‘No one becomes an investment banker to save the world’

During my twelve year career in the City as a high-ranking stockbroker there was only one concern that ever entered my twisted brain – just exactly how big was my bonus going to be.

This was not just because I was a greedy, selfish idiot … though those facts played their role. We in the City were told incessantly that there was an ‘efficient market’ and that the price of an asset was a true reflection of its worth. Hence, the bonus we received each January was not just the opportunity to buy another Ferrari; it told me exactly how the market judged my brilliance.

It is the equivalent of entering a vast gold-plated casino and being told to gamble willy-nilly with someone else’s money

No-one becomes an investment banker to save the world, fulfil their creative ambitions or impress their arty friends. You do so in order to make as much cash as quickly as possible. You make a conscious choice to sell your soul to Beelzebub but unlike all the other slave-wage suckers out there you demand a damn fine price for yours.

It is the equivalent of entering a vast gold-plated casino and being told to gamble willy-nilly with someone else’s money. Your senior colleagues tell you early on that you will win a portion of any successful bets you make (in the form of a bonus) whilst the losses have no impact on your wallet.

You are also informed that the luxurious casino you’ve luckily found yourself in is likely to close at any minute because “the good times are definitely coming to an end soon”.

What is the logical strategy when told these harsh realities? Quite simply, you must gamble like a crazed lottery winner who’s got twelve months to live. Sprint to the roulette table, place all your money on red and to hell with the consequences.

Your senior colleagues tell you early on that you will win a portion of any successful bets you make (in the form of a bonus) whilst the losses have no impact on your wallet.

But it’s not just reckless, short-term gambling that such a scenario engenders. The more ruthless amongst you will sit back and decide that you can cheat the system by trading on inside information or spreading false rumours.

If you’re only working in equities, or commodities or forex, you can perhaps double your salary through this skulduggery, but if you were lucky enough to be working in mortgage-backed securities in the mid-noughties you had the opportunity to pull “the big score”.

You were able to give your ignorant bosses the impression that you’ve raked in millions for your bank by inventing and trading “collateralized debt obligations”. Through clever accounting you can pretend that you’ve made your bank millions and so rake in massive bonuses despite the fact that you know full well that these toxic loans are bound to explode at a later date because housing bubbles don’t last for ever. You simply don’t care.

You’ve fooled the system and are going to get at least four or five huge end of year pay days that mean you can retire as soon as the whole house of cards comes crashing down.

This, I’m afraid, is exactly what has happened at the beginning of this millennium.

The short-term, asymmetrical nature of the investment banks’ bonus system means that ruthless, savvy bankers had no qualms about infecting the world with over a trillion dollars of dodgy loans backed up by mortgages that poor Americans simply couldn’t afford. They exploded and created a recession that led to millions losing their jobs but the bankers didn’t care because the money kept rolling in before it became clear that the emperor was wearing no clothes.

That’s why there has to be a change in the way the City works and, I’m afraid, as the state-owned RBS hands out almost £1bn in bonuses in doesn’t look like there is.

Unless the banks’ incentive system is made to encourage longer-term thinking and reduce the benefits of short-term, reckless gambling and cheating we will have another banker-based crisis over the next decade … and if that happens then surely this time there will be blood on the streets!

Geraint Anderson is a former City analyst and author of Cityboy: Beer and Loathing in the Square Mile.