You’re all not going to believe this, but people who have climbed the corporate ladder to become the CEO’s of huge companies that hold large quantities of cash at all times, have managed to convince their boards that they should be paid massive bonuses. Their luck, charm, and (oftentimes) height is just too powerful to resist.
It’s fun to dislike the banks, but should we?
There’s plenty to dislike about the banks, but there are a couple ridiculous assertions going around that have become so ingrained in the culture as almost to be accepted as fact. In this article in the Wall Street Journal, we are reminded of the public’s, and oftentimes politicians’, calls for banks to “lend more.” Here’s a fun thing to do: the next time you hear someone say this, ask them how much banks lent in the past and how much they are currently lending. Ask them what constitutes Tier 1 capital and what is considered a healthy Tier 1 capital ratio. As you can tell, I’m a hit at dinner parties…
The point is that people get angry with banks for holding onto cash instead of lending it out to “small businesses” or “young home buyers.” However, when you ask the same person if they’d lend 100 bucks to their nephew Bill, you’d get either: a) a joke about Bill’s (lack of) future prospects b) hushed silence or c) laughter.
Let’s think about the small business angle for a minute from the perspective of a five-person operation that has made a couple sales, is burning cash like Bill at the Blackjack table, but has a really great idea and an inspiring leader. If said leader’s burning passion (and good luck) reels in huge sales next year, guess how much the bank gets? Yep…nothing more than the interest rate they charged. If the next Mark Zuckerberg turns out to be Paul Ceglia (just Google it), then the bank gets 0, except for maybe the beater Paul used to secure the loan.
On top of all that, is a recession really a great time to be throwing cash at companies who want to ramp up production? Having guts (hey, its a semi-professional crowd we want here) is good, but the percentages say otherwise.
Finally, you may have heard about this one a time or two…the American mortgage market, giving loans to less than credit-worthy individuals didn’t work out so well for the economy recently.
So please…if you are out there screaming for action against bank bonuses, I’m with you (however Quixotic your quest may be). If you are telling anyone who will listen that “if only the banks would lend more…,” put your money where your mouth is. Bill is waiting.