt have any rucksacks or hold alls to bring their "personal belongings" home? Now its clear it was simple thievery and looting . Suddenly it all makes sense.

Constantly Furious said...

How do I know all this?

Because some of the Lehman shares that went up in smoke were mine. :-(